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HMRC internal manual

VAT Refunds

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HM Revenue & Customs
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Unjust enrichment: Some items to consider: When unjust enrichment cannot be invoked

Insolvent companies and bankrupt traders

Unjust enrichment cannot be invoked where the refund will be distributed to unsecured or secured creditors among whom are those persons who have been charged VAT in error.

Unjust enrichment can only be argued in these cases, where either the company or its shareholders would benefit after the unsecured creditors have been pain in full.

The Court of Session in C & E Commrs - v - McMaster Stores (Scotland) Ltd (in receivership) [1995] STC 846, held that:

“It is clear on the agreed facts that the tenants will get something as a result of the repayment, which is better than nothing. It is also clear that there will be no benefit to the company or its share holders, as the remainder must be shared equally with the other unsecured creditors. Those other unsecured creditors will receive a benefit which might be regarded, in their case, as a windfall. But that is inevitable if the tenants, who are entitled to claim repayment from the company, are to get anything at all …. it is the result of sound public policy in view of the company’s insolvency. Furthermore there can be no injustice in this situation as regards the commissioners, as the sum sought to be recovered from them was paid over to them in error when it was not due.

It is clear that unjust enrichment could only be argued in these cases, where either the company or its shareholders would benefit after the unsecured creditors have been paid in full.”

Note: A business under members voluntary liquidation (MVL) procedures, which is known as ‘solvent liquidation’ would not qualify as either insolvent or bankrupt and therefore may be subject to the unjust enrichment defence.

Further guidance on solvent liquidation and insolvent liquidation is in the Insolvency Manual.