VRS7500 | Bespoke schemes: practical guidance: Withdrawing from an agreement

Where an aspect of an agreed scheme appears unsatisfactory, both sides must first consider the benefits of certainty over change. However, HMRC can withdraw agreement to a scheme:

• under the terms of the scheme, if such terms are present; or

• for the reasons in Regulation 68 of the VAT Regulations 1995.

In the past, assurance teams have been reluctant to withdraw a bespoke scheme because the regulatory consequence of doing so is that the business would be required to account normally, and this may not be a practical possibility. This view has been reinforced by analogy with decided partial exemption cases, where it is settled law that the Commissioners may not direct the use of a method which the business is unable to use.

The key difference here is that there is no directing power in the retail scheme regulations. A failure to agree is not simply the responsibility of HMRC, and the business can be presumed to share some responsibility for the regulatory consequences of declining to enter an agreement on terms offered by HMRC.

In order to make it clear that the decision to end the scheme is a shared one, when you withdraw a scheme you must

• clarify which aspects of the scheme you find unacceptable; and

express HMRC’s willingness to agree a new scheme without the offending elements from the date the existing scheme is withdrawn.