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HMRC internal manual

VAT Retail schemes guidance

Fundamentals of the retail schemes: Retrospective change of retail schemes: Exceptional circumstances

The only clear examples of exceptional circumstances are:

  • where the business has been misdirected (by omission or commission) by an officer of HMRC; or
  • where the business can clearly demonstrate that the scheme which it is proposing to use retrospectively would produce a more accurate liability, and the difference in tax due is an amount which represents a very high proportion of the business’s profit. In the case of AC Wadlewski [LON 94/1849], the Tribunal allowed retrospection where the difference in liability amounted to 40% of the business’s profits. The Tribunal concluded that:

In exercising their discretion the Commissioners clearly disregarded the amount of the overpayment which the use of one scheme produced by comparison with another, because they considered the amount of that overpayment to be irrelevant, simply because it was the taxpayer who chose the scheme and different schemes would produce different results. It was unreasonable for the Commissioners not to consider whether a very high proportion of “over-payment” might not be an exceptional circumstance justifying an exercise of their discretion beyond the criteria they had laid down.