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HMRC internal manual

VAT Refunds Manual

Overview

In what circumstances may a VAT refund arise?

A person may claim a refund of VAT where

  • an error has been made in accounting for VAT or
  • VAT is accounted for in relation to a supply that changes or never actually takes place.

Who can claim a VAT refund?

Only certain persons are entitled to make a claim. This depends on the nature of the business, for example sole trader, partnership, company or VAT group, and the status of the trader, for example bankrupt, insolvent, incapacitated or deceased.  

What can be claimed for refund?

The claim may be for output tax over-declared or for input tax under-claimed or understated.

On whom is the onus to prove the claim?

The onus is on the claimant to prove their claim.

What must a claim contain?

A claim must contain specific information required by the law about how the claim arose and about any other errors that were made in the accounting periods claimed for. HMRC has no discretion to accept a claim if it does not meet all the necessary criteria.

When must a claim be made?

A claim must be made within the time limits set down by the law. This time allowed depends on the specific provision under which the claim is made.

What will HMRC do with a claim?

HMRC will first vet the claim, see VRM2000, to ensure that it

  • contains all the necessary information (we will refuse all incomplete or ‘without prejudice’ claims and most estimated claims) and
  • has been made within the statutory time limits.

In all but very exceptional circumstances, HMRC will withhold payment of the claim while we verify it, see VRM9000.

If we are satisfied with the claim, we will pay it.

When will HMRC reject claims?

HMRC will reject claims that

  • are not adequately supported by documentation and information, see VRM11000
  • are abusive
  • would lead to the unjust enrichment of the claimant, see VRM12000.

Where we do reject a claim, we will explain why we are doing so and explain the claimant’s right to an independent review of the decision and his right of appeal against that decision to the First-tier Tribunal. Any appeal must be made within 30 days of our letter refusing the claim.

What is unjust enrichment?

We use the phrase ‘unjust enrichment’ to describe the situation where a claimant has passed the economic burden of the VAT charge on to his customers so that the crediting or payment of his claim would amount to him receiving the amount twice – once from his customers and once from HMRC.

Where the burden of incorrectly levied VAT falls on the customers of a claimant, HMRC and the claimant can enter into a voluntary reimbursement scheme in which HMRC pays the refund to the claimant who has given an undertaking to return payments to the customers. A claimant who enters into the reimbursement arrangements is bound by law to reimburse his customers.

What about penalties where a claimant’s behaviour is careless or deliberate?

If we find that a person has deliberately overstated the claim or the overstatement of the claim arose as a result of their failing to exercise reasonable care in calculations, we may charge a penalty.