HM Revenue & Customs (HMRC) is seeking to overturn a ruling by the Court of Appeal that upheld the claim of retailer Littlewoods, which is demanding a £1bn pay out for compound interest it says it is owed on tax refunds dating back 30 years.
However, if the Revenue fails in its appeal then thousands of other firms could be owed billions of pounds at a time when the Government is aiming to cuts spending by public bodies such as HMRC. The department is appealing because it believes that the Court of Appeal decision is “at odds with how parliament intended value added tax (VAT) tax laws to work”.
However, Littlewoods disagrees with the department’s views and issued a statement saying that the court ruling was the “logical consequence” of a historic overpayment after the incorrect collection of VAT for 30 years. The statement added that the firm’s directors were “duty-bound to ensure that the company and its tens of thousands of current and former employees are not disadvantaged as a result of the overpayment of VAT”.
Littlewoods has already received a refund for £204m of VAT that was wrongly levied between 1973 and 2004 on commissions paid to its agents who distributed mail-order catalogues and has also received £50m of simple interest on the refund. However, the firm’s point is that it should have received compound interest charged on interest already earned and not just simple interest.
If HMRC loses this case and the others it is fighting on business tax issues, it estimates that the possible cost to the department will be £29bn. It has also made provision for £5.4bn of claims over the next five years relating to legal cases it expects to lose.
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