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Was interest payable by HMRC on overpaid output tax paid on demonstrator bonuses?

By Andrew Needham, February 2023

Summary 

This appeal concerned the appellant’s claim to interest under VATA 1994, s 78 following repayment by HMRC of overpaid output tax in relation to the period 1 August 1974 to 31 March 1986.  

Background 

The appellant’s case, in broad terms, was that the overpayment of VAT was caused by an error on the part of HMRC (then HM Customs & Excise), or alternatively that an error on the part of HMRC caused them to delay making its claim for repayment.  

There were different types of bonuses commonly paid to dealers by manufacturers, including demonstrator bonus payments linked to the purchase, use and sale of demonstrator vehicles. There were also volume bonus payments linked to meeting target sales volumes. The demonstrator bonuses incentivised dealers to use vehicles for demonstration purposes or compensated dealers for the reduction in the resale value of

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