“Last week’s judgement in the High Court case of Littlewoods Plc & Others v HM Revenue & Customs could result in HMRC repayments to dealers totalling in the billions” said Michelle Malone, senior VAT manager at dealer profitability specialists ASE.
“With the significant number of motor industry claims ASE have submitted in relation to this we see that the motor trade benefit could be several billion pounds. However, what hasn’t been widely recognised is that the ruling also outlines that previous repayments should have been subject to tax”.
“Many dealers have already benefitted from large VAT and interest repayments in relation to the VAT treatment of demonstrator vehicles. In making repayments HMRC only added simple interest to the amounts overpaid and Littlewoods argued that this did not give them adequate recompense for the impact on cashflow.
"Mr Justice Henderson ruled that interest should have been paid to Littlewoods on a compound basis. ASE highlight that given that motor dealers were only paid simple interest on their original claims this judgement could see retailers being entitled to receive substantial repayments.
"Based on the large number of claims submitted by ASE on behalf of the industry and the other cases we are aware of, the benefit to the motor trade could be several billion pounds.
"Whilst this is clearly a significant victory for the taxpayer, this is only the latest stage in proceedings and HMRC have indicated they will appeal the decision as they do not believe it is consistent with the original intentions behind the law.
"The outcome of any appeal will clearly impact on dealers’ claims, however we also have to prove that the judgement is deemed applicable to their circumstances. We are currently working with legal representatives to determine the best way to achieve this and will be advising our clients shortly.
"In addition, the Littlewoods judgement had another implication for some motor dealers. We are aware that a number of dealers treated the original receipts of VAT and interest as non-taxable and excluded them from their taxable profits.
"Unfortunately for the taxpayers who adopted this treatment, this judgement confirms HMRC’s original stance that all amounts should be subject to tax and leave to appeal has been denied on this aspect of the case."