Littlewoods Case – Compound Interest due on VAT Refunds?



HMRC paid Littlewoods £205m in relation to a VAT claim by them, stretching back over a period of up to 30 years.

Interest under the normal simple basis was calculated at £268m, as being due to Littlewoods.

However the owners of Littlewoods were not satisfied that this was sufficient recourse for them not having the money for so long and challenged in the Courts that interest should be calculated on a compound basis.  If successful they stand to gain additional interest of around £1bn.

As the case rumbles on, its outcome could have a significant effect on everyday taxpayers.  If HMRC lose will underpayments of tax also be charged with compound interest?  Also, are the rates of interest payable fair, in terms of the rate payable on refunds being lower than that on tax due.