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HMRC internal manual

VAT Retail schemes guidance

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HM Revenue & Customs
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Fundamentals of the retail schemes: Changing retail schemes prospectively

Regulation 71 of the VAT Regulations 1995 states:

  1. Save as the Commissioners may otherwise allow, a retailer who accounts for VAT on the basis of taxable supplies valued in accordance with any scheme shall, so long as he remains a taxable person, continue to do so for a period of not less than one year from the adoption of that scheme by him, and any change by a retailer from one scheme to another shall be made at the end of any complete year reckoned from the beginning of the prescribed accounting period in which he first adopted the scheme.

A business may therefore change schemes at the end of a complete year. For retail scheme purposes, a complete year is calculated from the beginning of the tax period in which the retailer started to use their current scheme. This ensures that any annual adjustments or rolling calculations are carried out to reflect the retail sales made over the period and to avoid seasonal fluctuations. Where a retailer is changing schemes voluntarily in accordance with the regulation, they do not need to seek prior approval from HMRC. But they must carry out the adjustments required on ceasing to use particular schemes.

There are two circumstances in which the 12-month rule may not apply:

  1. where the business becomes ineligible to use a scheme; or
  2. where the business applies to change schemes before the end of their retail scheme year.

In the case of a. the business must stop using their current scheme no later than the end of their next complete accounting period. This should give the business time to choose an alternative scheme and make any necessary preparations for the change. Further guidance on ineligible use of a scheme is given in VRS3200.

In all cases concerning a voluntary change of scheme, b. above, we must exercise our discretion reasonably and take into account all relevant circumstances. For example, you will need to consider:

  • the reasons for the change;
  • the effect of any required adjustment; and
  • whether the change will produce a fair and reasonable result.

If you consider that, even with any adjustment required on ceasing to use the first scheme, the change will not produce a fair and reasonable result, you should refuse the application. (You may find the general guidance on use of discretion at VRS3450 helpful in these cases.)

Where you decide to allow a voluntary change of scheme before a scheme year-end, such a change can take effect from the start of the next complete accounting period. This is the earliest point at which a voluntary change can normally take effect.

Cases of difficulty should first be considered by the appropriate SO. In cases of doubt, or where there are persistent representations against a local decision, refer the case for further advice with full details and a recommendation, following the instructions on the Indirect Tax Homepage.

This paragraph does not deal with the circumstances in which the Commissioners require a change of scheme, for example, where a retailer cannot or does not operate the chosen scheme correctly. Guidance on refusing use of a retail scheme is given in VRS2350.