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HMRC internal manual

VAT Refunds

HM Revenue & Customs
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Unjust enrichment: How Section 80 and the unjust enrichment defence works in practice: Example 3

Subject to time limits, a business will receive credit for the overdeclared output tax. However, if there are other errors, including tax wrongly deducted as input tax, these will be netted off to arrive at the amount of tax adjustment to be made. For example

Output tax overdeclared £10,000
Input tax credit wrongly claimed +£2,000
Net overdeclaration -£8,000
Total credit (£10,000)

In the above example, where unjust enrichment does apply and the business chooses to enter into the reimbursement arrangements, the business will be credited with the full amount to be reimbursed, and may only receive payment from HMRC of a sum up to the net amount of their claim (£8,000).

If the £2,000 input tax was attributable to the supplies on which the output tax was overdeclared, it will be set off under the terms of section 81(3A) of the VAT Act 1994. If it is not related to the supplies in respect of which the claim was made, you will need to make an assessment under section 73(2) of the VAT Act 1994 to recover it.

This amount is credited / repaid on condition that it is reimbursed to their customers in full.

Therefore in some instances the business will be required to reimburse to their customers an amount greater than that which they receive as payment from HMRC. This is because they will have been given full credit to begin with, but because of other errors they will only receive the net amount remaining, if any.

Remember, the extent to which a claimant will be unjustly enriched may be any amount up to the gross amount of output tax that they have wrongly charged and accounted for.

In those circumstances, a business cannot argue that because he has not received a refund from us in the way of a cheque through the post, that he has not been credited with the over charged and overdeclared VAT he has promised to return to his customers.