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HMRC internal manual

VAT Refunds

Unjust enrichment: A general overview

The aim of the defence of unjust enrichment is to prevent businesses from being enriched at the expense of others who, for all practical purposes, bore the burden of the wrongly charged VAT. It is not a question of whether the enrichment was, in moral terms, unjust but whether the business would be enriched at the expense of the customer to whom the improper VAT charge was made.

In theory, we ought to consider whether it is appropriate to invoke the unjust enrichment defence in every case where a claim is made under section 80 of the VAT Act 1994.

In order to do this, you will need to make appropriate enquiries. If the facts of the case justify it, the claimant should be asked to provide all, and any, information, documentation, etc. on their pricing structure and policy in relation to the goods or services that are the subject of the claim.

The first thing that we must prove is whether the business is claiming an amount that they have passed on to their customers. If the evidence is that the tax improperly accounted for has been passed on to the claimant’s customers, it will be reasonable, on the face of it, to conclude that payment of the claim would lead to the claimant receiving that amount twice - once from the customer and once from HMRC.

We should not invoke the defence of unjust enrichment before we have adequate proof to discharge the evidential burden so far as both pass-on and economic loss or damage is concerned.

By giving the claimant an appealable decision that we are invoking the defence of unjust enrichment before we have the necessary evidence to show that we are right to do so will cause difficulty further down the appeals procedure.

Thus the process of establishing unjust enrichment can be seen to be a two-stage procedure.

The first is to prove the pass-on of the economic burden of the overcharged VAT being claimed and the second is to address the question of economic loss or damage.

Finally, the standard of proof in the case of unjust enrichment is ‘on a balance of probabilities’. The burden of proof does not shift from HMRC even when the pass-on of the erroneous tax charge has been established.