VAT repayments – compound interest
An important VAT case has recently been heard in the High Court. Although the claimants (a group of motor dealers) ultimately lost their case this judgement may have far reaching implications for many taxpayers.
This case follows the important House of Lords decision in Sempra Metals which held that compound interest was generally available in damages and restitution claims. However, this judgement applied to corporate tax (rather than to VAT).
The current case involved a group of motor dealers who were seeking compound interest under section 78, Value Added Tax Act 1994. The issue was whether motor vehicle dealers who have overpaid VAT were entitled to recover from HMRC not only the VAT overpaid but compound interest as well.
HMRC ultimately won the case on a specific point relating to time limits but lost the substantive argument in respect of compound interest. The High Court ruled that taxpayers who claim overpaid VAT are in many cases entitled to compound (rather than simple) interest. The High Court in its judgement commented that “the claimants would in my judgment be entitled to compound interest calculated along the same general lines as in Sempra.”
This judgement is likely to open the floodgates for compound interest claims although HMRC’s likely response to such claims is not yet known.