Press Room
Marks & Spencer teacake saga continues as ECJ ruling looks
to House of Lords for final decision
Today's judgement in the Marks & Spencer case at the
European Court of Justice (ECJ) ruled in favour of M&S
reclaiming VAT paid on the sale of chocolate covered teacakes but
they have passed the final decision on repayment back to the House
of Lords. This decision coupled with recent decision in the cases
of Fleming and Condé Nast could extend the scope for retrospective
VAT claims by other retailers.
Roger Burrows, Head of VAT at Grant Thornton, commented: " The
Marks & Spencer tea cake saga continues. M&S were hoping to
hear today whether they would receive the £3.5 million they had
mistakenly paid to HM Revenue and Customs (HMRC) because they
incorrectly required M&S to account for VAT on the tea cakes.
HMRC has refused to repay 90% of the VAT on the grounds that it
would "unjustly enrich" the company who would not be passing the
money back to customers."
Burrows continued: "The European Court of Justice has ruled that
because of a deficiency in the way the HMRC had implemented the
unjust enrichment provisions, M&S do have a case for the
repayment to be made but have referred it back to the House of
Lords to make the final decision."
The case centres on Marks & Spencer and their attempt to
reclaim VAT paid on the sale of chocolate covered teacakes between
1973 and 1994. HMRC had regarded the teacakes as standard rated
biscuits yet in September 1994 it acknowledged that the teacakes
ought to have been classified as cakes and consequently zero-rated
for VAT purposes.
Unjust enrichment
UK legislation states that where a person has paid
an amount of VAT to HMRC which was not due to them, HMRC has to pay
the amount back. However, VAT does not have to be repaid if HMRC
can prove that to do so would unjustly enrich the claimant. Unjust
enrichment arises where, by meeting a claimant's VAT claim, he
would be put in a better economic position than if he had not
mistakenly accounted for the VAT, leading to the claimant receiving
a windfall.
Burrows explained, "Until the law was changed in 2005, repayment
traders were not caught by the unjust enrichment provisions but
payment traders were. This ruling could mean that HMRC will no
longer be able to discriminate on the grounds of unjust enrichment
between payment and repayment traders in respect of pre 2005
claims."