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HMRC internal manual

VAT Refunds

Unjust enrichment: Some items to consider: Does the claim fall within the scope of Section 80 of the VAT Act 1994

Section 80 of the VAT Act 1994 was amended by Section 3 of the Finance (No. 2) Act 2005 to broaden the scope of the unjust enrichment defence. Previously, the defence only applied to claims for amounts “paid … by way of VAT that was not VAT due …”. This meant that claims for prescribed accounting periods where output tax exceeded input tax (payment returns) could be subject to unjust enrichment, but those periods where input tax exceeded output tax (repayment returns) could not. 

The revised wording of Section 80 means that any claim to recover VAT that has been wrongly accounted for or mistakenly assessed can be subject to the unjust enrichment defence. This, in turn, means that the gross amount of VAT overcharged and overdeclared can be subject to unjust enrichment and to the reimbursement arrangements.

The changed wording removes any difference in treatment between claims made in relation to payment and repayment returns.

As a result, the invocation of the unjust enrichment defence should now be considered in respect of the gross amount of all claims for overdeclared output tax. This is true irrespective of whether or not the business making the claim is in a net payment or repayment position on individual VAT returns or has paid anything, e.g. with a VAT return or under an assessment.

Where we invoke the unjust enrichment defence we now have to consider whether the crediting (as opposed to the repayment) of the amount claimed will unjustly enrich the claimant. If there the claimant intends to put in place reimbursement arrangements, we also have to consider whether those arrangements ensure that the claimant will not be unjustly enriched by the crediting of the amount claimed.

These changes apply to all claims made on or after the 26 May 2005 - see Revenue & Customs Brief 05/09.