HMRC have published the above brief outlining their position following the High Court judgment in Littlewoods Retail Ltd which found against HMRC and decided that Littlewoods claim for additional interest succeeded in full.

In HMRC's view, this finding was based on the ‘exceptional’ circumstances specific to the Littlewoods claimants and does not provide a clear basis that could be applied to other claimants or a formula for doing so. As a result, it is HMRC's view that no payments are due to other claimants at this stage.

In this particular case, Littlewoods Retail Limited and Others claimed a refund of overpaid VAT in respect of commissions on mail order sales. This VAT was repaid together with simple interest due under VAT Act 1994. The claimants then argued that the interest already paid to them was not adequate and that they were entitled to compound interest both as a matter of European Community law and also as a matter of English domestic law.

HMRC's view is that there is no Community law right or domestic law right to compound interest and that section 78 of VATA 1994 provides an exhaustive statutory scheme by which only simple interest is payable.

The High Court ordered a reference to the Court of Justice of the European Union (ECJ) for a decision as to whether Community law required payment of compound interest. The judgment of the ECJ was delivered in 2012 with that Court ruling that there is no EU Law right to compound interest and the matter was then returned to the UK Courts to determine whether the UK's interest provisions comply with general EU principles.

The issue was heard in the High Court late last year with the Court considering the implications of the ECJ judgment and, in addition to the national rules for payment of interest, the Court considered the quantum of any amount due if simple interest was found not to be adequate. The High Court found compound interest to be due as claimed taking into account the ‘exceptional’ circumstances of Littlewoods situation. The Court also held that that the current statutory provisions relating to VAT did provide an appropriate amount of interest in many cases.

HMRC does not agree with the judgment and considers it to be at odds with the requirements of European law and how Parliament intended VAT law to work. Accordingly, HMRC has received permission to appeal the judgment to the Court of Appeal.

HMRC's position in relation to Tribunal appeals is unchanged, namely that these should continue to be stood over until there has been a final determination as to the availability of compound interest in the United Kingdom. Any new requests for compound interest will continue to be refused.

HMRC will reconsider their position in the event that their appeal to the Court of Appeal is unsuccessful.