UT-2024-000123 - [2025] UKUT 00360 (TCC)

The FTT’s reasoning is set out at FTT [61 – 64] as follows:

“61.

HMRC rightly did not dispute that in light of Littlewoods CJEU where, as here, there has been an overpayment of VAT in consequence of the misapplication/misinterpretation of EU law the taxpayer has a right to be repaid the overpaid VAT with interest.  The dispute between the parties centres on the amount of interest and in particular whether having received interest under s78 at the statutory rate of Bank of England base rate minus 1% the Appellant's EU law rights have been satisfied.

62.

Resolution of that dispute is, in our view, to be found in Littlewoods SC.  In our view the Supreme Court has clearly and unequivocally confirmed that where sums have been overpaid by way of VAT contrary to EU law an adequate indemnity must be provided through the payment of "some form" of interest (see paragraph 53) and that what represents an adequate indemnity or reasonable redress will fall within a range of possible outcomes (see paragraph 55).  The Supreme Court has also confirmed that it is ultimately a question for Parliament to set the parameters by reference to which interest is payable and has done so through the enactment of s78 which provides for the payment of simple interest at the statutory rate (see paragraphs 34 and 54).  Prior to its repeal s84(8) also provided a statutory route for interest to be payable at the discretion of the VDT/FTT in respect of sums determined as repayable to appellants who had been required to litigate a dispute whilst HMRC held disputed tax.  In the period from 1 April 2009 and 1 January 2023 section 85A VATA provided an alternative vehicle for the payment of simple interest at the statutory rate.  These provisions were noted by the Supreme Court as being part of the statutory infrastructure for providing an adequate indemnity (see paragraphs 38 and 39).

63.

As we interpret the judgment in Littlewoods SC the Supreme Court was confirming that the statutory regime adopted by the UK principally through s78 but also s84(8) and, importantly, section 85A VATA meets the UK obligation under EU law to provide for an adequate indemnity and/or reasonable redress. 

64.

That conclusion closes out any asserted scope for a conforming interpretation.”

At FTT [98] – [104] the FTT stated:

“98.

We have also considered whether, to the extent that the decisions which post-date 1 April 2009 relate to prescribed accounting periods prior to that date, an inchoate right to interest had accrued.  In this regard we have carefully considered the FTT judgment in Emblaze. 

99.

We have concluded that there was no such right. 

100.

In Emblaze the taxpayer had been given an appealable decision by which it was denied input tax credit to which it was entitled and it had appealed that decision.  The inchoate or contingent right accrued "when HMRC wrongly refused to pay the amount of input tax claimed" (see paragraph 31 of the FTT judgment).  The fact that the right was contingent on an appeal being brought and a positive judgment from the Tribunal requiring repayment of the VAT claimed did not preclude a conclusion that there was an inchoate right which was then protected by virtue of section 16 IA on the repeal of s84(8).

101.

By contrast, in the present case the Appellant had overpaid the VAT in question period by period pre-dating 1 April 2009 but the inchoate right arising from such overpayment was the right to be repaid the tax with an adequate indemnity by way of statutory interest under s78.  Further inchoate rights accrued to those who had overpaid VAT but who had received an appealable decision from HMRC prior to 1 April 2009 and in respect of which an appeal had been bought or the time limit for appeal was running.  Those inchoate rights were protected by section 16 IA as per Emblaze. 

102.

For the reasons given at paragraph 96 such rights had not accrued to the Appellant regarding lines 18 - 20, 23 - 24 and 27(2).

103.

Such rights did however accrue in respect of the decision in the Gaming Dispute at line 27(1).  That appeal relates to HMRC's refusal of a section 80 claim (the Section 80 Objection is considered below), the appealable decision was issued prior to 1 April 2009 and an appeal was lodged in time and before 1 April 2009.  The Appellant therefore had the inchoate right to invite the Tribunal to exercise its discretion to pay interest in the event that sums were repayable in the appeal. On or shortly before 20 April 2011 HMRC repaid sums due to the Appellant on the claims made.  Without reference to the protective assessment the Appellant thereby succeeded in their appeal.  We are therefore of the view that the Appellant's inchoate right to seek a direction for the payment of further interest had crystalised.  There is no time limit by reference to which an application for additional interest must be made under s84(8).  There is not even a requirement that the appeal remain live, though in this case the Tribunal's file on the line 27(1) appeal was never closed.  It is therefore our view that the Appellant's invitation that the payment of further interest be directed in respect of the appeal at line 27(1) is not barred under the Post-1 April 2009 objection.  We deal below with the broader implications for the payment of interest on that appeal.

104.

For the reasons already stated above on the Adequacy issue we see no basis for applying a conforming interpretation as invited by the Appellant as the statutory provisions provide an adequate indemnity.”

The FTT carefully considered the relevant authorities. In Littlewoods Limited, the Court held at [53]- [55]:

“53.

In the courts below, emphasis was placed on the CJEU’s use of the word “reimbursement” in para 25 when it speaks of the reimbursement of losses constituted by the unavailability of money. We do not attach such significance to a single word, considered in isolation. It is necessary to consider para 25 in the context of the judgment as a whole. In our view, consistently with the conclusion expressed in para 26, reimbursement of loss means no more than recompense or compensation, which is achieved through the payment of some form of interest. In relation to the principal sums, whether of tax, interest or penalties levied by the member state, the compensation would be full compensation in order to achieve restitution of those principal sums. But interest is a means of compensating a person for being kept out of his money. The measure of such compensation is not as straightforward as the calculation of the principal sums which must be repaid. The Court does not specify the level of the compensation for the unavailability of money which that interest is to provide. Instead, the CJEU confirms in this first part that there is an EU principle that a member state must repay with interest charges which it has levied in breach of EU law. It is in the second part that the CJEU lays down what EU law requires member states to provide by way of interest.

54.

In the second part, which is paras 27 to 29, the CJEU restates the principle that it is for the internal order of each member state to lay down the conditions in which such interest must be paid. The member state is given a discretion both as to the interest rate and also as to the method of calculation, in particular whether it is simple or compound interest. That discretion is qualified by the established EU law principles of equivalence and effectiveness…

55.

The phrase, “an adequate indemnity” has a less definitive meaning than “full reimbursement”. The French text of the judgment speaks of “une indemnisation adéquate” and the German text refers to “eine angemessene Entschädigung”. In both languages, as in English, the words chosen can support a range of meanings, including the meaning of “adequate compensation” or “reasonable redress”, which are not tied into the idea of full compensation for the time value of money.”

(our emphasis)

In light of the above, we do not accept that the FTT was incorrect in its interpretation and application of Littlewoods SC and we do not find any error of law in its approach or conclusion that there was no scope for a conforming interpretation

We do not accept the Company’s submission that the FTT erred in treating Littlewoods Limited as finding that section 78 interest and section 85A interest (the latter was not addressed by the Supreme Court) are adequate regardless of the facts. The FTT clearly gave careful consideration to the judgment which stated at [56] and [59]:

“56.

In using the principle of effectiveness to require the existence of “an adequate indemnity” but not expressing a definitive view on the adequacy of simple interest, the CJEU was less categorical than Advocate General Trstenjak, who opined (paras 33 and 34) that the payment of simple interest clearly complied with that principle and that that principle would be breached only if the interest rate were so low as to deprive the claim of substance. In support of that view she recited (para 37) the amounts of principal and interest which HMRC had paid and recorded that the latter exceeded the former by over 25%. But it would be wrong to overstate the extent of the CJEU’s departure from the Advocate General’s approach. In what we see as the third part of the relevant passage in its judgment (para 30) the CJEU, after stating that it was for the referring court to decide whether the national rules for the calculation of interest would deprive the taxpayer of “an adequate indemnity”, recorded what HMRC had already paid and repeated the comparison which the Advocate General had made between the amount of principal and the amount of interest on that principal.

59.

In summary, we interpret the CJEU’s judgment as (i) requiring the repayment of tax with interest, without specifying the form of that interest (ii) stating that the principle of effectiveness requires that the calculation of that interest, together with the repayment of the principal sum, should amount to reasonable redress for the taxpayer’s loss, and (iii) suggesting that the referring court might consider that interest which is over 125% of the amount of the principal sum might be such reasonable redress.”

(Our emphasis)

The FTT recognised that the issue of adequacy would be a question of fact, stating at [65]:

“…it is our view that our role is to apply the statutory provisions as drafted to the facts of the present case… However, and by reference to the conclusion in Littlewoods SC, we consider that the remedy provided under section 85A VATA and subsequently under section 102 FA 09 to be an adequate indemnity simply at a lower point in the range of possible but nevertheless adequate remedies.”

Similarly, we consider that the FTT’s reasons for distinguishing the facts of Emblaze from those in the present case on the basis that in Emblaze the VDT’s jurisdiction had been engaged before 1 April 2009 and therefore its inchoate rights were protected whereas, in contrast, the appeals referred to at FTT [96] each related to an identified decision which post-dated 1 April 2009 and consequently inchoate rights had not accrued to the Company, was a finding open to it and a conclusion it was entitled to reach.

Accordingly, had it been necessary to do, we would have dismissed the Company’s appeal on Ground 2.

Ground 3 avers that the FTT erred in holding that the Company was only entitled to interest at base rate plus 1.5%.