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A final blow has been dealt to the automotive trade’s hopes for a windfall in respect of the VAT treatment of demonstrator vehicles, as the Supreme Court this week overturned a previous court decisions in relation to the key Littlewoods’ case.

The Littlewoods case considered the issue of whether compound rather than simple interest should have been received on the refund of overpayments of VAT. HMRC were given leave to appeal to the Supreme Court following the Court of Appeal judgement in June last year which ruled that compound interest should apply.

The Supreme Court’s judgement is that the payment of simple interest rather than compound interest is an “adequate indemnity”, and that the lower UK Courts were incorrect to take the view that this term required the payment of compound interest, which is what the motor industry has been claiming.

Michelle Malone, tax director at ASE Plc said, “This is obviously a disappointing decision for the dealers who had claims standing behind the Littlewoods’ case and unfortunately means that those claims can no longer proceed. Whilst this would have been a very welcome windfall indeed if successful, retailers can now draw a line under the matter and plan their business accordingly.”

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