Littlewoods ruling 'could cost HMRC billions in refunds'

The tax office may have to pay back billions of pounds' worth of refunds to taxpayers after it lost a High Court case against retailer Littlewoods in a landmark ruling today, a lawyer has said.

HM Revenue and Customs has been ordered to pay Littlewoods £1.2 billion after the company overpaid VAT between 1973 and 2004.

Lawyer Giles Salmonds said the ruling by Mr Justice Henderson could have significant implications because it takes into account the interest's increased - or compounded - value over the years.

"Littlewoods claimed that based on principles of EU law they were entitled to the compounded use value of money they had paid to HMRC as VAT," said Salmonds.

"Today's judgment means that HMRC will be liable to pay billions in interest to other taxpayers who have already claimed overpaid VAT going back to the early 70s, but have only been paid simple interest based on a reduced average of bank base rates."

He added: "This is an important victory for taxpayers, but it is very likely that HMRC will seek permission to appeal to the Court of Appeal."