Summary
- HMRC has withdrawn many extra statutory concessions (ESCs) after court rulings restricted its ability to apply “common sense” outside strict law, increasing risk of backdated VAT assessments.
- ESCs let HMRC depart from legislation in practical cases, but relying on abolished ones could trigger up to four years of underpaid tax claims.
- Remaining concessions (see Notice 48) include delaying VAT on vending machine income and allowing input tax claims where VAT was wrongly charged by non‑registered suppliers.
- Protection from incorrect HMRC advice now relies on “legitimate expectation”, provided full and accurate disclosure was made.
HMRC has been taking away a number of VAT concessions that have existed for many years. Why has this happened and what concessions could still be useful for your business?
What is an extra statutory concession?
An extra statutory concession (ESC) means that HMRC is able to apply common sense on a particular VAT issue rather than a strict application of the law. However, court cases in recent years have indicated that HMRC’s power to “depart from the statutory position” is more limited than previously thought. It is therefore important that your business does not use ESCs that have been abolished, otherwise you could be issued with an assessment for underpaid tax.
The tax concessions that remain are highlighted in HMRC’s Notice 48. The VAT concessions are contained in Section 3.
An assessment could be issued for the last four years if you have continued to use abolished ESCs, the correction time window that applies to past returns.
What concessions remain?
If your business has a vending machine selling goods, such as snacks and drinks, you can delay accounting for VAT on your return until the machine is emptied rather than the day when the buyer puts coins in the machine. A more important concession that could involve significant amounts of tax applies if your business buys goods or services from a supplier who is neither registered, nor required to be registered, for VAT, and you have been incorrectly charged VAT by the supplier. In such cases, there is no legal basis for you to claim input tax but the ESC in para 3.9 sensibly allows a claim if VAT has been charged and you have paid VAT to the supplier in good faith.
If an officer does not allow your input tax claim, refer them to the powers given to HMRC to recover the VAT incorrectly charged by the supplier as a debt due to the crown.
For coin-operated machines, you must still account for VAT if cash is stolen from the machine before it is emptied. The ESC is overridden.
Industry-specific concessions
Most of the other listed concessions are specific to a particular trade, including retail pharmacists, charities, museums and galleries, auctioneers and printers. There are 19 concessions still in place and 18 other concessions have been abolished. A review of Notice 48 will highlight any remaining ESCs that could benefit your business.
Misdirection by HMRC
An ESC was withdrawn many years ago which gave protection to taxpayers who had been misled by incorrect advice from an HMRC officer. So, if officer A told you that a sale of certain goods was zero-rated, and that was wrong, then officer B could not assess tax if you had given full and accurate facts to officer A. However, all is not lost: you get similar protection by the modern concept of “legitimate expectation”. This principle confirms that HMRC will stand by a decision if an officer has given a specific, clear and unconditional ruling, as long as you gave full disclosure and included all relevant facts about the transaction.
Although HMRC will not retrospectively issue an assessment, you must apply the correct tax treatment on future supplies.
For further guidance, see HMRC’s Admin Law Manual ADML1200 headed “Incorrect Advice to Customers: Collection and Management” and ADML2000 headed “Incorrect Advice to Customers: Correcting the tax position”.
