Court of Appeal Ruling: Compound interest payable on VAT overpaid

21 May 2015

Last week the Court of Appeal upheld the High Court judgment in the Littlewoods Limited VAT case. The case concerned if and when compound interest is payable on VAT overpaid by the taxpayer where it was originally paid over to the tax authority (HMRC) in contravention of EU VAT laws.

The Court of Appeal sided with Littlewoods in ruling that the taxpayer was entitled to ‘adequate compensation’ from the tax authority. In this specific case,  ‘adequate compensation’ was recognised as compound interest.

This decision is likely to have a significant effect upon how HMRC deal with overpayments of VAT in the future. As such, it is our consideration that HMRC will want to pursue a policy shift and therefore appeal the decision.