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Approach to bespoke Retail Schemes

1st Jul 2021
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We do not see many cases of bespoke Retail Schemes, so the Poundland Ltd FTT case caught my attention.

Most retailers use one of the standard Retail Schemes. Each is essentially an estimated method of calculating output tax, as compared with recording VAT on each supply as it is made, which would of course be burdensome for all retail businesses.

Where a business is sufficiently large, the option of a bespoke Retail Scheme is worth addressing. The result should be that the output tax calculation is even more accurate. Poundland had used one such scheme, called the Old Scheme in the decision, from December 2002 until March 2017. They then changed to the New Scheme. It was during the negotiation with HMRC about the New Scheme, that HMRC highlighted that there was no annual or closing stock adjustment in the Old Scheme. HMRC commented that this omission constituted a ‘fundamental flaw’ in the Old Scheme, which meant an assessment (of around £2.5m) was appropriate.

The Tribunal’s argument is important.

A Bespoke Retail Scheme agreement is a legal commercial contract. The Court of Appeal confirmed this in relation to Boots back in 2009 ([2009] EWCA 1396). This means that the method represents both parties’ agreement that output tax is to be calculated in this way. If they include a stock adjustment, or not, that is their decision at the time. HMRC could not unilaterally resile from such an agreement. (It would be possible to conceive of a detail within a method which breached legislation, such that as assessment would be correct.)

www.bailii.org/uk/cases/UKFTT/TC/2021/TC08138.html

I think a similar case might be made where a client has a Partial Exemption Special Method, which is also considered a legally binding agreement between the taxpayer and HMRC.

 

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