For businesses that earn an annual turnover of at least £100m, such as Poundland, it is necessary for a bespoke retail scheme to be agreed with the tax body.
A previous scheme ran between December 2002 and March 2017, resulting in the discount retailer switching to a “new scheme” based on a “very accurate and reliable” electronic point of sale (EPOS) system on 27 March 2017.
Judge Jonathan Cannan of the first-tier tribunal said: “Essentially, the issue between the parties is whether in calculating Poundland’s VAT liability for the final accounting period of the old scheme, an adjustment ought to be made to recognise the closing stock held by Poundland in its retail stores at the end of that period.”
HMRC claimed that Poundland did not adjust its figures for the closing stock of zero-rated items in their final financial return under the “old scheme”.
In turn, the allegations stated that the zero-rated sales were double counted from when they were moved to the store, and when they were sold following the change in schemes.
However, HMRC failed to recognise the opening stock adjustment that Poundland had been required to make when adopting the “old scheme” in 2002, which goes hand-in-hand with any closing stock assessments.
Judge Cannan added: “It is not to prevent double counting, it is to ensure consistency in the final period of operation of the DC2 [old] scheme where there has been an opening stock adjustment and subsequent annual adjustments.
“I agree with Mr Hitchmough that the closing stock adjustment on ceasing to use DC2 works together with any opening stock adjustment.”
The VAT assessment had previously been made in the sum of £2,349,471 in 2018, before being brought down to £2,150,177 upon appeal.