HMRC May be Facing Huge Tax Refund Bill

Accountants have revealed that HMRC may be facing a huge tax refund bill, worth “tens of billions” over the next few years. Businesses claim they have overpaid their tax by millions of pounds, dating back decades in some cases. These include challenges by insurance giant Prudential tobacco group BAT and retailer Littlewoods which is owned by the Barclay brothers.

This is sure to cause a headache for Chancellor George Osborne, who is likely to face a new obstacle when it comes to balancing the budgets.

The maximum potential bill for the HRMC is currently estimated to be close to £43 billion, and could see Mr Osborne’s plans to eliminate all government borrowing in time for the next election axed.

Littlewood’s is claiming £1.2 billion, which includes the compound interest which is related to overpaying for 30 years on their VAT.

Whether HMRC will need to pay will be determined by the court battles. Chris Morgan is the head of tax policy at KPMG and says that some of the big legal cases will be coming to a head. This means that HMRC may be forced to pay out tens of billions of pounds by 2017-18.

Mr Morgan made a point to stress that while these refund claims will undoubtedly be highly controversial while there are so many public spending cuts and anger at corporate tax dodging, these cases don’t avoid tax avoidance and are typically concerning breaches of EU law.

In March last year, the High Court decided that HMRC would need to pay compound and not simple interest on their payment to Littlewoods, and HMRC is aiming to appeal in the supreme court. If HMRC is forced to pay compound interest it means that it will probably need to do the same when it comes to other legal disputes.