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HMRC internal manual

VAT Refunds Manual

What to do with claims resulting in unjust enrichment: passing on and points for and against unjust enrichment

Supporting

Some or all of the following factors must be present if unjust enrichment is to be successfully invoked:

  • Customers are VAT registered.
  • Customers are mainly businesses.
  • The market in which the claimant is operating is competitive.
  • All the players in the sector overstated VAT on the product in question.
  • The product is price inelastic (it’s buyers are not normally price sensitive), this includes necessities and addictive goods.
  • Prices are changed when VAT is introduced.
  • The product has no close substitutes or very few.
  • The incorrect VAT treatment has continued over a long period of time.

If all of the above elements are apparent in a claim it is very likely we will be able to invoke successfully the unjust enrichment defence.

Not supporting

If some or all of the following factors are present it will probably be difficult to invoke successfully the unjust enrichment defence:

  • Customers are not VAT registered.
  • Customers are mainly private consumers.
  • The industry or market sector is not particularly competitive (possibly containing only a few large businesses).
  • One or only a few of many businesses in a competitive industry overstated VAT.
  • The overtaxed product is price elastic (potential buyers tend to be sensitive to price rises).
  • No change was made to prices when VAT was introduced.
  • The product has many close substitutes.
  • The incorrect VAT treatment has been of only short duration.

If all of the above elements are observed in a claim it is unlikely we shall be able to invoke successfully the unjust enrichment defence.