HMRC To Avoid Paying £5BN In Refunds

Citywire reports that HMRC could avoid paying up to £5 billion in interest on tax refunds after a landmark Supreme Court judgement at the end of a 15 year legal battle with insurer Prudential (PRU).

The Supreme Court yesterday ruled against applying compound interest to the bulk of the refunds due to the insurer on taxes paid to HMRC over nearly two decades that was later judged unlawful.

Yesterday's judgement carries major implications for HMRC, which is facing a series of similar pending legal challenges over tax refunds. HMRC has estimated the cost of paying compound interest on all these claims at up to £5 billion.

HMRC had already conceded a refund was due on tax that was applied on dividends paid by foreign companies held in the funds managed by Prudential for policyholders.

This tax was ruled unlawful by the European Court of Justice, as it discriminated in favour of dividends from UK companies, on which insurers were not taxed.

The Supreme Court ruled on five issues, finding in favour of HMRC and Prudential in two each, with the fifth rendered redundant by those judgements.

Prudential was successful in arguing that the tax refund be calculated according to the ‘nominal’, or headline rate of tax paid on those dividends from foreign companies, rather than the actual tax paid, which could in many cases be lower due to tax reliefs and exemptions.

Tax does have to be taxing.

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