The Supreme Court today released its judgment in the case of Littlewoods Ltd and others ([2017] UKSC 70). The case concerns the availability of compound interest on refunds of overpaid VAT, in circumstances where the VAT was paid and collected in breach of EU law. The Court of Appeal had previously held that the Littlewoods claimants were entitled to compound interest where VAT had been overpaid.

The Supreme Court has disagreed with the Court of Appeal and held that the Littlewoods claimants are not entitled to compound interest.  The Supreme Court considered that the payment of simple interest in this case cannot realistically be regarded as having deprived Littlewoods of an adequate indemnity.

This is obviously a disappointing outcome as a positive decision on compound interest would have benefitted charities and universities that have protected/stayed High Court compound interest claims in respect of Fleming/Conde Nast claims on which compound interest may yet be payable going back as far as the inception of VAT in 1973 (and worth siginificant amounts).

In 2015 the Government announced new rules introducing a special 45% rate of Corporation Tax to be applied to payments made by HMRC of certain awards of restitution interest (which would have covered these compound interest claims). Following discussions with HMRC officials, CTG was able to secure an exemption for charities from this new tax and while charities will not in practice be able to make compound interest claims, the protection of charities in this context was an important precedent and recognition of the unintended consequences of legislation on the sector.