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HMRC internal manual

VAT Refunds

Unjust enrichment: Background and scope of the defence of unjust enrichment

In practice, we apply the defence of unjust enrichment in accordance with ECJ and UK judgments on the subject and we apply the principles set out in the judgments to all claims. As already stated, the basic principle is that if a person accounts for amounts by way of taxes or duties that are collected or levied contrary to Community law, he is entitled to recover those amounts. 

This would include, for example, the situation where the UK treats as being subject to VAT at the standard rate supplies that, under the Community VAT legislation, are exempt.

The ECJ has accepted that claims need not be met if to do so would lead to the unjust enrichment of the claimant.

However, as the use of the unjust enrichment defence constitutes a restriction on a Community law right to recover improperly paid tax, it must be interpreted strictly and, in practice, will be used successfully only very exceptionally.

In simple terms, we use the phrase ‘unjust enrichment’ to describe the situation where the crediting or payment of a claimant’s claim would put him in a better economic position than he would have been if he had not mistakenly accounted for the tax, in other words, where he would get a “windfall” profit.

However, principles of Community law tell us that unjust enrichment can only be successfully invoked where it can be proven on a balance of probabilities that someone other than the claimant effectively bore the economic burden of the wrongly charged tax and that the claimant did not suffer economic loss or damage as a consequence of their mistaken assumptions about the VAT wrongly charged.

The defence is for HMRC to invoke and therefore for HMRC to prove. It is not for the claimant to prove that he would not be unjustly enriched if we were to settle his claim. It is for us to prove that he would. Thus, to successfully invoke the unjust enrichment defence HMRC must prove two things; that the whole or part of the erroneously charged VAT charge was passed on to the customer (consumer) and that the claimant did not suffer economic loss or damage as a consequence.