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HMRC internal manual

VAT Refunds

Unjust enrichment: Passing on: Section 80(3B) of the VAT Act 1994

This subsection provides that if the claimant submits that he has suffered economic ‘loss or damage’ to his business because of the incorrect application of VAT to goods and services that he supplied, that submission should be ignored unless the claimant can quantify and substantiate the loss.

This means that although the burden of proof is on us to show that a claimant passed on to his customers the economic burden of the wrongly charged VAT that he’s claiming, if we succeed it is then for the claimant to assert that he suffered economic loss as a result of wrongly charging that VAT.

For example, if a claimant argues that his business lost £20,000 because of a mistaken assumption about VAT, and the actual output tax overdeclared was £50,000, the claimant must show how that sum was calculated in order to succeed in his claim. If he does succeed we will credit him £20,000 and the remaining £30,000 will be subject to the defence of unjust enrichment.

So, provided that the claimant can demonstrate that the fact that he passed the burden of the wrongly charged VAT on to his customers meant that he suffered economic loss or damage, the claim will have to be credited in part or in total depending on the extent of that loss and damage.

The ‘loss or damage’ that the claimant can ask us to take into account includes:

  • Analysis of damage resulting from the mistaken assumptions of the VAT wrongly charged;
  • Loss or damage caused to any of the business activities carried on by the claimant by having accounted for the VAT - not just the business activities on which the VAT was wrongly charged;
  • Loss or damage resulting from the actions of the claimant, especially if those actions are taken in order to try to mitigate the loss or damage;
  • Future loss or damage arising out the mistaken VAT charge so long as any such loss has crystallised, e.g., before the date of the final hearing in an appeal in the Tax Tribunal and can then be shown by the Appellants to have resulted from the mistaken assumptions.

‘Loss or damage’ is not restricted to that arising from loss of sales or loss of profit.

You should note that we are not liable to credit or pay the claimant any more than the net amount of their claim, even where the actual loss and damage suffered exceeds this amount.