How To Take Advantage Of Extra Statutory Concessions

Andrew Needham highlights extra statutory concessions for VAT purposes, how much they can be relied upon, and how to take advantage of them.

An extra statutory concession (ESC) is a concept whereby HMRC grants certain concessions to taxpayers to mitigate their tax liabilities even though, under the relevant legislation, they would not strictly be allowed to do it.  Basically, the law has unforeseen circumstances and HMRC allows taxpayers to avoid them.  ESCs have been a feature of the UK’s tax system for decades and will continue to be made and withdrawn as necessary.

Although they do not form part of either primary or secondary legislation, ESCs are highly formalised, and are indirectly enforceable by means of judicial review rather than through the tribunal system. ESCs are formally categorised and published under reference numbers in HMRC Notice 48. By convention, HMRC publishes a full list of ESCs on the first day of each new tax year.

ESCs are remissions of revenue that allow relief in specific sets of circumstances to all businesses falling within the relevant conditions. They are authorised when strict application of the law would create a disadvantage to a business, or the effect would not be the one intended.

ESCs have a general application, that is, a concession may be exercised by anyone to whom the circumstances set out in the concession apply to without having to get permission from HMRC. However, where an attempt is made to use an ESC for tax avoidance, HMRC may withdraw or restrict its application.

In a House of Lords’ decision (HMRC v Wilkinson [2005] UKHL 30]) the court clarified the scope of HMRC’s administrative discretion to make concessions that depart from the strict statutory position.

In light of that decision, HMRC has been reviewing its published concessions. The indications are that most ESCs will be able to continue in their current form as they are within the scope of HMRC’s administrative discretion. Where an existing concession exceeds the scope of its discretion, HMRC will maintain the effect of the concession by giving it statutory effect where it is appropriate to do so, or by issuing a Statement of Practice. HMRC has published a number of consultations seeking comments on such changes to the legislation. For example, in 2009 a concession for misdirection by HMRC was withdrawn, and replaced by a Statement of Practice.

Where an ESC has to be withdrawn HMRC realises that taxpayers may have to make adjustments, and will generally offer an appropriate period of notice before the concessionary treatment formally comes to an end. The length of this period may vary between ESCs, but HMRC aims to allow a period of time that is sufficient for the necessary adjustments to be made. No ESC will be withdrawn retrospectively. Very occasionally, HMRC has announced withdrawal of a concession for new users from a certain date, and allowed a longer period for existing users to rearrange their tax affairs.

In certain trades, particular arrangements for applying VAT and other charges have been agreed with the appropriate trade association. These are not ESCs and are listed in Notice 700/57 (Administrative agreements entered into with trade bodies).

Sometimes the law is too restrictive and produces unforeseen results. As a consequence there are a number of ESCs to correct the position. Check the ones available regularly to make sure you are taking advantage of any ESCs that apply to you, so that you are accounting for the right amout of VAT.