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HMRC internal manual

Business Income Manual

Specific receipts: refunds of sums paid as VAT: refund accounted for someone other than the trader who made the overpayment: introduction

This is direct tax guidance; for indirect tax guidance, refer to VAT Guidance.

There are circumstances where the refund of a sum paid as VAT may be received and accounted for by an entity other than one that carried on the original trade.

For the treatment for direct tax purposes of a refund of sums paid as VAT which is paid to a representative member of a VAT group, see BIM40171.

The Court of Appeal held in Midland Co-Operative Society Ltd v Commissioners of HMCE [2008] EWCA Civ 305that the right to claim for a refund of VAT can also be transferred.

When looking at the sums received by a company that does not currently carry on the activity that gave rise to the payment of VAT, nor has it done so in the past, then bear in mind that a key point is that the refund of a sum originally paid as VAT is not a windfall. It is a refund of sums paid as VAT that have been found as a result of legal action not to be VAT. It is important to remember HMRC does not make gratuitous refunds. The claimant must have made a valid claim.

It is a matter of analysis to determine the reason why a particular claimant has made a valid claim to a refund. That reason is the source for direct tax purposes.

This section on refunds received by someone other than the trader who made the overpayment contains the following further guidance:

BIM40178 Payment for services
BIM40180 Post cessation receipts
BIM40182 Miscellaneous income