HMRC consults on ending four extra-statutory concessions

HMRC has announced a technical consultation on plans to withdraw four extra-statutory concessions (ESCs), three of which concern VAT rates for computer systems and for sports clubs, while the fourth relates to accounting periods for retail co-operative societies

The move is in response to a House of Lords ruling in 2005, which 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 a programme to review its concessions and has so far published seven consultations as part of its review.

The latest consultation proposes withdrawing the ESC originally included in VAT Notice 701/7 regarding the zero-rating of a central processor. This concession allows a central processor to be zero-rated if sold as part of a computer system with software installed to enable a disabled person to use the computer system or other software effectively, or to carry out tasks effectively when otherwise they could not.

HMRC says this concession has caused some problems because of the use of the term 'central processor', which is considered to be outdated in view of technological advances, particularly in the development of tablets and smart phones. It now considers that the items the ESC was intended to cover fall within existing legislation and the ESC will be withdrawn with effect from April 2018.

The second ESC to be withdrawn relates to a composite rate of VAT for traders supplying disabled people with complete computer systems that contain significant specialist items. Currently, in addition to the items of equipment designed solely for the use of a disabled person, the suppliers may include the values of the central processor and costs charged to the customer for the installation of the equipment and for the training in its use.

HMRC says this concession was only intended to be used in conjunction with the ESC zero-rating of a central processor, and is thus obsolete and will be withdrawn with effect from April 2018. If any business would like to use a simplified calculation method in future then this can always be negotiated with HMRC.

The third ESC concerns affiliation fees for sports clubs, under VAT notice 701/45. HMRC says a sport’s governing body, or similar umbrella organisation, often charges an affiliation fee to individual clubs who make an onward charge to their members. Where the clubs are non-profit making, the supply of this affiliation fee to their individual members is exempt from VAT. However, if the club is a profit-making commercial club, then the supply to their individual member is standard rated.

The concession seeks to put profit-making commercial clubs in a similar position to non-profit making clubs, in that they do not need to account for output tax on the fee charged. It achieves this by allowing profit-making commercial clubs to treat these re-charges to their members as though they were disbursements. However, as such re-charges of affiliation fees are not legally a disbursement the concession goes beyond HMRC’s discretion and it will be withdrawn with effect from April 2018.

Withdrawal of the concession means that the onward charge of the affiliation fee will be liable to VAT unless it meets the conditions of a disbursement. The withdrawal of this concession has no impact on the VAT treatment of affiliation fees by non-profit making sports governing bodies, or similar umbrella organisations, and on non-profit making sports clubs to their members. In their case, the charge they make of affiliation fees continue to be exempt under the law.

The fourth ESC to be removed is concession C12 published in the former Inland Revenue booklet IR1, which relates to accounting periods for retail co-operative societies.  C12 treats accounts comprising 12 months to an agreed terminal date as one accounting period even if a retail co-operative society draws up accounts on a quarterly or half-yearly basis, provided the society adheres consistently to this approach.

HMRC says that following closures and mergers there are now only 12 retail co-operative societies, all of which have been contacted. Of the ten that have replied, all have confirmed that they no longer make up accounts for shorter periods, they make up only annual accounts. They no longer use the concession and are not likely to use it in the future. Publicly available information indicates that the remaining societies also produce annual accounts. HMRC considers the concession is now obsolete and it will be withdrawn with effect from April 2018.

The deadline for comments on the proposed withdrawals is 7 March.

HMRC’s consultation on the withdrawal of extra statutory concessions is here.

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