In HMRC v Investment Trust Companies (in liquidation) [2017] UKSC 29 the Supreme Court concluded that where HMRC have erred in VAT law, only the business who paid HMRC erroneous VAT can claim it back.
- The Investment Trust Companies (ITCs) were charged for services by Investment Managers (IMs).
- These services were treated as standard rated in accordance with domestic law.
- IMs paid the VAT, less input VAT, to HMRC.
- It was found that HMRC had not transposed EU law correctly and these services should be exempt.
- IMs successfully recovered VAT and interest from HMRC to the extent it was not time-barred.
- The refund was equal to the net amount of VAT paid by the IMs as they would not be entitled recover VAT if all services were exempt.
- The IMs agreed with HMRC to repay the net VAT to the ITCs as a condition of the refund.
- The ITCs made an unjust enrichment claim against HMRC:
- They had only received the ‘net’ VAT that the IMs had recovered from HMRC
- This meant they had not recovered the full amount of VAT that had been unlawfully levied by HMRC.
- HMRC should be liable for the total VAT paid by the ITCs , not just the VAT net of IMs input VAT.
- The ITCs also took the view that the amount that HMRC owed to them was not time barred.
The Supreme Court found:
- Economically speaking, HMRC had been unjustly enriched at the expense of the ITCs.
- In reality
- The IMs were unjustly enriched at the expense of the ICTs
- HMRC were unjustly enriched at the expense of the IMs.
- They could not collapse two transactions into one.
- ITCs claim was against the IMs.
- ITCs as the end-user, could not claim directly against HMRC.
- The ITCs claim is time-barred.
Links
VAT reclaims and unjust enrichment
External link: HMRC v Investment Trust Companies (in liquidation) [2017] UKSC 29
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