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HMRC internal manual

VAT Assessments and Error Correction

Recovery assessments: Section 80B(1) Example 1

Section 80 claim where unjust enrichment does apply and the business enters into the reimbursement arrangements but fails to reimburse their customers.

Business has a £6,000 outstanding VAT debt on file and has wrongly deducted £2,000 input tax.

Output tax over-accounted for £10,000
Input tax credit wrongly claimed £2,000
Net over-accounting £8,000
Outstanding VAT debt £6,000
Total credit (£10,000)
Amount reimbursed to customers NIL

In the above example, where unjust enrichment does apply and the business chooses to enter into the reimbursement arrangements then they will receive a net repayment of £2,000.

This amount is arrived at as follows;

£10,000 over accounted for output tax less £2,000 input tax wrongly claimed less £6,000 offset against the debt leaving a net amount payable to the business.

The net amount remaining of £2,000 will be repaid to the business.

In the above example £10,000 has been credited to the business (£6,000 to their VAT mainframe account, £2,000 in respect of the wrongly claimed input tax and £2,000 repaid) on condition that the full amount of £10,000 is reimbursed to their customers.

If the business fails to reimburse this amount then we must recover it from them. If we do not then they will have been unjustly enriched.

Therefore an assessment for £8,000 is made and notified to the business (under the provisions of Section 80B(1B)) to recover the amount credited to the business’s VAT mainframe account.

A further assessment for £2,000 is made (and notified to the business under the provisions of Section 80B(1)) to recover the amount actually repaid to the business.

These two assessments together recover the full amount of £10,000 credited to the business

The processing and notification procedures for Section 80B assessments are outlined at VAEC5120.