The Supreme Court has ruled against Littlewoods’ claim for £1.25bn of interest in relation to a settled claim for overpaid VAT, completely overturning the decision of the Court of Appeal which had found in favour of Littlewoods on all counts.
The Court has ruled that the statutory interest received by Littlewoods under the VAT Act was an adequate remedy for the loss of use of the money. In reaching this decision, the Court has determined, firstly that Littlewoods common law claim was excluded by s78 as to allow a common law remedy as Littlewoods claimed, ran counter to the clear intention of parliament in placing limitations on interest paid under s78.
The Court acknowledged that it must also consider Littlewoods’ rights under EU law to reimbursement both of overpaid tax and all sums directly relating to that tax including the costs of being deprived of the use of the money. Littlewoods had measured that cost by reference to the benefit to the UK Government of having the use of Littlewoods’ overpaid tax over the period since 1973 using the cost of Government borrowing compounded. The European Court had previously ruled that any remedy must give “adequate indemnity” to the taxpayer – but contrary to the Court of Appeal, the Supreme Court considered that the statutory remedy met that test and did not require “full reimbursement” as Littlewoods contended and that the UK statutory simple interest provisions were consistent with the remedies offered in many other EU member states.
In reaching this conclusion the Court seemed influenced by a number of factors:
- that Littlewoods had already received statutory interest of 125% of the overpaid tax;
- that the circumstances giving rise to a claim for overpaid tax over such a long period (the Fleming decision and the extended transitional period) were very unusual.
The Court seems to have chosen to ignore the fact that, when very long time periods are involved compounding has a very significant impact, as the size of Littlewoods’ claim demonstrated.
This decision is another nail in the coffin for taxpayers seeking remedies under common law in cases where they argue that the statutory remedy is inadequate. We have already seen the Supreme Court rule that a customer who has borne the burden of incorrectly charged tax has no common law claim against HMRC and must instead claim against the suppliers who would in turn be bound by the limitation periods in the VAT Act which were compatible with EU law and there for the protection of the public finances ( (Investment Trust Companies in liquidation).
The judgement can be found here. https://www.supremecourt.uk/cases/uksc-2015-0177.htm