Overcharged customers, HMRC and unsecured creditors generally are all protected by the result of a recent Judicial Review.
If a supplier has overcharged VAT (and paid it over to HMRC) there are a number of consequences if it then enters formal insolvency proceedings:
- It can no longer reclaim the overpayment from HMRC;
- HMRC cannot set off the overpayment against any claim it has in the insolvent estate;
- HMRC is likely to raise assessments against VAT-registered customers of the insolvent supplier to the extent that they used any overpayments to reduce their own liability to HMRC to pay over VAT;
- any overcharged customer cannot reclaim any overpayment from the supplier, either by way of set-off or as a claim in the insolvent estate;
- instead the overcharged customer should claim any overpayment from HMRC, which would counteract any assessments raised against them;
- the insolvency officeholder should notify customers of their right to submit a claim to HMRC; and
- the remainder of the insolvent supplier’s unsecured creditors will not share in the proceeds of
the potential overpayment recovery from HMRC.
Overall, although HMRC receives the benefit of the overpayment it will have suffered equivalent deductions from customers’ liabilities; although the insolvent supplier’s estate (and therefore its creditors generally) bears the cost of not being able to recover the overpayment from HMRC, neither will it be liable for claims from overcharged customers; and overcharged customers should meet any assessments with an overpayment claim against HMRC and so are also effectively protected and should not suffer any loss.
The court found in Premier Foods (Holdings) Ltd, R (on the application of) v HM Revenue and Customs & Anor  EWHC 1483 (Admin) that such an outcome was necessary in the interests of fiscal neutrality to avoid penalising innocent customers and unjustly enriching creditors generally.