Unjust enrichment - arrangements for reimbursing consumers: The undertaking procedure
Before any refunds are made to businesses which decide to use the scheme, regulations 10 to 15 require them to sign an undertaking. So that a business can decide whether it wants to operate the scheme you should send it a copy of the explanatory notes and draft undertaking which can be found in APD13600.
The requirements contained in the undertaking are necessary to ensure that any business will not be unjustly enriched by receiving a refund under the scheme. Without being able to identify the consumers who will qualify for a refund, undertakings do not achieve their purpose. Furthermore, it is reasonable for businesses to give an assurance that the money can and will be refunded.
If, for some reason, we refuse to accept an undertaking, then under Schedule 5, paragraph19(3) of the Finance Act 1997 the affected business can have the decision reviewed by us,and can then appeal to the VAT and Duties Tribunal.
Extensions to the 90 day time limit
We consider 90 days to be a reasonable time for businesses to pass refunds to consumers, and would normally expect businesses to have their scheme ready to implement by the time we receive their signed undertaking.
In certain cases it may not be possible to make the refund in 90 days because the business initially wrote to consumers to see whether their address was correct. If 90 days is not long enough to refund all the money and you are satisfied that genuine efforts are being made to reimburse consumers, that is many have already received their money, then you can exercise your discretion and allow a slightly longer period, perhaps one month. However, no open ended extension should be given. If after the extension the business has failed to locate the final consumers, we should take it that they are not interested in getting a refund.
The reason for the 14 day time limit
As the intention is to refund money to consumers and the business does not benefit, any monies not repaid need to be returned to us promptly. Businesses are under an obligation to do this without waiting to be asked, but if they have not done so after 14 days we have the power to issue an assessment. It must be remembered that this money is not the business’s property and is certainly not an interest free loan from the Government and therefore must be returned promptly. 14 days seems a reasonable time for businesses to do this.
What records must be kept?
There is clearly a need for claimants to keep records so that we can check that the money has been refunded and that it has been returned to the right consumers. Regulation13 requires traders to keep records of any refunds made. However, the records to be kept are basic and only what we would expect any business to keep in the circumstances. If the claimant’s existing records are capable of showing when a refund has been made, no additional records need be kept. The important point is ensuring that there is a visible audit trail we can follow and check.
It is appreciated that the amount of money refunded to consumers might not always equal the amount of tax, for example, because the amount was apportioned. As far as the amount of interest is concerned, we would in practice, wish claimants to note the rate(s) of interest used.
Agreeing an undertaking
Once procedures have been agreed, a formal copy of the undertaking set out in APD13600 should be sent to the business for signature. But remember, before the undertaking is finally agreed we would expect businesses to have their schemes and information prepared and to begin contacting consumers as soon as the refund is made. Although we don’t expect you to check this, if there is any reason to believe that the business having signed the undertaking is unable to meet its obligations,then you should ask to see details of the scheme before agreeing to accept it. No refund must be made until you receive the undertaking.
Post-undertaking procedure - production of records and visits
Regulation 14 requires us to give written notice that we wish to see the scheme records. The date and venue should, if at all possible, be agreed between the record holder and the visiting officer. Such a visit will normally be entirely separate from the normal assurance visit. We envisage only one visit being necessary, although there may be occasions when a number are needed. If an assurance visit is due there is no reason why the scheme records should not be checked at the same time. However, the notice must have been sent to the claimant before the records can be checked.
Once the 90 day refund period has expired, businesses have 14 days in which to return any surplus monies to us. Soon after the 14 days has expired you should contact the business to find out whether all the monies have been reimbursed to their customers. The business should be visited to check that the monies have been refunded to customers in the agreed manner. Telephone assurances that the refunds have been made are not to be accepted.