Whether taxpayer would be unjustly enriched if overcharged VAT was repaid

The taxpayer MOPAC was a public body that disposed of privately owned vehicles that had been seized from various parties linked to criminal activities. The vehicles were sold to scrap companies and VAT was incorrectly charged. The scrap companies were VAT registered so claimed input tax and paid the VAT to the taxpayer.

The taxpayer submitted a claim for a VAT refund of £1.7m. HMRC rejected this on the basis that the refund would ‘unjustly enrich’ the claimant (VATA 1994 s 80(3)).

The taxpayer claimed that the unjust enrichment provisions should not apply here because both it and HMRC were part of government. So payments between them were a ‘mere reallocation within that body public resulting in neither net enrichment nor net expense since there is no more than an internal circulation of the £1.7m’.

HMRC disagreed. It said the taxpayer was not out of pocket as...