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HMRC internal manual

VAT Refunds

Claims for overdeclared output tax: Who can claim: Claims by assignees and transferees

Where a person has overdeclared his output tax liability he is, of course, entitled to make a claim to recover that overstated VAT under Section 80 of the VAT Act 1994. 

That right to make a claim was held by the Court of Appeal in CRC -v- Midlands Co-operative Society Ltd [2008] EWCA Civ 305; [2008] STC 1803; [2008] BVC 414 to be property (a chose in action) within the meaning of the Law of Property Act 1925.

Because the right to make a claim is property it can be transferred, assigned or sold and if it can be transferred assigned or sold, it can be enforced by somebody other than the person who actually made the overdeclaration of output tax.

The person who made the overdeclaration of output tax is known in the legislation (section 133 of the Finance Act 2008) as the original creditor and the person to whom the right to make the claim is assigned is referred to as the current creditor.

It is likely that the most common situation in which you will come up against assigned rights to claim will be where a person has transferred his entire business as a going concern.

Where that happens and the transferor (or original creditor) retains nothing of the business, it will be reasonable to conclude (absent evidence to the contrary) that any overdeclaration of output tax made by the transferor (or original creditor), and not claimed at the time of the transfer of the business, will be enforceable by the transferee (or current creditor).

If it is clear from the contract or deed of transfer that it was intended that all of the transferor’s property was to pass to the transferee, we can probably reasonably assume that rights to claim have also passed to the transferee.

If, on the other hand, the sale agreement explicitly transfers certain aspects of VAT liabilities or entitlements but the right to claim overdeclared VAT is not mentioned, you should proceed on the assumption that the transferor has retained any such rights that may exist.

Where a person transfers only part of his business, you will need to establish, by reference to the deeds of transfer, the contracts, sale agreements, etc, exactly what it was that was transferred to the transferee.

Whilst it is perfectly possible for the right to make a section 80 claim to be transferred, assigned or sold on its own as property in its own right, it will probably be quite rare.

Where a claim is made by an assignee (or current creditor), the provisions of section 133 of the Finance Act 2008 apply so that the provisions of section 81 of the VAT Act 1994 and section 130 of the Finance Act 2008 set the liabilities of the original creditor as well as those of the current creditor against the amount claimed. Section 133 only applies where the right to claim was transferred on or after 25 June 2008.

If you get a claim from a person other than the person who made the overdeclaration of output tax, you must check that that person does, in fact, have the right to make the claim. If he can produce no evidence to show that the right to claim has been assigned to him, you should simply refuse to entertain the claim.