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Littlewoods: the compound interest saga continues

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Next month, the Supreme Court will hear an appeal brought by HMRC against Littlewoods, in the latest instalment of a long-running dispute over the quantum of interest payments on a tax refund dating back 30 years.
Many who have followed this case will be aware that from 1973 to 2004 Littlewoods overpaid £204m in VAT to HMRC. HMRC has repaid this sum together with statutory simple interest of £268m under VATA 1994 s 78. Littlewoods seeks to recover in restitution compound interest or more accurately: the time value of the sums which were overpaid to HMRC, which Littlewoods claims exceeds the simple interest paid in the order of £1bn. 
The case has already been heard by number of judges including Vos J and Henderson J at the High Court (Littlewoods No. 1 [2010] and Littlewoods No. 2 [2014]) and by a panel led by Arden LJ at the Court of Appeal (Littlewoods Retail Ltd and others v HMRC [2015] EWCA Civ 515). At an early stage a number of questions of EU law were referred by Vos J to the Court of Justice of the European Union (Case C-591/10).
Crucially for Littlewoods, the Grand Chamber of the CJEU held that EU law provided that taxpayers must be reimbursed for tax collected in breach of EU law together with interest thereon. However, it held that it is for national law to determine, in compliance with the principles of effectiveness and equivalence, whether the principal sum must bear ‘simple interest’, ‘compound interest’ or another type of interest.
In May 2015, the Court of Appeal held that Littlewoods had not received an adequate remedy as a matter of EU law and so the UK law had to be disapplied in favour of the EU law rights available to Littlewoods. EU law did not merely require the provision of a remedy which met the description ‘interest’. The taxpayer was entitled to reimbursement of the amounts paid to the state or retained by it, which included losses constituted by the unavailability of sums of money. So Littlewoods succeeded and the Court of Appeal affirmed the decision of Henderson J in the High Court.
No doubt many will be tuning into Supreme Court TV to see how their lordships rate Littlewoods’ arguments, which have so far been very successful.
There is clearly a great deal of money at stake (probably billions) because of the many tax cases (not just VAT) where taxpayers have been repaid tax because of the UK’s breaches of EU law. Those that have made similar restitution claims are waiting to see if they are entitled to compound interest on the tax already repaid. 
In this case, HMRC contends that simple interest provides an ‘adequate indemnity’, not least because it exceeds the value of the principal sum refunded by over 23% and, as such, cannot be considered so low as to deprive the EU law right of any substance. The question is whether this is an effective remedy that complies with EU law.
The judgment of the Supreme Court will be eagerly awaited. No doubt if Littlewoods does succeed, HMRC will be doing everything in its power to seek to resist paying out the other claims or applying the 45% tax on interest repayments to any claims that are paid. It will therefore be interesting to see how this area of law and remedies develops. 
Giles Salmond, Eversheds Sutherland (
Issue: 1359
Categories: In brief