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HMRC internal manual

VAT Refunds

Unjust enrichment: Some items to consider: What factors should be taken into account - what evidence is available

The case law makes it quite clear that to show that the economic burden of the VAT has been passed on to consumers or customers we need more than an invoice showing a sum of VAT. This is for the simple reason that the claimant may have absorbed the VAT by, for example, accepting a reduced margin. To prove successfully that the VAT was passed on, we must consider in depth the market conditions in which the goods or services were supplied. 

As claims are limited to four years we should not normally find that there are no business or VAT records for the accounting periods covered by the claim. VAT registered businesses are obliged, by paragraph 6(3) of Schedule 11 to the VAT Act 1994, to keep their records (see regulations 31 and 33 of the VAT Regulations 1995) for up to 6 years (see the guidance on traders’ records for concessions on record keeping).

As a general check the following factors should generally be taken into account

  • substitute products
  • addictiveness; necessity
  • market position
  • price and margin usually aimed for and achieved
  • how long the error occurred
  • any decline in profits
  • whether customers are generally VAT registered.