VAT – Unjust Enrichment Case
The House of Lords has issued a final ruling in a long running saga which involved the VAT liability on chocolate covered teacakes. The case concerned a claim for repayment of VAT after Marks and Spencer were able to prove that teacakes should have been zero-rated for VAT. This is because the teacake was classified in the same group as cakes and bread which do not attract VAT rather than as chocolate covered biscuits which are liable to VAT.
HMRC accepted that the teacakes should have been sold without VAT (zero-rated) but refused to repay the majority of the £3.5m claimed by the taxpayer stating that this repayment would be an unjust enrichment to Marks and Spencer as the customer who had overpaid the VAT at the tills would not benefit from the repayment.
The House of Lords has now confirmed that Marks and Spencer is entitled to a full refund. The exact circumstances of the case mean that there is also an opportunity for taxpayers who made similar claims before May 2005. Taxpayers who had claims rejected or reduced on the grounds of unjust enrichment before May 2005 should review these claims as a matter of urgency. Since May 2005 the law has changed allowing HMRC to refuse to pay part of a claim citing the reason of unjust enrichment.