Advocate General's opinion in Littlewoods (C-591/10) - protecting your entitlement to VAT compound interest claims

Littlewoods article tax journal

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On 12 January 2012, Advocate General Trstenjak will deliver her opinion in Littlewoods (C-591/10), the lead VAT compound interest case, following the hearing before the Court of Justice of the European Union (CJEU) on 22 November 2011. The case concerns whether UK taxpayers can claim higher rates of compound interest on VAT reclaimed from HM Revenue & Customs (HMRC) than the simple interest ordinarily payable under the VAT Act. As such, there may be an opportunity for your business to file protective VAT compound interest claims in anticipation of the outcome of the case.

Understanding compound interest

In the Littlewoods case, the CJEU needs to decide whether repaying the VAT, plus simple interest, is a sufficient remedy when a business has overpaid VAT due to a breach of European law. The report of the hearing before the CJEU gives an insight into the representations made by the intervening member states and the European Commission. The UK isn't alone in denying liability. But the Commission’s view is that simple interest may be sufficient only if it provides adequate compensation for the loss of the use of the money and there isn't a more generous remedy available in relation to other taxes.

The Commission’s comments suggest that compound interest may be payable where businesses have had to borrow at commercial compounded rates. To add to this, the House of Lords has previously decided in Sempra [2007] UKHL 34 that compound interest is payable by HMRC when it unlawfully demands the premature payment of corporation tax.

Making a claim 

Following the Advocate General’s opinion, the CJEU’s judgment is expected to be released in spring 2012. In the meantime, there are strict time limits on claims for compound interest. So, if you think that your business has a claim for overpaid and/or under recovered VAT, you’ll need to look at protecting your entitlement to compound interest.

If you’d like to talk to us about this, you can contact Nick Skerrett on 020 7804 2054 or Ben Cooper on 020 7804 2108.