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HMRC internal manual

Excise Repayment of Overpaid Duty

HM Revenue & Customs
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Claims for overpaid excise duty: what is unjust enrichment

We may refuse repayment of a claim if we consider that the repayment would unjustly enrich the claimant. The principle of unjust enrichment was introduced into excise by CEMA section 137A, which was inserted by the Finance Act 1995 with respect to all repayments made on or after 1 December 1995.

When claims are submitted under CEMA section 137A we are entitled to refuse repayment if the claimant would be unjustly enriched:

‘CEMA 137A

(3) It is a defence to a claim for repayment that the repayment would unjustly enrich the claimant.’

In simple terms, we use the phrase unjust enrichment where we believe that by meeting the repayment claim, the claimant would be put in a better economic position.

In other words they would receive a windfall profit, because the consumer had effectively paid the excise duty they are seeking to have repaid in whole or part, and the claimant is not planning or is unable to pass the monies back to the consumer.

However it is not always the case that the excise duty has effectively been paid by the consumer. In some instances the claimant may have chosen to absorb some or all of the excise duty and therefore will not have charged it on. Additionally there may be instances where the claimant is intending to pass on some or all of the repayment. These situations are covered in more detail at ERODG5000.

Unjust Enrichment

There is no definition of unjust enrichment and so we have to use the principles, which have been established in the case law of the European Court of Justice. These principles demonstrate that the defence is for us to invoke and therefore for us to prove.

The aim of the defence of unjust enrichment is to prevent businesses from being enriched at the expense of others who, for all practical purposes, bore the burden of the wrongly paid excise duty. It is not a question of whether the enrichment was, in moral terms, unjust but whether the business would be enriched at the expense of their customer to whom the economic burden of the wrongly paid excise duty was passed on.

In theory, we ought to consider whether it is appropriate to invoke the unjust enrichment defence in every case where a claim is made under section 137A of CEMA 1979.

The first thing that we must prove is whether the business is claiming an amount that they have passed on to their customers. If the evidence is that the duty improperly accounted for and paid has been passed on to the claimant’s customers, it will be reasonable, on the face of it, to conclude that payment of the claim would lead to the claimant receiving that amount twice - once from the customer and once from HMRC. If we are able to prove the mistaken charge to Excise was passed on to the customers in economic terms the business may still not be unjustly enriched if they establish that they suffered economic loss or damage as a result of the mistaken charge to duty.

However, we should not invoke the defence of unjust enrichment before we have adequate proof to discharge the evidential burden so far as both pass-on and economic loss or damage is concerned.

By giving the claimant an appealable decision that we are invoking the defence of unjust enrichment before we have the necessary evidence to show that we are right to do so will cause difficulty further down the appeals procedure.

Thus the process of establishing unjust enrichment can be seen to be a two-stage procedure.

The first is to prove the pass-on of the economic burden of the wrongly paid excise duty and the second is to address the question of economic loss or damage.

Finally, the standard of proof in the case of unjust enrichment is ‘on a balance of probabilities’. The burden of proof does not shift from HMRC even when the pass-on of the wrongly paid excise duty has been established.

You can find further and more detailed information regarding unjust enrichment and the tests to apply in order to establish unjust enrichment in the VAT Refunds (VR) guidance.