Littlewoods Limited and others v Commissioners for Her Majesty’s Revenue and Customs

A statutory scheme providing a specific right to interest on overpaid VAT may impliedly exclude concurrent common law claims where those claims would defeat the scheme’s limitations. The reservation in section 78(1) of the Value Added Tax Act 1994 gives priority only to other statutory liabilities to interest.

EU law requires repayment of tax levied contrary to EU law with interest. It leaves the rate and method of calculation to national law, subject to equivalence and effectiveness. Effectiveness requires reasonable redress, not full reimbursement of the taxpayer’s loss of the use value of money. Simple interest may therefore suffice where, viewed with the principal repaid, it provides an adequate indemnity.

Littlewoods overpaid VAT between 1973 and 2004. HMRC repaid £205m under section 80 of the Value Added Tax Act 1994 and paid £268m in simple interest under section 78. Littlewoods claimed approximately £1.25bn in additional compound interest at common law.

Vos J held that sections 78 and 80 excluded the claims, but referred the EU law issue to the Court of Justice. After the reference, Henderson J held that EU law required compound interest and disapplied the statutory restrictions. The Court of Appeal dismissed both parties’ appeals: [2015] EWCA Civ 515.

The Supreme Court considered whether the statutory scheme excluded common law claims and, if so, whether EU law required full reimbursement of the use value of the overpaid tax.

1. Disposition. The court unanimously dismissed Littlewoods’ cross-appeal and allowed HMRC’s appeal. Lord Reed and Lord Hodge gave the joint judgment, with which Lord Neuberger, Lord Clarke and Lord Carnwath agreed.

2. Sections 78 and 80 of the Value Added Tax Act 1994 formed a special statutory regime for repayment of overpaid VAT and the payment of interest. Section 78 created a specific right to interest, subject to restrictions concerning official error, the prescribed rate, simple calculation and a shorter limitation period. Those restrictions would be defeated if taxpayers could pursue concurrent common law claims carrying compound interest and a longer, mistake-based limitation period.

3. The words in section 78(1), preserving liability to pay interest arising apart from that section, referred only to statutory liabilities. A literal construction embracing later-developed common law restitutionary claims would make section 78 effectively redundant. The provision therefore impliedly excluded Littlewoods’ common law claims. The principle recognised in Sempra Metals, concerning restitution of the use value of money, did not permit circumvention of the statutory scheme.

4. EU law required repayment of tax levied contrary to EU law together with interest. It did not prescribe simple interest, compound interest or any other particular method. Subject to equivalence and effectiveness, those matters remained for national law.

5. The requirement of an “adequate indemnity” meant reasonable redress for the loss caused by the undue payment. It did not require full or nearly full reimbursement of the taxpayer’s loss of the use value of money. The Court of Justice’s reference to the substantial simple interest already paid strongly indicated that the aggregate recovery could constitute adequate redress.

6. The payment of £268m in simple interest, exceeding the repaid principal by more than 23%, did not deprive Littlewoods of an adequate indemnity. No further reference to the Court of Justice was required. The parties were invited to agree the order or lodge written submissions within 21 days.

1. United Kingdom Supreme Court: Littlewoods’ cross-appeal was dismissed and HMRC’s appeal was allowed: [2017] UKSC 70.

2. Court of Appeal: The court dismissed both parties’ appeals and upheld Henderson J: [2015] EWCA Civ 515; [2016] Ch 373.

3. High Court: Henderson J held that only compound interest satisfied Littlewoods’ EU law rights and disapplied sections 78 and 80: [2014] EWHC 868 (Ch); [2014] STC 1761.

4. Court of Justice of the European Union: On Vos J’s reference, the Grand Chamber held that EU law required repayment with interest, while national law could determine the type of interest subject to effectiveness and equivalence.

5. High Court: Vos J held that sections 78 and 80 excluded the common law claims and ordered the reference: [2010] EWHC 1071 (Ch); [2010] EWHC 2771 (Ch).