This Brief explains the circumstances in which HMRC believe claims from individuals to whom amounts have been wrongly charged as VAT by their suppliers may be entitled to make a common law claim for restitution of the amount overpaid from HMRC. The Brief is issued in response to several recent cases.

In HMRC's view, the Brief applies in the following situations:

• Where a supplier has charged an amount as VAT to their customers which ought not to have been charged;
• Where they have passed the ultimate economic burden of that VAT charge on to those customers so that the VAT has not been a cost to them and there has not been any loss or damage to their business as a result; and
• Owing to exceptional circumstances, the customers are unable to get the amounts wrongly charged to them back from the supplier

If a person has accounted for output tax on goods or services they have supplied on the assumption that those supplies are properly taxable and later discover they are, in fact, exempt, they can make a clam under section 80 to recover the wrongly declared output tax. That claim is subject to statutory time limits (four years) and must be reduced by any input tax that was wrongly deducted.

Section 80 provides that only the person who accounted for the output tax is entitled to make a claim. Therefore under this section, only the supplier can make the claim. HMRC will also reject supplier claims if they believe that the claimant would be unjustly enriched by the payment.

Where a customer believes that a supplier has wrongly charged them VAT, their remedy is to bring a claim against their supplier, they cannot claim under section 80. HMRC state that this is a commercial matter and the right to claim against the supplier depends on the terms of the contract under which the goods or services were supplied. Such claims are not statutory claims and there is no statutory provision which enables the customer to make a claim against HMRC.

However, as a result of several court cases section 80 claims repaid to suppliers were less than the amounts wrongly charged to their customers as VAT. Subsequently, nine investment trust companies made common law claims in restitution against HMRC for the difference. In one such recent High Court judgement it was held that whilst section 80 prevents any claim being made against HMRC by anyone other than the supplier, HMRC have still been enriched at the expense of the investment trust companies, that enrichment had been unjust and thus these companies can be said to have a common law claim in restitution against HMRC.

As a result, the Brief advises customers who believe that they are entitled to bring claims on the basis of the judgment to do so, claims will only be considered on the basis of 'last resort'.

According to the Brief, the criterion for making a claim is as follows:

• the tax was wrongly levied in breach of EU law
• the supplier passed the wrongly charged tax on to the customer so that they ultimately bore the economic burden of it, and
• it is, for reasons unrelated to the merits of the claim, excessively difficult or impossible in practice for them to make a claim against their supplier.

Guidance is also provided on how to make claims which must be brought in the relevant court and must be particularised. As the claims are not claims made under section 80 they are outside the jurisdiction of the First-Tier Tribunal.

It should also be stressed that because the claims are not statutory claims and are not made under any provision of the VAT legislation, they are not subject to the time limits prescribed in the VAT Act but they are subject to the time limits provided for in the various statutes of limitation in the three jurisdictions of the UK.

The time limits in each jurisdiction are outlined in the Brief. HMRC also advise that they are unable to advise potential claimants on making a claim and recommend professional advice is sought.

The full text of the Brief is published on here.