Marks and Spencer, UK Retailer, has been at odds with HM Customs and Excise over VAT on teacakes: no really, it's gripping the nation! M&S argued that teacakes should be zero rated for VAT purposes and HMC&E agreed. What they disagreed on, however, was the recovery of the VAT already paid on the teacakes already sold that had been subject to the tax. M&S said: we overpaid therefore we should get it back. HMC&E said: you overpaid but you cannot give it back to the people who actually paid it. In the first move of its kind, Customs invoked laws on unjust enrichment which prevents the government repaying VAT to companies if it means they would benefit unfairly because it is impossible to pass the recouped VAT back to the people who paid the tax originally. It is the first time Customs has successfully argued unjust enrichment. accountancyage.com See? HMC&E is arguing that M&S would need to be able to reimburse the exact amount of VAT to exactly those people who bought the teacakes when they were subject to VAT! Nonsense? Of course! Solution? You might have your own solution but here are just two from me: either HMC&E or M&S pays the money to a charity: since HMC&E probably can't do that for legal reasons, let M&S do it give the money back to M&S and let them TRANSPARENTLY reduce the selling price of the teacakes they sell now until the money runs out Has HMC&E kept ALL the money? No: The court ruled 90% of the VAT should be retained by the government. accountancyage.com How much money is involved? The BBC provides that answer to that: ... it could be worth £12m to M&S ... Including backdated interest ... M&S believes its claim dates back to 1973 ... The retailer claims it paid £3.3m too much VAT on teacakes £1m too much on bottled water £800,000 on gift vouchers and £500,000 on tinned biscuits news.bbc.co.uk Please note, the BBC article is dated October 2001 so any claims for interest on the amounts owed must be updated to allow for that: another £980,000 at 4% per year compound, possibly. Is this the end of the matter? Not necessarily as M&S could take its case to the House of Lords but it is waiting to learn the outcome over the referral of part of the case to the European court. 'We are considering our position,' said a spokesman. accountancyage.com DW