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HMRC internal manual

VAT Retail schemes guidance

Bespoke retail schemes: general principles: Binding agreements


Information about the circumstances in which retail scheme agreements can be legally binding is available at VRS3150.

Although the GUS Merchandise Corporation Ltd case referred to in VRS3150 demonstrated that we can, in principle, bind and be bound by agreements, there are some circumstances, detailed below, in which an apparent agreement may be nullified.

Ultra Vires agreements

There may be cases where the agreement exceeds the competence of the tax authority. For example, no agreement made under retail scheme regulations should compromise any fundamental aspect of the tax, such as tax point or liability. We believe that the courts would strain to avoid any interpretation of an agreement that appeared to undermine a clear statutory provision to the contrary.

Lack of disclosure

It is a feature of contract law that, if either party has not acted in good faith, with the result that something is not disclosed which would have affected the willingness of the other party to enter into a contract, the agreement may be invalid from the start. The only retail scheme context in which this has been considered is the Tesco Tribunal case [LON/93/1954A]. 

It will always be difficult to prove bad faith in such circumstances and, in the Tesco case, it was accepted that the VAT manager (who had negotiated the agreement) did not know of the management reports which could have led to a more accurate and higher liability. So, even though the corporate body might have been said to have known of an undisclosed fact, the tribunal was unwilling to overturn the agreement on that basis.

See paragraph 5.1 of Notice 727/2 Bespoke retail schemes for the action required should there be any changes to the business which would affect the accuracy of its retail scheme declarations.

Implied agreements

See VRS3150 for general information about implied agreements. This guidance may be significant where there is an ongoing failure to agree a bespoke scheme.

Where non-agreement to a bespoke scheme continues, it is best practice to make it clear to the business in writing that the acceptance of returns when a scheme has not been agreed does not imply agreement to the methods employed in making the VAT declaration.