UK DROPS 'UNJUST ENRICHMENT' DEFENCE ON VAT RECLAIMS, by Robin Pilgrim, for LawAndTax-News.com, London 20 February 2009

 

The UK tax authority, HM Revenue and Customs, has announced that, in the light of a recent House of Lords judgment, it will no longer use the 'unjust enrichment' defence to argue against value-added tax claims by businesses.

 

HMRC has arrived at this decision after the Lords ruled on February 4 that Marks and Spencer was entitled to a full refund of VAT paid in respect of teacakes sold over a twenty-year period.

 

In the long running case, the retailer had successfully proved that the tax authorities had misclassified the confection as a 'luxury' for VAT purposes, but HMRC had stubbornly refused to pay the refund, arguing in the courts that this would 'unjustly enrich' M&S. The Law Lords rejected this challenge however, ruling that HMRC was discriminating against M&S by invoking this defence.

 

Where a business has accounted for too much VAT and makes a claim to recover it, HMRC can refuse to pay that claim if they can show that payment would unjustly enrich the claimant. However, until the law was changed in 2005, this unjust enrichment defence could only be used against a specific category of claimants. This meant that it was possible that a claim by one business could be refused whilst a similar claim from another business could not.

 

Marks & Spencer fell within the former category and challenged the discriminatory nature of the legislation … 

 

http://www.lowtax.net/asp/story/front/UK_Drops_Unjust_Enrichment_Defence_On_VAT_Reclaims_xxxx35203.html