Unjust enrichment

By Tolley

The following Value Added Tax guidance note by Tolley provides comprehensive and up to date tax information covering:

  • Unjust enrichment
  • What is unjust enrichment?
  • Reimbursing the VAT
  • How does unjust enrichment work?
  • Appeals

This guidance note provides an overview of the unjust enrichment provisions.

VATA 1994, s 80; VATA 1994, s 80A; VATA 1994, s 80B; SI 1995/2518, regs 43A-43G; Notice 700/45, para 10 ; VR3000; De Voil Indirect Tax Service V7.324 (subscription sensitive)
What is unjust enrichment?

Unjust enrichment is the term used to describe a situation where the business would be placed in a better economic position as a result of obtaining the VAT refund than it would be if it had not mistakenly charged VAT on the original transaction (ie the business would get a windfall profit). However, principles of EU law confirms that unjust enrichment can only be successfully invoked where it can be proven on a balance of probabilities that someone other than the claimant effectively bore the economic burden of the wrongly charged tax and that the claimant did not suffer economic loss or damage as a consequence of their mistaken assumptions about the VAT wrongly charged.

VR3400; VR3700

With effect from 26 May 2005, HMRC introduced amended legislation which enables HMRC to refuse to repay claims for overpaid output tax made by business if the following applies:

  • the business has incorrectly charged VAT to its customers
  • the customer has borne the cost of the incorrectly charged VAT
  • no loss or damage has been suffered by the business as a result of the error
  • the business is unable or unwilling to reimburse the customers for the overpaid VAT should a refund by made by HMRC

The unjust enrichment provisions do not apply to claims for input tax (see VR4320)

The unjust enrichment provisions can be applied to all or part of a claim for overpaid output tax. Therefore, if a business has charged a

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