The Court of Appeal has upheld the High Court's decision in Littlewoods Ltd and others v HMRC  EWCA Civ 515 that the taxpayer was entitled to interest on a compound basis on the overpayment of VAT. The Court found that section 78 VAT Act 1994, which excludes restitutionary claims for interest and only allows simple interest, was contrary to EU law as it did not provide an adequate indemnity. Accordingly, the Court found that section 78 could not be construed in accordance with the EU requirement for an adequate indemnity and so must be disapplied. Many will be familiar with the underlying facts of this case given its importance but by way of a brief overview, between 1973 and 2004, Littlewoods overpaid over £200 million in VAT to HMRC. The sum was later repaid by HMRC along with simple interest. Littlewoods disagreed with HMRC's decision to repay only simple interest and argued that compound interest (amounting to £1.2 billion) was due as a matter of law. Having regard to the circumstances of this case, the Court held that simple interest could not be considered "an adequate indemnity"; but confirmed that compound interest would not be suitable in every case of overpaid tax. HMRC have unsurprisingly tried to cling on to this in issuing Revenue & Customs Brief 9/2015 and have stated that although they do not agree with the finding, it was "based on the ‘exceptional’ circumstances specific to the Littlewoods claimants." HMRC have sought leave to appeal the decision to the Supreme Court. If you would like to discuss the decision or the impact it may have on your business, please contact Leslie Allen, Dario Garcia or Waqar Shah.