HMRC Victorious in VAT Dispute Over Compound Interest

Coins and plant, Successful investment.

HMRC has succeeded after a decade-long battle with department store, Littlewoods over compound interest.

Between 1973 and 2004, Littlewoods overpaid millions in VAT and, although they were refunded the sum plus simple interest, they took legal action seeking compound interest for the “mistake in law”.

The law states that ‘where a taxable person has overpaid VAT, or under-deducted input tax, due to an HMRC error, they would be entitled to claim interest on the amount at the applicable rate for the relevant period,’ limited to four years. The HMRC view this as simple interest, but Littlewoods argued that it was not adequate and believed they were entitled to compound interest under both EU and UK domestic law.

This decision will affect thousands of businesses who have/wanted to pursue similar claims.

If you have any questions in relation to any of the issues raised in this blog post, please contact our team of VAT specialists who can help you to understand your position and what actions are available to you.

Please note: This article is a commentary on general principles and should not be interpreted as advice for your specific situation.

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