Manchester United football club is the latest organisation battling HMRC over compound interest on VAT.
The club has begun legal action in a bid to recover more than £300,000 in backdated payments relating to VAT payments on its stock market flotation in 1991. HMRC has already refunded £61,000 to the club in VAT and ‘simple interest’, but bosses are claiming compounded interest is still owed.
“This case is the tip of the iceberg and thousands of businesses could have a case for claiming compounded interest on their VAT refunds,” warned Rachel Murphy, head of tax at accountancy firm Hurst.
The Manchester United case follows a recent High Court victory by retailer Littlewoods, which successfully pursued £200m in backdated repayments from HMRC in an initial hearing – although this is now being referred to the European Court of Justice (ECJ), which will hear the case in July.
“Although there have been a number of cases on the subject of compound interest which HMRC has won, another judge could look at the point again and come to a different conclusion,” said Murphy.
“The outcome of the Manchester United case could be significant for small businesses who are struggling to come out of recession.”
It’s thought to be one of a few thousand similar claims currently being made against HMRC in the High Court. According to a recent Financial Times report, the Treasury has set aside £5bn to deal with claims for VAT refunds that stem from a government breach of EU law more than a decade ago.