What to do with claims resulting in unjust enrichment: reimbursement procedures
Before any refunds or credits are made to businesses that decide to use the scheme, regulations 43B to 43G of the VAT Regulations 1995 require them to sign an undertaking.
You should explain at the outset to any claimant proposing to give an undertaking to reimburse his customers that, by giving the undertaking he is accepting that he would be unjustly enriched by payment or crediting of the specified percentage of his claim.
You should explain, if the unjust enrichment defence has only been invoked in relation to part of the claim, that he will only be able to keep that part of the claim in respect of which the defence has not been invoked.
If the defence has been invoked against the total claim, he should be told that he will not be entitled to keep any of the money.
He must agree to given the following undertaking:
In relation to a claim for £ [insert amount] made on [insert date] relating to prescribed accounting period(s) [insert accounting period(s)] made under section 80 VAT A 1994. In accordance with the terms of section 80A VATA 1994 and regulations 43A to 43G of the Value Added Tax Act Regulations 1995, Part VA Reimbursement Arrangements (Statutory Instrument 1995/2518), I agree to comply with the following reimbursement arrangements.
‘I, the undersigned, can identify the names and addresses of consumers whom I intend to reimburse. I will reimburse those persons, in cash or by cheque, all of the amount credited by HMRC under section 80(1) or 80(1A) of the VAT Act 1994, together with any associated interest, without any deduction, for whatever purpose, within 90 days of receiving the credit and I understand that I cannot use the credit for any other purpose. Furthermore, where some or all of the credited amount to be reimbursed has been paid or repaid to me and I have not reimbursed some or all of it to consumers, I will, without reminder, notify HMRC and return the balance together with any associated interest to HMRC within 14 days of the 90 days expiring. Where the credited amount has not been paid or repaid to me, and I have not reimbursed some or all of it to consumers, I will notify HMRC of that amount of credit and associated interest I have not reimbursed to consumers within 14 days of the 90 days expiring. I will keep the necessary records as set out in the Regulations and I will comply with any notice given to me by HMRC about producing the records I am required to keep.’
Position in business
If, for some reason, we refuse to accept an undertaking, the claimant has a right of appeal to the Tax Tribunal under section 83(t) VAT Act 1994.
Signing the undertaking
When the claimant has agreed to the terms of the undertaking, he should be asked to sign the undertaking set out above.
However, we would expect the claimant to start making arrangements for reimbursements as soon as he has agreed to give the undertaking so that he is ready to make the payments to his customers as soon as he receives the payment from HMRC.
Although we don’t expect you to check this, if you have any reason for believing that the business will be unable to meet its obligations, you should ask to see details of the scheme before agreeing to it.
(This content has been withheld because of exemptions in the Freedom of Information Act 2000)
Under no circumstances should a refund be made until you have received a satisfactory undertaking.
Making the reimbursement
The claimant has 90 days from the date on which he signs the undertaking to make the reimbursements to his customers.
It is our view that 90 days is a reasonable time but if this is not long enough to refund all the money and you are satisfied that genuine efforts are being made to reimburse customers (for example, because many have already received their money) you can exercise your discretion and allow a slightly longer period - perhaps a month or two.
The fact that a claimant only starts to put the arrangements in place after he has signed the undertaking will not be seen as a valid reason for extending the 90 days refund limit.
The claimant needs to keep records so that we can check that the money has been reimbursed to the right customers.
Regulation 43E of the VAT Regulations 1995 requires the claimant to keep the following records:
- the names and addresses of the customers he has reimbursed or intends to reimburse;
- the total amount reimbursed to each such customer;
- the amount of interest included in each total amount reimbursed to each customer; and
- the date of each reimbursement.
If the claimant’s existing records can show when a refund has been made, no additional records need be kept, but there must be a visible audit trail that we can follow and check.
For the amount of interest, we would want claimants to note the rate(s) of interest used.
The claimant must notify HMRC within 14 days of the expiry of the 90-day period if they have failed to reimburse any of the money and state the amount that has still not been reimbursed (including statutory interest).
If the claimant fails to repay this amount, we may assess it.
We must give written notice if we wish to see the claimant’s reimbursement records.