Refunds: When Can a Business Refuse a Refund in The Face of Covid?

Covid-19 has changed a lot of things in the world of business, and one area many of us have become much more conscious of is finance. Money is tight for a lot of us, and it can be difficult to keep up with any financial aid available, what best practice and guidance is at any one time, and what your business is allowed to do. During these uncertain times, the last thing you want to be doing is giving money away.

In recent weeks, the Competition and Markets Authority (or CMA) have issued more guidance around this issue, aimed at consumer-facing businesses receiving requests for refunds and cancellations during the pandemic. But what does it all mean, and can a business refuse to give a customer a refund? We explore the latest guidance from the CMA in our latest post.


Full Refunds: 

The CMA’s first piece of guidance is very clear – If a customer has paid in advance for goods or services that can’t be provided, they should be offered a full refund where a contract can’t go ahead as agreed due to Covid-19 lockdown laws. This includes: 

  • Where a business cancels without providing any of the agreed goods or services.
  • Where a customer can’t receive the agreed goods or services. This could be because, for example, local lockdown laws have made it illegal to actually receive those goods or services (like facial beauty treatments, or overseas travel isolation rules).
  • When the goods or services provided are dramatically different from what was originally agreed with the customer.

Of course, that doesn’t mean that every customer is automatically entitled to a full refund. For example, if their own actions have meant they can’t receive the services, then there is no immediate expectation for a full refund. After all, why should a business bear the financial burden for a customer’s choices? Where a refund is applicable, the CMA acknowledges that there may be an understandable delay, but that businesses should still issue refunds as promptly as possible.

Refunding Ongoing Contracts:

Ongoing contracts are much more complicated than one-off purchases, and the law far less clear. The CMA’s guidance states that: 

  • Consumers should normally receive a full or partial refund for paid-for services not provided or unable to be used due to lockdown laws;
  • Consumers can normally withhold paying for services not provided or which cannot be used due to lockdown laws; and
  • Businesses can require a small costs contribution until the service provision is resumed, provided that the contract terms clearly and fairly set this out and consumers can freely terminate if they do not wish to pay the contribution.

Obviously this guidance isn’t as cut and dried as it seems, and there will be exceptions. The key is to assess each case individually and ensure the customer and business are both treated fairly.

Non-Refundable Payments & Fees:

The CMA has made it clear that the above rules on refunds apply regardless of whether a particular payment is labelled as non-refundable, or an advance payment for goods and services. They reason is that the contract containing any terms permitting the business to keep a customer’s money while providing no service will be unfair, and so in direct violation of the Consumer Rights Act 2015. The CMA have also added that businesses should not charge any kind of administration fee (or equivalent) for processing refunds – for the same reasons as above. 

Seeking Payment for Future Services:

At this time, the advice is that businesses ‘must not seek advance payments for any goods or services that they know they can’t provide’. This is generally good business practice, but for Covid-19 specifically, it might apply if local lockdown is already impacting your ability to provide goods and services, and those restrictions are likely to remain in effect.


Cancellations Under Government Guidance:

This is a very complex area, and unfortunately is where a lot of the confusion happens. But the guidance says that generally, outside of specific rules (like those for foreign travel) businesses may be within their rights to treat cancellations by customers due to non-binding government guidance as cancellation by choice. This puts the refund outside most of the guidance already discussed above – but you will need to look at each one on a case-by-case basis.

Cancellations Under Standard T&Cs:

If you as a business don’t provide the goods or services promised, then the customer is entitled to their money back. So the CMA’s view is that if the business decides to cancel without providing any goods or services, then they cannot keep the customer’s money. Equally, businesses shouldn’t impose any disproportionately high charges for customers who cancel their contracts during these troubled times.

But as with all things, there are exceptions. For example, if the goods or services are personalised and cannot be sold or supplied anywhere else, and the business has incurred a cost to create them, then the business might be fully entitled to refuse a refund. Particularly when the T&Cs have been brought to the customer’s attention at payment, but the customer later cancels of their own volition.

There are a few options open to businesses to avoid this, including:

  • A deposit retention where the deposit is a small percentage of the total price;
  • Advance payments for future services should usually be refunded, but can be subject to deductions limited to costs that businesses reasonably incur;
  • Cancellation charges should be limited to a genuine estimate of what a business will lose directly; and/or
  • Businesses should not be compensated twice for the same loss (e.g. by retaining some advance payments and imposing a cancellation charge).

Of course, all of this is very, very complicated, and no one can really predict what’s going to happen next. Not the most useful stance to take, but in a pandemic, the only thing we can be certain of is uncertainty. This guidance can be a useful starting point for businesses to follow and if you aren’t sure about what you should do just get in touch with the team at 2020 Business Law today.

If you need any help get in touch with us on or 01980 676875.