The Revenue & Customs Brief 24/11 entitled 'VAT – correcting liability errors made by HMRC' announced the withdrawal of Business Brief 28/04 item 2, 'VAT - correcting liability errors' with effect from 1 August 2011. The brief stated that where a business chose to register for VAT belatedly in respect of supplies that had previously been treated as exempt but should have been treated as taxable then HM Customs and Excise (HMCE) would not pursue tax under the misdirection class concession to the extent that it had not been passed on to the customers (net of input tax).
The changes resulted in the removal of a well-known VAT misdirection Extra-Statutory Concession (ESC) 3.5 in cases of VAT liability change. The ESC was withdrawn as in HMRC’s view, case law was sufficiently clear in scenarios where HMRC has given incorrect advice when in full possession of the facts. HMRC is bound by incorrect advice only in certain circumstances.
However, HMRC has continued to receive registrations for VAT in which businesses specifically request HMRC not to pursue net tax due on supplies where VAT has not been passed on to customers. From 1 August 2016 HMRC will no longer routinely consider requests not to pursue the tax due. Any new requests must be received by HMRC VAT registration service on or before 31 July 2016.