HMRC v Colaingrove Limited: Upper Tribunal clarifies discretionary interest on VAT repayments

The Upper Tribunal's decision in The Commissioners for HMRC v Colaingrove Limited [2025] UKUT 360 (TCC) addresses significant questions regarding discretionary interest awards under the now-repealed section 84(8) of the Value Added Tax Act 1994. The judgement, delivered on 21 October 2025, provides important clarification on when taxpayers may recover additional interest beyond the statutory rate following successful VAT appeals.

Colaingrove Limited, which operates leisure services under the Haven and Warner Leisure Hotels brands, had been engaged in prolonged VAT disputes with HMRC spanning several decades. These disputes concerned four main categories: the VAT treatment of static caravan contents and verandas, bingo participation fees, and gaming machine income. HMRC ultimately repaid approximately £25.4 million in overpaid VAT, together with statutory interest of £9.3 million calculated under section 78 VATA.

The central issue before the tribunal concerned whether Colaingrove could recover an additional £8.2 million in discretionary interest under section 84(8). This provision, which has since been repealed, allowed tribunals to direct payment of additional interest where appellants had successfully challenged HMRC decisions. Colaingrove argued that the statutory interest rate failed to compensate adequately for its actual borrowing costs during the period it was wrongfully denied the funds.

The First-tier Tribunal had partially allowed Colaingrove's claim, determining that discretionary interest should be calculated as the margin between statutory interest and the Bank of England base rate plus 1.5%. However, the FTT rejected claims relating to appeals lodged on or after 1 April 2009, when legislative changes took effect. Both parties appealed these determinations.

Two principal issues required resolution. First, whether section 84(8) interest applied to amounts recovered through section 80 VATA claims—the statutory mechanism for recovering overpaid tax—or only to assessments and other specified decisions. HMRC contended that section 80 claims fell outside the scope of section 84(8), relying on the provision's reference to "a decision as to an ancillary matter" rather than claims for repayment of overpaid tax.

Second, whether the 2009 legislative reforms, which restructured the appeals process and abolished certain provisions whilst preserving transitional arrangements, extinguished entitlement to discretionary interest for post-1 April 2009 appeals. The statutory framework had undergone substantial revision, including the repeal of section 84(8) and its replacement with new interest provisions under Schedule 11 to the Finance Act 2009.

The Upper Tribunal's analysis required detailed consideration of the legislative architecture governing VAT appeals, the interaction between sections 80, 83, and 84 VATA, and the proper construction of transitional provisions. The tribunal examined whether section 80 claims constituted appeals against "decisions" within the meaning of section 84(8), drawing on authorities including Emblaze Mobility Solutions Ltd and BUPA Purchasing Limited.

Additionally, the tribunal addressed whether the appropriate interest rate should reflect the conventional Bank of England base rate plus 1% or the enhanced rate of base rate plus 1.5% awarded by the FTT. This determination required assessment of evidence concerning Colaingrove's actual cost of funds during the relevant periods.

The decision carries implications for other taxpayers who successfully challenged HMRC decisions during the transitional period between the old and new appeals regimes. Whilst section 84(8) no longer applies to current appeals, substantial sums remain at stake in legacy cases where the provision remains relevant to calculating final compensation owed.