Unjust enrichment

Produced by Tolley

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

  • Unjust enrichment
  • What is unjust enrichment?
  • Factors
  • Economic loss or damage
  • Reimbursing the VAT
  • Records
  • How does unjust enrichment work?
  • Appeals

Unjust enrichment

IP COMPLETION DAY: 11pm (GMT) on 31 December 2020 marked the end of the Brexit transition / implementation period entered into following the UK’s withdrawal from the EU. At this point in time, key transitional arrangements came to an end and significant changes began to take effect across the UK’s VAT and customs regime. This document contains guidance on subjects potentially impacted by these changes. Before continuing your research, see the Brexit — overview guidance note.

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

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.

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:

  1. the business has incorrectly charged VAT to its customers

  2. the customer has borne the cost of the incorrectly charged VAT

  3. no loss or damage has been suffered by the business as a result of the error

  4. 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

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