Following the recent decision of the House of Lords in Marks & Spencer, HMRC has released a Business Brief announcing that it will not use the defence of unjust enrichment against VAT claims by businesses for periods before 26 May 2005.  

In certain circumstances the defence of unjust enrichment enabled the Revenue to refuse to pay claims on the basis that the majority of the overpaid tax had been passed down the VAT chain. This defence was only available in situations in which the Claimant was a “payment” rather than a “repayment” trader.  

M&S challenged this disparity. The ECJ ruled that the distinction offended the principles of equal treatment and fiscal neutrality and could not be objectively justified. When the case returned to the Lords, HMRC was ordered to repay the excess VAT which had been incurred over a period of some 20 years.

The law changed on 26 May 2005 ostensibly to repair the discrepancy between payment and repayment traders. Until now the Revenue have continued to plead unjust enrichment as a defence to preMay ’05 claims. Finally, however they have abandoned this position and are settling claims made before this date (subject to verification). Please contact us if you have any queries on how this decision may impact upon your business.  

For claimants who have been put off making claims by HMRC’s position on unjust enrichment, the announcement confirms that the defence will not apply to claims for periods pre May ’05 made within unspecified “relevant deadlines”. It is generally thought that that deadline is 31 March 2009, the end of the “Fleming” window (see next item) but it remains questionable whether if such a deadline is observed it might itself also fall foul of the requirement for a reasonable transitional period.