HM Revenue & Customs are facing a flood of legal claims that will blow another massive hole in the public finances.

In the past few weeks thousands of High Court claims have been lodges by companies and local councils relating to millions of pounds of interest wrongly charged by HMRC.

When HMRC makes a repayment to a registered person or body it must pay interest on the money it has been holding. Until recently this has been calculated as a straightforward one-off percentage of the sum in question.

But a group of motor dealers went to the High Court to claim that such payments should include compound interest. This is calculated on the sum plus previously accrued interest and leads to far higher costs.

The court ruled earlier this year that the only way compound interest could be extracted would be for claimants to take their cases to court under common law – and many organisations have now decided to do just that.

Although current interest rates are low, the cases involved date back years and the sums involved run into tens or even thousands of millions. Companies that have begun legal claims include InterContinental Hotels, pub group Mitchells & Butlers, BSkyB, Barratt Developments and Savile Row Tailors Gieves & Hawkes. Newcastle City Council and Glasgow City Council are among the local authorities who have also made claims.

Perhaps to save massive legal costs HMRC should just agree to pay compound interest on a voluntary basis. It would save making a financial crisis into (yet another) disaster!

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Category: Taxation

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