Hurrah! Ritchie’s tax gap just shrank by billions and billions!

The UK government may have to pay about £1.2bn to Littlewoods after a judge ruled in the company’s favour in a tax dispute dating back over 30 years.

The home-shopping company, owned by Sir David and Sir Frederick Barclay, won its claim to receive compound interest on improperly collected value-added tax.

It came after a decade-long legal fight that went to the European Court of Justice before being referred back to the UK in 2012.

“This is a very complicated case,” said Judge Launcelot Henderson in London, handing down a 163-page ruling, “with a huge amount of public money at stake.”

HM Revenue & Customs is facing separate lawsuits over improperly collected VAT that may prove costly for the British taxpayer.

“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,” said Giles Salmond, a tax lawyer at Eversheds LLP, who wasn’t involved in the case.

Recall, the tax gap is the difference between the amount of tax that should have been paid and the amount that is paid. So, if there is tax that has been paid that should not have been then this shrinks the tax gap. And here we have an example of billions that have been paid which should not have been: thus the tax gap is smaller than before, by those billions.

No doubt we’ll see a little piece by Ritchie applauding this victory in the fight against tax abuse real soon now, eh?

10 comments on “Hurrah! Ritchie’s tax gap just shrank by billions and billions!

  1. The tax gap won’t change until someone pays Ritchie the £40K he wants to recalculate it.

  2. The ‘tax gap’, whether calculated by Richie or by a grown-up, wouldn’t be affected by this at all. It’s an estimation of the annual tax ‘loss’ from people doing naughty things. This case is about the interest on historic incidence of HMRC doing naughty things. The consequential tax flow out of HMRC won’t be tax and, even if it were it would be inappropriate to measure is as part of an annual flow.

    What it does do is remind the hard of thinking that HMRC aren’t always right. They themselves do recognise that fact in their own tax gap estimations. Richie.. not so much.

  3. Since much tax avoidance/ tax planning (you take your pick) is centred on tax deferral and Ritchie chooses to include avoidance in the tax gap, one would expect a calculation of a discounted value of these deferrals to be included in his Tax Gap figure. As Tim believes this repayment based upon compound interest should reduce Ritchie’s tax gap, he clearly believes Ritchie has indeed included these calcuations in his measure.

    Which, on this blog, puts Tim in a minority of ONE!

  4. This cannot impact on the Tax Gap, either Ritchie or HMRC. It’s about how interest is calculated. The judge has ruled in favour of Littlewoods calculation. There are other cases involving corporation tax.

  5. BraceFart: I like the “candidly”. Tee hee.

    I think whoever cocked this up at HMRC should be looking at some pretty serious porridge. Only fair, isn’t it? Sauce/goose/gander &c..

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