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HMRC internal manual

VAT Retail schemes guidance

Fundamentals of the retail schemes: Retrospective change of retail schemes: Background

Regulation 71 of the VAT Regulations 1995 [SI 1995/2518] gives HMRC discretion to allow a change of scheme retrospectively. But we do not normally allow such changes to retail schemes. Our policy is to allow retrospection only in exceptional circumstances. Again, this discretion must be used reasonably in all the circumstances of each case but the number of applications for retrospective changes of scheme has increased. This is because some tax advisers have acquired clients on the basis that they can obtain a VAT refund for them through such a change of scheme.

The VAT and Duties Tribunal has consistently upheld the principle that, where a business operates a retail scheme according to the published rules (or an agreed variation), the tax that is due under the scheme is the correct VAT for the period. The fact that a different scheme produces a different or lower valuation is not in itself an exceptional circumstance. See for example the following cases.

Case Quote
James Roy Buckley [MAN/91/793] The appellant’s appeal is based on a misconception that he has overpaid tax.
Garcha Group [LON/94/241] The appellant cannot conclude that by use of this scheme it has overpaid tax in the sense of section 24(5) of the Finance Act 1989 (now s.80 VATA 1994). … Questions of overpayment would arise if the appellant had not paid tax in accordance with that scheme but had paid more tax than the scheme required.
L and P Fryer [MAN/95/1532] While a scheme is being used, the VAT which is due under it and not the VAT which would otherwise be due, is the VAT which is due from the retailer.

References to the “true amount of tax”, meaning thereby the tax which would be due if no scheme, or perhaps another scheme, were used, are accordingly unhelpful, since the true amount of tax is the tax due under the scheme.