The recent decision of the Upper Tribunal (Tax and Chancery Chamber) in John Wilkins (Motor Engineers) Ltd, John Pudney Ltd trading as Horsham Car Care, Squire Furneaux Group, Robmar Ltd trading as Worthing Kia, Lookers plc, Upper Tribunal Tax and Chancery Chamber was the latest in the simple or compound interest argument. The businesses concerned had overpaid VAT on certain manufacturers’ bonuses and sales of demonstrator cars since the 1970s. The overpaid VAT has been repaid but the appellants claim that they should be awarded compound interest in recompense, whereas HMRC believes it is only required to pay compound interest.
The Tribunal agreed with HMRC. And the ruling was particularly interesting for one specific reason: that the decision was based on the interpretation of UK law and didn’t follow the earlier rulings of the European Court of Justice (“ECJ”), the House of Lords and the Court of Appeal which were based on EC law.
European or UK approach?
The European approach is to consider the intention of the legislation. So if a business is required to pay tax in error, it should be compensated by the true economic cost of the overpayment, which would be met by compound interest. The rulings in those cases were in favour of the taxpayer and awarded compound interest.
The Upper Tribunal however only considered the interpretation of UK law and said that the meaning of the term “interest” should be interpreted ‘solely in accordance with the ordinary principles of domestic law (which) provided only for simple interest’. Their view was that UK law was to be taken in its simplest meaning and that “interest” should be read as simple interest. It would go against the grain of the legislation to say that it provided for compound interest and agreed with HMRC that only simple interest should be paid.
We most certainly haven’t heard the end of this issue as there are several other cases stood over behind the five appellants in this case. But it’s a very good example of the tension between the European approach and British approach to legislation and how they can produce totally opposite results. Usually the taxpayer can rely on the decisions of the European courts if it gives the taxpayer the advantage so it’s more than likely that the taxpayers will win eventually. But the cost to the Exchequer would be extremely high so we can expect HMRC to put up a good fight to win this one.
Mice, men and emails
I was very pleased to get the relaunch of VATExchange underway this week. We’d spent a long time over recent weeks making sure that the changes to the website worked properly and sorting out any gremlins we could find. So I had to laugh when the launch email went wrong. Apparently it came out with lots of strange symbols and the layout was all over the place and I received several very kind emails from recipients letting me know! You know what they say, the best laid plans of mice and men…….!
Anyway a new email was sent and thankfully that was gremlin-free. I suppose I could be a bit embarrassed about the first version, but there are much more important things in life to worry about than a wonky email. And we’ve received some very positive feedback about the relaunched website, which is the most important thing. So thanks to all of you who have taken the time to send us your feedback, all positive so far, it’s much appreciated.
So at the end of a busy week, I’m winding down for the weekend. I’m hoping to be back on 4 wheels next week which will be a relief. It’s true that you never appreciate how much you rely on a car until you don’t have one.
Have a good weekend.
Marie