Judgment supports higher VAT repayments

11 May 2009

Firms that have paid too much VAT to HM Revenue and Customs (HMRC) could be entitled to more money when claiming repayment after the decision of a High Court judge.

The judge, Mr Justice Henderson, was ruling in a case brought by a group of car dealers.

The case centred on the amount of interest payable on the sums owed by HMRC on overpaid VAT.

While HMRC argued that the rate of interest on the rebates be calculated using simple interest, the judge ruled that businesses are entitled to receive compound interest on VAT overpaid as a consequence of Government errors in interpreting European law.

Jason Collins, a lawyer representing the businesses, said: “The court has confirmed what has been an elephant in the room for the Revenue – that if it collects any tax, including VAT, in breach of EU law, it must give a full account of the benefit it has had and not the derisory rate of interest they apply on a simple basis.”

Despite the decision, the judge added that the dealers could not reclaim VAT in this instance because their particular claim contravened the appropriate time limits.

HMRC said: “The judgment upheld HMRC’s view that, as a matter of English domestic law, the statutory scheme in the VAT Act 1994 for the repayment of overpaid VAT (section 80) and the payment of simple interest (section 78) is complete and excludes any other remedy outside the VAT Act.”