VAEC5150 - Recovery assessments: Section 80B(1B) Example 3

The procedural guidance in this manual only covers the VAT Mainframe and VISION processes. For guidance on the Making Tax Digital and ETMP processes for fully migrated customers, see VAEC0200 and the Making Tax Digital for VAT compliance toolkit.

Section 80 claim where unjust enrichment does apply and the business enters into the reimbursement arrangements but only partly reimburses their customers.

Business has a £6,000 outstanding VAT debt on file and has wrongly deducted £2,000 input tax. They make reimbursements of £3,000.

Output tax over-accounted for	£10,000
Input tax credit wrongly claimed	£2,000
Net over-accounting	£8,000
Outstanding VAT debt	£6,000
Total credit	(£10,000)
Amount reimbursed to customers	£3,000

In the above example, where unjust enrichment does apply and the business chooses to enter into the reimbursement arrangements then they will receive the net amount of their claim, £8,000.

This amount will be offset against their £6,000 debt leaving a net amount of £2,000 payable to the business.

In the above example £10,000 has been credited to the business (£6,000 to their VAT mainframe account, £2,000 in respect of the wrongly claimed input tax and £2,000 repaid) on condition that the full amount of £10,000 is reimbursed to their customers.

If the business fails to reimburse the full amount then we must recover from them the balance not reimbursed to customers. If we do not then they will have been unjustly enriched by this amount.

In this example the business has received a credit of £10,000 but have only reimbursed their customers £3,000, therefore they have been unjustly enriched by £7,000 (£10,000 credit - £3,000 reimbursed).

Therefore an assessment for £7,000 is made and notified to the business [under the provisions of Section 80B(1B)] to recover the £8,000 credited to their VAT mainframe account, less £1,000 in respect of the credit that has been reimbursed by the business to their customers.

In this example there is no section 80B(1) assessment. This is because section 80B(1C) provides that any amount reimbursed by a business must first be deducted from the sum repaid to that business before it is deducted from the amount credited to them.

In this example the business was repaid £2,000 but reimbursed £3,000 to their customers, therefore no amount of the monies repaid remained to be assessed for under the provisions of section 80B(1).

In short, section 80B(1) provides for assessments to be made in respect of amounts repaid to a business, whilst section 80B(1B) provides for assessments to be made in respect of amounts credited (by way of offset and wrongly deducted input tax) to a business. Section 80B(1C) determines that when considering these recovery assessments, that any amounts reimbursed by the business should first be deducted from the amount repaid to the business before the amount credited to them.

The processing and notification procedures for Section 80B assessments are outlined at VAEC5120.