Monday, December 17, 2012

How did Littlewoods overpay their VAT?

Given the publicity over interest rates on VAT reclaims generated by the Littlewoods and barclay brothers case I have struggled to find the reason why they received a VAT reclaim of over £400m. It turns out that they were wrongly charged VAT on commission paid to home selling agents between 1973 and 2004.

 From the Deloitte web site:

The Littlewoods case relates to catalogue-based home shopping. Littlewoods distributed catalogues and sold the goods shown in those catalogues through a network of agents. The agents earned commission on sales. This commission was mistakenly treated for VAT purposes as payment for services provided by the agent to Littlewoods. It should correctly have been treated as a discount against the goods. This meant Littlewoods had overpaid VAT between 1973 and 2004, and so Littlewoods reclaimed that VAT from HMRC. HMRC agreed to repay the VAT, leaving the question of how to calculate interest on the repayment. HMRC’s view was that simple interest should be paid at a statutory rate (which, since 1998, has been 1% below the average base rate of leading banks). Taxpayers were then faced with the following difficulty. VAT law did not make it clear whether the VAT Tribunal (which on 1 April 2009 became the Tax Tribunal) was the correct forum in which to seek compound interest. Some taxpayers chose to appeal to the Tax Tribunal. Others chose to seek redress by another route, namely by making a civil law claim against HMRC in the High Court. Littlewoods chose the latter route, and in 2010 the High Court referred their case to the CJEU for guidance. The CJEU’s decision today is the answer to the questions asked by the High Court.

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