HMRC victorious in £1.2bn Littlewoods VAT saga

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HMRC has finally triumphed in a long-running VAT battle against the Barclay brothers, owners of retail firm Littlewoods, with the Supreme Court ruling that the tax authority will not have to repay £1.25bn in interest.

If the twin brothers had won their case, the backlog of more than 5,000 similar cases could have resulted in the government being forced to pay out up to £17bn.

Littlewoods had already received more than £470m after HMRC accepted in 2004 that there had been incorrect VAT treatment of commissions paid to the company’s regional agents between 1973 and 2004. This led to an initial settlement of £205m and simple interest of £268m.

However, the retailer argued that the amounts repaid by HMRC should be calculated using compound rather than simple interest “as restitution of tax unlawfully demanded”, claiming that the Crown benefitted from what was in effect a "huge interest-free loan”.

In July 2012 the European Court of Justice (ECJ) ruled that it was for a British court to determine the interest in such cases, so the matter was returned to the High Court in London.

On Wednesday the UK’s highest court ruled rejected Littlewoods’ appeal against a ruling that it was barred from making a claim for the £1.25bn under English common law.

The supreme court also allowed an HMRC appeal against a ruling that found denying Littlewoods compound interest was contrary to EU law.

An HMRC statement called the verdict 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,” continued the statement.

A spokesperson for the Barclay brothers called it 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.

“Given the importance of the legal issues and the sums at stake, we felt a duty to pursue this to its ultimate conclusion.”

The statement concluded that the brothers will now finally “draw a line” under the case.

‘Immense relief’ for HMRC

Commenting on the supreme court judgment Andrew Hubbard, tax consultant at RSM said that it would come as an “immense relief” to HMRC and the UK taxpayer.

“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,” said Hubbard.

“The Littlewoods case was by far the biggest and this judgment will effectively put a stop to a potential 5,000 follow-up claims for repayment of compound rather than simple interest.

“This case has been ongoing for years and has no doubt caused many sleepless nights for the incumbent chancellors. I wouldn’t be surprised if champagne corks are heard popping in the Treasury as a result.” 

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