HMRC victorious in £1.25bn VAT dispute with Littlewoods

The Supreme Court has ruled HMRC will not have to pay retail company Littlewoods £1.25bn in relation to VAT overpayments, in the final culmination of a legal battle that has spanned over a decade.

The Barclay brothers-owned company overpaid millions in VAT to HMRC over the period 1973 – 2004. The taxman repaid Littlewoods the £205m sum along with simple interest of £268m in the following years.

Littlewoods then took legal action seeking £1.25bn in compound interest from HMRC as restitution for the “mistake of law” or “unlawfully demanded tax”, which the Supreme Court has unanimously dismissed.

The Court meanwhile allowed an HMRC appeal to an earlier ruling that said denying Littlewoods compound interest was in violation of EU law.

A spokesperson for HMRC said: “This is a great outcome for the UK taxpayer. The Supreme Court’s confirmation of HMRC’s understanding of EU and UK law on the payment of interest on VAT repayments will protect billions of pounds to fund the UK’s public services.”

This will be a precedent-setting case, as an adverse ruling for HMRC would have galvanised thousands of other companies to pursue similar claims. The Supreme Court judgement stated that 5,000 similar claims relating to VAT are stayed pending as a result of this ruling.

Andrew Hubbard, tax consultant at RSM commented that the judgement would be an immense relief to HMRC.

He added: “The latest HMRC accounts revealed there were 19 ongoing cases in which HMRC was potentially liable to make tax repayments exceeding £100m – with the total contingent liability reaching almost £19bn.”

A spokesperson for the Barclays brothers commented: “This is a disappointing outcome. Having succeeded in the high court, the European court of justice and the court of appeal in a long process lasting over a decade, we are surprised by the supreme court’s decision.”

However, the brothers confirmed that this ruling would “draw a line under this case.”