The litigation in Sempra Metals Ltd v IRC [2007] STC 1559 raised the possibility of claiming compound interest in respect of tax which has been overpaid. This raised the enticing prospect of compound interest on VAT claims which, as a result of the Fleming (t/a Bodycraft) v HMCE [2008] STC 324 decision could go back up to 30 years.
However, despite three separate cases being taken to litigate the matter, we are no closer to a resolution, although an end is perhaps now in sight.
The recent decision in Littlewoods v HMRC [2010] EWHC 1071 has resulted in a referral to the ECJ with the consequence that a definitive decision on the EU aspect of the compound interest claim will be forthcoming, albeit a decision is unlikely for some time.
Furthermore, the Supreme Court is to hear an appeal against the decision in the Test Claimants in the FII Group Litigation case [2010] STC 1251. That case did not involve compound interest, but the effect of the Court of Appeal’s decision would have been to limit compound interest claims to the last six years insofar as that claim was derived from EU law. Once again the Supreme Court will give a definitive answer.
A third development is that the Court of Appeal in John Wilkins (Motor Engineers) Ltd v HMRC [2010] EWCA Civ 923 has held that successive claims for interest under VATA 1994 s 78 can be made, with the time limit for appeal running afresh from subsequent claims. As a result of the taxpayers' success on this issue the Court is now to consider arguments that s 78 should be construed to confer a right to compound interest to give effect to EU law rights.
This leaves taxpayers in limbo as to whether (i) a claim for compound interest on overpaid (or under claimed) VAT can be made at all and (ii) if so in which forum the claim is to be made.
Unfortunately, it will not be open to those hoping to claim compound interest to simply wait for the Courts to definitively decide the position. As the Appellants in the first of these cases (FJ Chalke Ltd v HMRC [2010] STC 1640) found to their cost, the availability of a compound interest claim will be irrelevant if the claim itself is time barred. It is necessary to make the claims and/or appeals in order to stop time from running.
In that respect, the prudent course will be to make claims now and seek to have them stayed pending the outcome of the litigation in the three ongoing cases mentioned above. HMRC should be amenable to agreeing to such a stay (indeed it sought to have Littlewoods case stayed pending the outcome in Chalke (see [2009] STC 22).
This still leaves the issue as to the appropriate forum in which to make the claim: the High Court or the First Tier Tribunal. Once again the prudent course will be to hedge bets and start appeals in both forums insofar as that is possible.
For those with claims afoot, the only option seems to be awaiting the outcome of the ongoing cases. Where appeals have previously been started in only one forum, however, it may be prudent to consider whether an appeal can be made to the other forum. The decision of the Court of Appeal in Wilkins may be helpful in this regard.
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Rory Mullan, Barrister, Tax Chambers,
15 Old Square
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