Littlewoods v HMRC - Overpayments of VAT and claims for unjust enrichment

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Littlewoods v HMRC - Overpayments of VAT and claims for unjust enrichment

Published 9 September 2015

Court of Appeal case Littlewoods Limited and others v The Commissioners for Her Majesty's Revenue and Customs [2015] provides guidance on valuing the benefit received by defendants in claims for unjust enrichment.


Over a period of 31 years, Littlewoods overpaid around £204M in VAT to HMRC. HMRC repaid this sum together with simple interest of over £250M. Littlewoods made an unjust enrichment claim of around £1 billion representing compound interest on the VAT overpayments to the extent that they exceeded simple interest.

High Court

The High Court held that EU law entitled the taxpayer to be able to seek an adequate indemnity for the loss arising from the overpaid VAT, which required payment to be calculated by reference to compound rather than simple interest. HMRC appealed.

Court of Appeal

The Court of Appeal dismissed the appeal on the basis that section 78 of the Value Added Tax Act 1994 (which entitles the taxpayer to simple interest in respect of overpaid VAT) did not provide Littlewoods with an adequate indemnity for its loss.

It was held that the particular circumstances of each case are relevant and simple interest may adequately compensate the taxpayer in some cases. The basis of a restitutionary claim is not for the Claimant to be compensated for their loss, but for them to recover the benefit unjustly gained by the Defendant. The innocent recipient of an overpayment should make restitution of no more than it actually received unless it freely accepted the benefit of the overpayment and therefore the obligation to pay for its use at market rates.

In this case, the actual use to HMRC of the overpaid VAT was less than the objective use. It was not found that HMRC knew that Littlewoods had overpaid but it was a voluntary recipient of the tax. Further, it had been open to the government to financially benefit from the money by reducing government borrowing. HMRC actually used the overpaid tax to fund government spending, making its subjective value difficult to determine, but it was held that it should be assumed that it was properly applied and so the benefit to the government should be the objective use value of the funds rather than the actual use value. In addition, it was held that compound interest continued to run on the outstanding interest even after repayment of the overpaid VAT.


HMRC released a response to the decision citing 'exceptional' circumstances seemingly in order to temper other potential claimants' expectations that they might be entitled to interest calculated on the same basis as this case. HMRC is seeking permission to appeal to the Supreme Court, pending a decision on which it will apply for any existing and new compound interest claims lodged with the High Court or County Court to continue to be stayed pending final determination of this litigation and it will not agree to any new requests for compound interest.


Suzanne Wharton

Suzanne Wharton


+44 (0)113 251 4775

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