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HMRC internal manual

VAT Refunds

Unjust enrichment: Reimbursement: The reimbursement scheme and VAT registered customers

The aim of the reimbursement provisions is to enable the person making the claim (who accepts that receipt of his claim would lead to his unjust enrichment) to pass the money for which he is given credit by HMRC (under section 80 of the VAT Act 1994) to the person who, for practical purposes, bore the whole or any part of the economic burden of the tax (referred to in the regulations also as the consumer).

Where a person makes a claim for amounts overdeclared by way of output tax on supplies made to another VAT registered trader, giving an undertaking that he fully intends to pass the payment on to his customers, you should give careful consideration to who the person is who, for practical purposes, bore the economic burden of the tax. The claimant’s customers may not be that person.

This is because VAT is a tax whose burden is intended to be passed on and only borne at the point of final consumption (by the consumer). Any customer that is registered for VAT will be entitled to recover, in full, input tax incurred on purchases that he makes in the course and furtherance of his taxable business activities. In other words, whilst the customer may have paid the VAT when he paid his supplier, he will not necessarily have borne the economic burden of that charge if he got it back when he rendered his next VAT Return.

In such cases, even if the claimant undertakes to reimburse his customers, if he is not reimbursing the persons (consumers) who, for practical purposes, bore the economic burden of the tax, the claim ought to be refused on the grounds that he is unable to comply with the reimbursement provisions.