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HMRC internal manual

VAT Refunds

Unjust enrichment: Passing on: Overview

In order to prove that a claimant would be unjustly enriched we need to show, not only that the improper VAT charge was passed on, but also that payment of the claim would unjustly enrich the claimant. In other words, we can show that the burden of the VAT charge was borne by somebody other than the claimant and that payment of the claim would enrich him but we need to show also that that enrichment would be unjust.

It is in dealing with the unjust element of the defence that we have to consider whether the passing on of the VAT charge caused loss or damage to his business so that payment of the claim would enrich him but not unjustly.

Thus, once pass-on of the wrongly charged VAT has been proven, it falls to the claimant to show that any repayment would not enrich unjustly him. He does this by calculating the quantified amount (see section 80(3C) of the VAT Act 1994) that would constitute just compensation for the loss or damage caused to any of his business activities as a result of having passed on to his customers the improper VAT charge. The claimant must provide some material in support of his calculation.

It is important to remember that, under section 80(3A) of the VAT Act 1994, the ‘quantified amount’ is limited to the amount of overdeclared output tax being claimed.

In certain circumstances (for example where we have no counter to the claimant’s assertion of loss or damage) it may be sufficient for the claimant merely to assert economic loss or damage, so long as he is able to explain how or why the damage occurred.

Nevertheless you should remember that the claimant is required by law to provide a ‘quantified amount’ for the economic loss or damage they claim to have suffered. In all cases we must show that we have given proper consideration to this and be able to prove that the claimant suffered no such loss or that any loss was limited.