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On appeal from: [2015] EWCA Civ 515

This case considered, on liability, whether a tax-payer’s claim for restitution of the time value of mistakenly overpaid VAT is prevented by the Value Added Tax Act 1994, ss 78 and 80, and if so, whether this is contrary to EU law, and if so whether, when disapplied, they must be disapplied to allow only Woolwich-type restitution claims not mistake-based restitution claims as well. On quantum, this considered whether the benefit to the Government on VAT overpayments is measured by the ‘objective use’ value (ie cost of borrowing) or by the ‘actual benefit’ derived, and if the former, whether this is consistent with EU law and if compound interest is applied, over what period.

The Supreme Court unanimously dismissed Littlewoods’ cross-appeal stating that s 78 of the 1994 Act impliedly excludes its claims. This is because the right to interest in s 78 is subject to certain limitations, limiting HMRC’s liability to pay interest to cases of error and limiting the application period. The Court concluded that these limitations would be defeated and rendered effectively pointless if it were possible for the taxpayer to bring a common law claim. Equally, s 78 states that the liability to pay interest under that section applies “if and to the extent that [the Commissioners] would not be liable to do so apart from this section”. On a literal meaning, this would permit a common law claim for interest to be made outside s 78. At the time s 78 was enacted, however, the type of common law claim made by Littlewoods in the present case had not yet been recognised in law, and was thus not contemplated by Parliament when it enacted the legislation.

The Court unanimously allowed the appeal by HMRC. This is because the CJEU judgment does not require reimbursement of the losses constituted by the unavailability of money. The CJEU has given member state courts a discretion to provide reasonable redress in the form of interest in addition to the principal sum. This is because there is a widespread practice among EU member states of awarding taxpayers simple interest on the recovery of taxes which were unduly paid and thus if the CJEU were seeking to outlaw that practice, it would be reasonable to expect clear words to that effect. This is in line withe EU case law.

For judgment, please download: [2017] UKSC 70
For Court’s press summary, please download: Court’s Press Summary
For a non-PDF version of the judgment, please visit: BAILII

To watch the hearing, please visit: Supreme Court Website (3 Jul 2017 morning session) (3 Jul 2017 afternoon session) (4 Jul 2017 morning session) (4 Jul 2017 afternoon session)