Vat Tribunal Rejects Motors Dealers Claims for Compound Interest but all is not lost
15/09/2009
The Upper Tribunal (Tax and Chancery chamber) today published its decision in relation to Dealers fight for Compound Interest on VAT refunds generated on Demonstrator vehicles. Unfortunately the Tribunal decided that UK VAT legislation only provides for the payment of simple interest and cannot be read in a manner which allows for an award of compound interest. As a result, the Tribunal decided that it did not have jurisdiction to award compound interest and therefore rejected all five appeals. Furthermore, the Tribunal ruled that the appeals were out of time. This follows the decision earlier in the year by the High Court, in the Group Litigation (GLO) which was brought by a group of Dealers, which confirmed that the taxpayers in question did have a right to make a claim for restitution in the form of compound interest in the High Court (albeit the claims were brought outside of the six year limitation period).
It is extremely likely that the taxpayers will now seek leave to appeal the decision of the Tribunal to the Court of Appeal. At this stage it is hoped that a single hearing will deal with the appeals of the decision of the GLO in the High Court and the decision of the Tribunal in relation to the compound interest project. Although the appeal in the GLO has been listed in the Court of Appeal for January 2010, it is likely that this will now be put back until later in 2010 in order to facilitate a joint hearing.
Michael Jones of ASE says 'although the decision of the Tribunal is obviously disappointing, the two strands of the compound interest litigation still have a long way to run. It is therefore important for motor dealers to take immediate steps to protect their position if they have not already done so'.
For further information please contact Liz Gallagher at ASE on 0161 493 1930.
Notes
Following a number of successful tax cases, including Italian Republic, Elida Gibbs, Marks & Spencers and more latterly Fleming, Motor Dealers had until 31 March 2009 to submit claims for vat overpaid on demonstrator vehicles in the period from 1973 to December 1996. Valid claims were/are being paid out with simple interest which is paid automatically under current UK VAT legislation. However leading motor trade accountants and the legal profession have always contended that dealers should receive compound as opposed to simple interest to fully compensate them for the loss of funds over so many years. In February 2009, a group of dealers went to the High Court to seek compensation equivalent to compound interest. Whilst it was found that compound interest was due, the court found that they were out of time as the claims should have been made within six years of the original cases being won. As these cases were won in the late 1990's, dealers could not have made claims within the time limit, as it was not until the verdict in the M&S case in 2002, that claims back to 1973 were possible. The decision above relates to a parallel case which was taken through an alternative channel i.e. via HMRC's own appeal system. In today's decision, they did not decide that compound interest was not due, only that they i.e. The Tribunal had no authority to grant compound interest. Instead they have said that the decision must be made by the UK Courts.