In Littlewoods Limited and others v HMRC [2017] UKSC 70¸ the Supreme Court has found in favour of HMRC and decided that simple interest is adequate indemnity for a Fleming VAT claim.
This case has been ongoing for 10 years, has been to the High Court, the Court of Appeal, the European Court and finally, to the UK Supreme Court.
The case relates to the EU law requirement that where there has been a breach of EU law by HMRC, the taxpayer should be given ‘adequate indemnity’.
In Fleming claims, UK law is found to be incompatible with EU law and large VAT claims, dating back many years, are claimed. HMRC pay simple interest on these amounts.
Littlewoods made a VAT error correction claim and were repaid £205m of VAT, dating back to 1973. HMRC paid £268m in simple interest.
Littlewoods calculated that they should be paid £1.25bn in compound interest, either under common law, or due to the rules on unjust enrichment.
The Supreme Court has found that:
- Statute provides specifically for simple interest, implying that common law cannot apply.
- Simple interest is applied consistently across member states of the EU.
- The size of the VAT recovered and interest thereon, dating back several decades, is due to circumstances that could not have occurred in most other EU member states.
The Supreme Court determined that the payment of simple interest has not deprived Littlewoods of an adequate indemnity.
HMRC had estimated the exposure to this and other compound interest claims at £17.5bn: the decision to find in HMRC’s favour will be a huge relief for the public purse.
Links
VAT reclaims and unjust enrichment
External link: Littlewoods Limited and others v HMRC [2017] UKSC 70
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