High Court lets Treasury off the hook on VAT refunds, but appeals loom

Ministers are are breathing a sigh of relief after a landmark High Court ruling appeared to indicate that the Treasury will not have to find billions of pounds to pay additional compensation to businesses it has accepted are owed refunds of value added tax (VAT).

In a test case, brought by Littlewoods, the high street retail chain, the High Court ruled that while HM Revenue & Customs would have to pay interest on the £200m that it has already accepted is owed to the company as a VAT refund, its liability is limited. The bill will now be calculated with simple interest added to the VAT refund, rather than compound interest.

That precedent is set to save the Treasury sizeable sums because the bill for refunds of overpaid VAT already runs into several billion pounds. While money has been set aside to pay compensation for VAT overcharged since 1973 because of an inadvertent breach of European Union law, the Treasury has always insisted it should pay simple, rather than compound interest. Had it lost the Littlewoods case, therefore, the cost of the VAT refunds would have presented taxpayers with potentially huge costs that have not been planned for in ministers' current financial projections.

George Bull, head of tax at Baker Tilly, the accountancy firm, said the ruling was consistent with other judgements handed down in recent months. In particular, a group of motor dealers who had hoped to claim compound interest on tax refunds they are owed was told by the Court of Appeal that they had run out of time to pursue their case.

Despite this, HMRC is not yet in the clear.

Some aspects of the Littlewoods case may yet be appealed to a higher court, with the High Court due to rule next month on whether parts of the judgement should be referred to the European Court of Justice. A related ruling on a different case is also due in the Court of Appeal, where a group of complainants is fighting for compound interest payments on a different basis.

Mr Bull warned: "The Treasury can breathe a sigh of relief following the High Court and Court of Appeal rulings, but the fight is not yet over for taxpayers to assert their right to compound interest." Final clarity on the issue may take as long as two more years to arrive, with the European courts not expected to issue their rulings on the outstanding questions before the end of 2011 or even mid-2012.

Start your day with The Independent, sign up for daily news emails
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Recruitment Genius: Sales Assistant / Buyer

£15000 - £17000 per annum: Recruitment Genius: This company offers a range of ...

Recruitment Genius: Customer Service Advisor

£15000 - £16000 per annum: Recruitment Genius: Customer Service Advisors are r...

SThree: Trainee Recruitment Consultant

£20000 - £25000 per annum + OTE £45K: SThree: SThree were established in 1986....

Recruitment Genius: Compliance Manager

£40000 - £60000 per annum: Recruitment Genius: A Compliance Manager is require...

Day In a Page

Is this the future of flying: battery-powered planes made of plastic, and without flight decks?

Is this the future of flying?

Battery-powered planes made of plastic, and without flight decks
Isis are barbarians – but the Caliphate is a dream at the heart of all Muslim traditions

Isis are barbarians

but the Caliphate is an ancient Muslim ideal
The Brink's-Mat curse strikes again: three tons of stolen gold that brought only grief

Curse of Brink's Mat strikes again

Death of John 'Goldfinger' Palmer the latest killing related to 1983 heist
Greece debt crisis: 'The ministers talk to us about miracles' – why Greeks are cynical ahead of the bailout referendum

'The ministers talk to us about miracles'

Why Greeks are cynical ahead of the bailout referendum
Call of the wild: How science is learning to decode the way animals communicate

Call of the wild

How science is learning to decode the way animals communicate
Greece debt crisis: What happened to democracy when it’s a case of 'Vote Yes or else'?

'The economic collapse has happened. What is at risk now is democracy...'

If it doesn’t work in Europe, how is it supposed to work in India or the Middle East, asks Robert Fisk
The science of swearing: What lies behind the use of four-letter words?

The science of swearing

What lies behind the use of four-letter words?
The Real Stories of Migrant Britain: Clive fled from Zimbabwe - now it won't have him back

The Real Stories of Migrant Britain

Clive fled from Zimbabwe - now it won’t have him back
Africa on the menu: Three foodie friends want to popularise dishes from the continent

Africa on the menu

Three foodie friends want to popularise dishes from the hot new continent
Donna Karan is stepping down after 30 years - so who will fill the DKNY creator's boots?

Who will fill Donna Karan's boots?

The designer is stepping down as Chief Designer of DKNY after 30 years. Alexander Fury looks back at the career of 'America's Chanel'
10 best statement lightbulbs

10 best statement lightbulbs

Dare to bare with some out-of-the-ordinary illumination
Wimbledon 2015: Heather Watson - 'I had Serena's poster on my wall – now I'm playing her'

Heather Watson: 'I had Serena's poster on my wall – now I'm playing her'

Briton pumped up for dream meeting with world No 1
Wimbledon 2015: Nick Bollettieri - It's time for big John Isner to produce the goods to go with his thumping serve

Nick Bollettieri's Wimbledon Files

It's time for big John Isner to produce the goods to go with his thumping serve
Dustin Brown: Who is the tennis player who knocked Rafael Nadal out of Wimbeldon 2015?

Dustin Brown

Who is the German player that knocked Nadal out of Wimbeldon 2015?
Ashes 2015: Damien Martyn - 'England are fired up again, just like in 2005...'

Damien Martyn: 'England are fired up again, just like in 2005...'

Australian veteran of that Ashes series, believes the hosts' may become unstoppable if they win the first Test