Marks & Spencer’s teacakes – again
A couple of weeks before Christmas the Marks & Spencer’s teacake issue raised its head again. Not, this time, about whether they should be zero-rated but whether Marks & Spencer would be unjustly enriched if they were to be given back the VAT they paid to H M Revenue & Customs (HMRC) until it was decided that the teacakes should be zero-rated. Most VAT specialists thought that Marks & Spencer would lose, and they still might – the current European Court of Justice (ECJ) release is the opinion of the Advocate General.
The argument is about whether Marks & Spencer is entitled to be repaid all the VAT it paid to HMRC. Unjust enrichment is when the claimant would be in a better financial position after the repayment of the tax, than if the correct VAT treatment had been applied from the outset. Most often this comes down to whether the price charged is determined by the costs of production, plus a profit margin, plus VAT; or whether the price charged is determined without consideration of anything but what the market will bear, i.e. the maximum a customer is likely to pay for the product.
The Advocate General has said that, in their opinion, the UK was wrong to have different rules for payment and repayment traders. If the ECJ upholds this Opinion it will be costly for HMRC. HMRC successfully argued that full refund of the VAT overcharged would unjustly enrich Marks & Spencer, and only 10% of the VAT was refunded.
The rules on unjust enrichment were changed in 2005 giving similar rights to both payment and repayment traders. This could open the way for past cases to be reopened – but you’ll have to wait for the ECJ decision before taking any action. The longer it takes for the ECJ to release its decision the more likely they will reach a different conclusion from that given in the Advocate General’s Opinion. Please don’t hold your breath while waiting for the final decision!
Related posts:
