Bespoke VAT retail schemes (VAT Notice 727/2)
Find out when you need to agree a bespoke VAT retail scheme with HMRC.
Detail
This notice cancels and replaces Notice 727/2 August 2011.
1. Overview
1.1 What this notice is about
This notice explains when you need to agree a bespoke retail scheme with us. It explains the general rules applicable to bespoke retail schemes, how a bespoke agreement should be structured and what records you should keep.
1.2 Who should read this notice
You should read this notice if:
- you’re a VAT-registered business making retail sales
- you are unable to account for VAT on those sales in the normal way (paragraph 2.2)
- your annual VAT exclusive retail turnover exceeds £130 million
1.3 Force of law
Parts of this notice have the force of law under powers contained in regulations 66-75 of the VAT Regulations 1995, (‘the Regulations’) that enable the Commissioners to determine a retail scheme method in a notice published by them.
Paragraphs 2.3, and 3.3 have force of law. We tell you in this notice where force of law applies.
1.4 Other VAT retail schemes
You will find a general introduction to retail schemes as well as guidance on choosing a retail scheme in Retail schemes (VAT Notice 727).
Details of the other schemes can be found in:
- 727/3 for Point of Sale VAT Retail Scheme
- 727/4 for Apportionment VAT Retail Schemes
- 727/5 for Direct Calculation VAT Retail Schemes
If you need any further help or advice, contact the VAT general enquiries helpline.
2. General rules
2.1 Who can use a retail scheme
Retail is the selling of goods or services to consumers - and the retail schemes are aimed at retailers that cannot account for VAT using normal accounting.
2.2 Normal accounting for VAT
Accounting in the normal way does not require you to issue a tax invoice to unregistered customers, but it does require you to identify, for each sale, the tax exclusive value and the VAT and to be able to produce periodic totals of those amounts.
2.3 Bespoke retail schemes
The standard published schemes have turnover limits having force of law, as set out in the scheme notices.
A bespoke retail scheme is a method of determining output tax on retail sales made by large businesses. A bespoke scheme may be based to a greater or lesser extent on one or more of the standard published schemes, but will be tailored to meet your business needs.
This paragraph has force of law.
You must use a bespoke retail scheme where you are:
- ineligible to use the standard published retail schemes
- unable to use normal accounting.
2.4 When to agree a bespoke scheme
It’s important that you agree a bespoke scheme in good time because your only alternative, once you have exceeded the threshold, is normal accounting. The start date of a bespoke scheme can only be backdated in exceptional circumstances and only with the agreement of HMRC.
You should contact us with your bespoke scheme proposals in plenty of time so that we can review them in time to agree that you can use a bespoke retail scheme from the first day on which you are ineligible to use any of the standard published schemes.
Paragraph 4.1 tells you who you should contact about your bespoke retail scheme proposals.
2.5 What you must do if you make sales to other VAT-registered businesses
You must issue a tax invoice to VAT-registered customers. Invoicing is explained in sections 16 and 17 of VAT guide (VAT Notice 700).
These sales should be accounted for under normal accounting rules unless they are of an occasional nature or made using a less detailed VAT invoice.
2.6 What you can account for using the schemes
Under the Regulations, retail schemes can be only used for retail sales.
If you make a mixture of retail and non-retail sales, you must only use a retail scheme to calculate the tax due on your retail sales. You must account for non-retail sales using the normal method of accounting (see paragraph 2.2).
2.7 If you use the internet to make retail sales
If you use the internet to make retail sales in the UK, your record of those sales will usually be sufficient to allow you to account for the VAT on them using normal accounting.
But if we are satisfied that you are not able to use normal accounting for the VAT on these sales, we may agree that you can include them in your bespoke scheme.
2.8 Liability
A retail scheme cannot alter the VAT liability of the elements of a linked supply, it just provides a mechanism for calculating the VAT due. Any changes to the liability must be agreed outside of the scheme.
For example, as a concession, where the minor article satisfies the criteria set out in Business promotions (VAT Notice 700/7), you may account for VAT on the minor item at the same rate as the main article.
3. Key elements of a bespoke agreement
3.1 What bespoke agreements are based on
A bespoke agreement will usually be based on one of the published schemes, but it can be based on any method which meets the tests set out in paragraph 4.2. It may include a mixture of schemes to cover different circumstances or different parts of your business. We are unlikely to agree proposals for an agreement that are based on Apportionment Scheme 1 or Direct Calculation Scheme 1 unless a stock adjustment is included.
3.2 Supplies a bespoke agreement will cover
Bespoke agreements usually cover all the retail supplies a business makes. But if some of your retail supplies are not to be included, or your agreement will include retail sales made by members of the same VAT group, then you should make that clear in the body of your agreement.
3.3 What your bespoke agreement will include
The following paragraph (including bullet points) has force of law.
Your bespoke retail agreement should:
- start with a legal framework statement (see paragraph 3.4)
- include the start date and, if both parties agree, it may also contain an end date
- specify how output tax will be calculated in any period covered by the agreement
- include details of those supplies which will be accounted for within the scheme
- include the name, status and signature of one of our officers, and of an authorised signatory of your business
Supplies (retail or otherwise) which do not form part of the scheme provisions must be accounted for using normal accounting.
Include any of the items listed in the tables at section 7 and 8 which are appropriate to your method of valuing taxable retail supplies. These tables are only a guide and any special circumstances or transactions not included in the tables should still be covered in the agreement.
3.4 Model bespoke agreements
There is no model bespoke agreement. As every bespoke agreement is tailored to suit a particular business, it is not possible for us to be able to prescribe a definitive model.
But there is a model legal framework at Appendix A that provides a clear explanation of the legal basis, scope and effect of a bespoke retail scheme agreement. HMRC will expect this to be used as a starting point unless there are compelling reasons why it is not suitable for your business.
3.5 Agreement review
There is no need to include a periodic review in an agreement.
Each new agreement should contain a clause stating:
This agreement will remain in effect until either:
- both parties agree it should cease
- either party gives written notice that it is no longer bound by it
- a fundamental flaw is discovered in it
A fundamental flaw is one that prevents the objectives of your bespoke agreement from being fulfilled in any VAT period.
Where both parties agree that the scheme is fundamentally flawed, HMRC will treat the scheme as invalid from the date the flaw first existed. We expect such cases to be rare.
If the calculation method used in the scheme incorporates adjustments at the end of each year and the scheme is closed early, then you must make the equivalent of your usual annual adjustment calculation at the point of closure.
3.5.1 If your existing agreement includes annual reviews
If you no longer wish to be bound by the annual review clause in your agreement, you can ask your Customer Relationship Manager (CRM) or your allocated officer about agreeing an amendment. The process of making that amendment will depend on what your existing agreement says about making changes to your scheme.
3.6 The key legal aspects of bespoke agreements
The key legal aspects of bespoke agreements are that:
- if a bespoke retail scheme has not been agreed, a business with annual retail sales in excess of £130 million must use normal accounting
- retail schemes exist to simplify the procedures for calculating the VAT due
- no retail scheme can amend the normal provisions of VAT law and principles further than is strictly needed to simplify the valuation of output tax on retail supplies
- both parties enter a bespoke scheme agreement on the basis of full disclosure of the relevant facts
- both parties confirm, by signing the agreement, that they believe it produces a fair and reasonable result
- you agree to tell us about any significant change in your business structure or accounting processes
4. Agreeing your bespoke scheme with us
4.1 Who to contact to agree a scheme
If:
- we have appointed one of our officers as your CRM, or you have an allocated officer with whom you deal regularly, then you should contact them in the first instance
- you do not have a CRM or an allocated officer, then you should contact the VAT helpline
4.2 Withholding agreement to a bespoke scheme
HMRC recognises that some large retailers could have difficulties in using normal accounting, so we will only withhold agreement to a bespoke retail scheme for the reasons specified in regulation 68 of the VAT Regulations 1995 namely that:
- it does not produce a fair and reasonable result
- refusal to use the scheme is necessary for the protection of the revenue
- the taxpayer could reasonably be expected to use normal accounting
4.3 What is meant by fair and reasonable
We judge the fairness of a scheme on its ability to approximate the amount of output tax that would be due under normal accounting, but see paragraph 4.4.
We judge the reasonableness of a scheme on how simple it’s for you to use and for us to check.
A scheme is unlikely to be fair or reasonable that either:
- does not reflect commercial reality
- unnecessarily complicates either your own accounting or our ability to audit your VAT declarations
4.4 When there’s more than one ‘fair and reasonable’ method
HMRC recognises that, in a large and complex business, there may be various methods of calculating the VAT due, many of which could be defined as fair and reasonable. But the methods may produce different amounts of VAT due.
You should identify which of them most closely approximates to the VAT that would be due using normal accounting.
4.5 If there are some elements that cannot be agreed
After HMRC has received your bespoke retail scheme proposals and discussed them with you, there may be one or more minor matters on which we cannot reach agreement. If that happens, HMRC will formally agree the undisputed elements with you. This means that you will be able to use your bespoke retail scheme agreement to account for VAT on the majority of your retail sales.
HMRC will carry on negotiating the disputed elements of your proposals with you until both parties are content. As and when that happens, HMRC will formally agree further modules of your bespoke retail scheme.
You should bear in mind that, as long as your scheme has elements that have not been agreed by us, you cannot be certain that you have accounted for the correct amount of VAT. Once the minor issues have been resolved, your declarations should usually be adjusted from the start date of the scheme. In some cases we may agree that you can make the changes from a current date.
4.6 If you are not satisfied with the negotiations
| If you have been negotiating with your | then |
|---|---|
| tax specialist and a CRM is allocated to your business | discuss the issue with your CRM |
| CRM and you’re within HMRC’s Large Business Service | contact their team leader |
| CRM and you’re within HMRC’s Local Compliance Service | contact their team leader |
5. Changing your bespoke agreement
5.1 If your business changes
If we have agreed a bespoke scheme with you, this agreement will have been in the context of a full disclosure of your business structure and trading patterns at that time.
So it’s important that you tell us immediately about any changes that could affect the fairness or reasonableness of the scheme.
If you do not tell us about a significant change in your business or your accounting processes, you risk:
- being assessed for the output tax you owe as a result of that change
- having your use of the scheme invalidated altogether and having to account for VAT using normal accounting from the date of the change
A significant change that prevents your bespoke agreement from continuing to produce a fair and reasonable result can be either:
- a single change
- an accumulation of changes
5.2 Changing your bespoke scheme
In principle, as long as both parties agree, a bespoke scheme can change at any time. But we would not normally expect any changes to have effect from a date before the one on which the change or review was requested.
In addition, part of the agreement can be reviewed without invalidating the agreement as a whole.
| If | then |
|---|---|
| a review is going to take place and both parties agree that the agreement should continue while the review is carried out | they need to specify in advance whether the results of the review will be implemented from: the date the review was requested, or the date the review is completed but such an agreement is subject to the normal rules on capping |
If you’re varying or reviewing your bespoke agreement, you should record the date on which any change happens. You can do this either in:
- the agreement itself
- correspondence that makes explicit reference to a variation or review
5.3 If HMRC wants to change your bespoke scheme
HMRC may withdraw its agreement and refuse the use of a previously agreed scheme for any of the reasons specified in regulation 68 of the VAT Regulations 1995 namely that:
- it no longer provides a fair and reasonable result
- refusal to use the scheme is necessary for the protection of the revenue
- the taxpayer could reasonably be expected to use normal accounting
For example, we may withdraw our agreement if we discover that:
- it was not based on a full disclosure of your business circumstances
- another method of calculation would produce a result closer to that which would be produced by using normal accounting (see paragraph 4.4)
- there is a change in your business structure or operating model
- the scheme is found to have amended the normal provisions of VAT law and principles further than is strictly needed to simplify the valuation of output tax on retail supplies
If we do this, we will let you know which aspects of the current agreement we find unacceptable. If you still want to use a bespoke retail scheme, you will need to send new proposals for us to consider.
6. Details of a bespoke agreement - daily gross takings (DGT)
6.1 Determining your DGT
This table gives guidance on the sorts of details about your DGT that should be included in your bespoke agreement. The list is not exhaustive. Any special circumstances or transactions not included in the list must still be covered in your agreement.
You can find further guidance on adjustments to your DGT at paragraph 6.2.
Guidance on the sorts of details about your DGT which should be included in your bespoke agreement
| Include | Action you must take |
|---|---|
| how DGT is arrived at | Specify where the DGT figure comes from, for example till roll, EPOS (Electronic Point of Sale) system. The DGT will be the value of all sales which should be recorded by the EPOS system, not simply the EPOS figure. Note: cash-back and customers donations to charities (for example, Comic Relief) that you collect are a non-supply so must be excluded from any takings or bad debt adjustments. |
| tills | Specify the method for controlling tills outside the main system, for example, temporary, remote or manual tills and those sited in concessionaires. |
| till breakdowns | Specify what method will be used for the treatment of takings should a till break down and the way in which DGT will be calculated. |
| deliveries direct to customer, for example, internet or mail order sales | Specify how these sales will be accounted for within the DGT if the sale has not been processed via a till (but see paragraph 2.7 about accounting for VAT on internet sales). |
| other currency accepted | Specify how this will be converted to pounds sterling. (‘GBP’). This will be subject to section 7 of VAT guide (VAT Notice 700) which has force of law. Note: any additional amount charged as a fee to convert to GBP is a further consideration for the main supply. |
| concessions | Specify how these will be accounted for. |
| roundings | Within the scheme the VAT due will normally be based on the VAT fraction applied to total considerations in a period. But if rounding is to be applied at any other point then this should be discussed during negotiations and it should not result in: a material difference with the VAT that would be due by applying the VAT fractions to the period totals nil VAT on positive rated items rounding down of all VAT payable in every calculation |
6.2 Adjustments to DGT
You must specify in your agreement how the following adjustments to your DGT will be dealt with:
| Adjustment | Action you must take |
|---|---|
| Agency supplies | When you make sales as an agent, your commission should be dealt with outside the DGT. |
| Barter | Specify how barter transactions are valued in the DGT. VAT guide (VAT Notice 700) provides guidance on this type of transaction. |
| Deposits | Most deposits serve primarily as advance payments and must be included in your DGT for the date on which you receive them, see VAT guide (VAT Notice 700). |
| Dishonoured or unsigned cheques and debit cards | You may only reduce your DGT for such items where they are consideration for sales that have been included within the scheme (DGT). Note: it’s important to specify how taxable takings will be adjusted in relation to ‘cash-back’ payments, exempt warranties. |
| Foreign coins | Foreign currency inadvertently accepted does not need to be accounted for in the DGT, provided that it’s of minimal value and not exchanged for GBP. |
| Forged bank notes | You may reduce your DGT where you have inadvertently accepted a forged bank note as payment for a taxable supply. |
| Manufacturer-led vouchers | For information on the treatment of vouchers and other special offers see paragraph 7.2. If you accept vouchers for which you receive payment from a third party as a result of your participation in a customer loyalty scheme, you should specify how you intend to account for such payments. |
| Non-retail sales | Specify what method is used to exclude any money paid into the till for such supplies from the DGT for the retail scheme. Note: bulk disposal of stock should be dealt with outside the retail scheme. |
| Out-of-date manufacturers’ vouchers or coupons | See the entry titled ‘Out-of-date manufacturers’ vouchers’ in the table at paragraph 7.2. |
| Outside the scope and exempt sales | You must account for any commission for the sale of items such as postage stamps and lottery tickets outside your retail scheme. You’ll also need to ensure that you can identify lottery tickets printed by non-lottery tills and exclude payment for such from DGT. For further information on National Lottery activities, refer to Partial exemption (VAT Notice 706) and Capital Goods Scheme (VAT Notice 706/2). |
| Overs and shorts | Adjustments to ‘cash’ takings when they do not agree with the till or EPOS figure and overs and shorts in cash received and bankings. Note: adjustments must not be made for theft of cash or poor cash control that results in over changing or acceptance of insufficient tender. |
| Part exchange | Specify how part exchange transactions are valued in the DGT. The VAT guide (VAT Notice 700) gives guidance on this type of transaction. |
| Price match guarantee | Specify how price match guarantees will be adjusted. |
| Private use of purchases | When goods are taken for private use or given away, specify how these are brought into the DGT. |
| Refunds | Specify how refunds are treated and evidenced. If you make a refund, you may deduct the amount refunded or credited to customers in respect of taxable sales of goods or services from your DGT to a maximum of the amount originally charged. Note: false refunds, that is, to address theft of cash or stolen goods fraudulently returned by customers are not related to a genuine supply so no DGT reduction is appropriate. |
| Goodwill payments | Goodwill payments are additional to any refund made and as such are outside the scope of VAT. They do not form part of your DGT and therefore cannot be deducted from your DGT calculations. |
| Services | If your scheme is based on direct calculation or apportionment, then income from supplies of services needs to be deducted from your DGT. |
| Sales of second hand goods under the Margin Scheme | Your takings from the sale of second hand goods must be distinguishable and must be excluded from your DGT. The tax due on these sales must be identified and accounted for outside your retail scheme. You can find more information about record-keeping requirements under the scheme at The Margin and Global Accounting Scheme (VAT Notice 718). |
| Self-financed credit | Specify how the DGT will be adjusted for any exempt interest charges and payment protection. |
| Staff discounts and other promotions | Many discount schemes, including those for staff, restrict availability to certain supplies. Petrol, tobacco, food are often excluded. It’s important to consider this when determining how discounts are to be taken account of under your bespoke scheme. |
| Voids | Specify what your policy is for control and adjustment of voids. |
| Warranties or guarantees | Specify whether any such warranties or guarantees are taxable and how they will be dealt with. Insurance (VAT Notice 701/36) gives further guidance. Where there are implications for partial exemption, also refer to Capital Goods Scheme (VAT Notice 706/2). |
6.3 Estimating DGT adjustments
We understand that calculating DGT adjustments accurately requires a lot of resource. We may therefore allow you to estimate your adjustments as long as both:
- we agree that your proposed estimated adjustment is based on reliable evidence
- the basis for your estimated adjustment is regularly reviewed
7. Details of a bespoke agreement using the Point of Sale method
7.1 If you’re using a Point of Sale Scheme
The table gives guidance on details that should be included in your agreement if your bespoke scheme is based on the Point of Sale Scheme. The list is not exhaustive and any special circumstances or transactions not included in the list must still be covered in your agreement (vouchers and other special offers are covered separately at paragraph 7.2).
Guidance on details that should be included in your agreement
| Item | Action you must take |
|---|---|
| Mixed rate products | Specify how products will be coded and how tax due will be calculated, including composite supplies of different rated products where supplied as a single package, for example, meal deals. |
| Non-Electronic Point of Sale departments | Specify how goods will be identified if sold through departments that do not have EPOS equipment. |
| Private use of purchases | When goods are accounted for private use or given away, specify how any tax due will be accounted for. |
| Product VAT coding | Specify at what level you will apply VAT coding: line product or department |
| Refunds | When a refund is made, specify how the returned product will be re-scanned or, if it’s not, state how the refund will be allocated to the correct VAT rate. |
| Remote tills | If certain tills are not connected to an EPOS system, specify how tax will be accounted for on these sales. Also, state how takings will be dealt with from remote tills sited in concessionaires. |
| Staff discounts | Specify how staff discounts will be attributed between the different VAT rates. |
| Till breakdowns | In the event of a till breakdown, specify how takings will be split between VAT rates. |
| Unscanned products | If certain products are not scanned, or fail scanning, specify how they will be accounted for. |
| VAT code errors | Specify how adjustments will be made when errors are found in the application of VAT codes within the product file. |
| VAT coding | Specify the policy for setting VAT liabilities and for controlling and recording changes and the system that will be used to check the accuracy of this process. List available VAT codes and their meanings (for example S = standard rate, Z = zero rate), together with the frequency with which codes change and undertake to produce product file on request. |
7.2 Vouchers and other special offers
You must specify in your agreement how you intend to treat the following vouchers and special offers:
| Vouchers and special offers | Action you must take |
|---|---|
| Discount vouchers | When customers redeem ‘general’ money-off vouchers such as ‘£2.00 off when you spend £20’ (that is, the vouchers are neither product nor supplier specific), specify how the discount is to be allocated between the VAT rates. |
| Multi-saves | When goods are offered as, for example, ‘3 for the price of 2’, or ‘£1 off when you buy 3’, specify how these will be accounted for. |
| Out-of-date manufacturers’ vouchers | If the manufacturer refuses to honour the voucher, specify how the DGT will be reduced and allocated between the VAT rates. |
| Own product vouchers | Where a discount voucher is issued in-store on specific products, specify how this will be allocated to the correct VAT rate. |
| Retailer Vouchers within VATA 94 Schedule 10A (Face value vouchers or credit vouchers and other vouchers) | Specify how you will treat the consideration you receive both when selling and on redeeming these vouchers. |
| Vouchers within VATA 94 Schedule 10B (Single or multi-purpose vouchers) | Specify how you will treat the consideration you receive both when selling and on redeeming these vouchers. Specify how vouchers issued for no consideration will be treated (read paragraph 9.10 of Notice 700/7 for more information). |
| Special offer prices or price reductions | When goods are reduced in price and a special sticker is placed over the bar code, can EPOS still be used? Specify how these products will be accounted for if it’s necessary to account for them outside the EPOS system. |
General guidelines on the business promotion schemes covered in this section are provided in Business promotions (VAT Notice 700/7).
8. Details of a bespoke agreement using expected selling prices
8.1 If you’re using an Expected Selling Price (ESP) Scheme
If your bespoke scheme involves the calculation of ESP, this table gives guidance on the sorts of general details that should be included in your bespoke agreement.
The list is not exhaustive and any special circumstances or transactions not included in it must still be covered in your agreement. Guidance on adjustments to ESP and on trading patterns is included at paragraph 8.2 and 8.3.
Guidance on the sorts of general details that should be included in your bespoke agreement
| Item | Action you must take |
|---|---|
| Basis of setting ESP | Specify how ESP are calculated. Make reference to any built-in allowances, tolerances or regional variances. |
| Direct deliveries to customers | Where goods are delivered direct from supplier to customer, specify how these will be brought into the ESP calculation. |
| Mixed rate products | Specify how these products will be coded and how the tax due will be calculated, including composite supplies of products at different rates where supplied as a single package for example, meal deal. |
| Point of receipt of goods into the scheme | The setting of ESP should be as close to the point of retail sale as possible, thus providing the most accurate valuation of taxable retail sales. Any attempt to move the point of receipt of goods into the scheme further away from the point of retail sale will not normally receive approval by us because it’s likely to produce a valuation that is less than fair and reasonable. While goods are in a customs ‘Type E’ warehouse they are excluded from any retail scheme calculation and are outside the scope of UK VAT. Note: all goods sold within warehouses to other VAT-registered traders must be accounted for outside the scheme. |
| Product VAT coding | Specify at what level you will apply VAT coding to the goods you receive for resale: line product or department |
| Scheme and level of calculation | Specify the level at which the scheme will operate, for example-business, store or department. Note: there must be a record of how goods are separated within each area and how they are transferred from one area to another for the purposes of the scheme calculation. The level of expected accuracy of the ratio to be applied to the DGT under an apportionment scheme. Note: if more than a single step calculation is to be used (that is, the ratio percentage is calculated and that percentage then applied to DGT) we will not accept the percentage calculation to less than 4 decimal places. |
| Services | As services cannot be accounted for within either direct calculation or apportionment schemes, specify how the tax on standard-rated services will be brought to account. |
| VAT code errors | Where errors are made on VAT codes, specify how the value of the goods incorrectly coded will be quantified and how any VAT misdeclared will be calculated. Note: state what the treatment of errors found in both direct calculation and apportionment schemes will be. |
| VAT coding | Specify the policy for setting VAT liabilities and for controlling and recording changes and the system that will be used to check the accuracy of this process. List available VAT codes and their meanings (for example S = standard rate, Z = zero rate), together with the frequency with which codes change and undertake to produce product file on request. |
8.2 What you should specify in your agreement about adjustments to your ESP
You must specify how, within a Direct Calculation or Apportionment Method, you will deal with the following adjustments:
- wastage
- theft
- leakage
- multi-saves
- price changes
- sell-by date reductions
- staff discounts
- transfers
- freezer breakdowns
- insurance claims
- goods given away
- goods for own use
- non-retail sales
- own product specific vouchers
- own discount vouchers
- refunds
- bounced cheques or bad cheques
If these adjustments are not taken into account, we consider that the scheme is unlikely to produce a fair and reasonable valuation.
8.3 What your agreement should specify about trading patterns in relation to your ESP
You must specify how the following will be dealt with in relation to your ESP
| Item | Action you must take |
|---|---|
| Period of calculation | You should make every effort to equalise trading patterns. One way would be to use an extra-long period of calculation, which would include a year-end adjustment, so that a fair and reasonable valuation of taxable retail sales is achieved. |
| Stock adjustments | Including your opening and closing stock adjustments will help to establish an accurate pattern of trading. You should include all stock acquired during the period, such as via the Transfer of a Going Concern, in your opening stock figure. This may be done on a period or yearly basis. An adjustment should always be made in the case of closing stock when a business, or part of a business, is transferred as a going concern ceases to trade or when changes are made to one or more ESP specific aspects of a bespoke scheme. Stock values should be identified as either actual or book values and the agreement should identify how the stock values at different rates are arrived at. |
| Rolling periods | Using ESP from the 4 quarterly or 12-monthly previous consecutive periods to calculate a percentage ratio for an apportionment scheme will help to produce an accurate trading pattern. |
| Exclusion of distortive factors | You will need our agreement to your proposed treatment of large quantities of goods taken into stock from store take-over, or the sudden purchase of bulk stock. |
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Appendix A - model framework for a bespoke retail scheme
1. Introduction
1.1 This is an agreement between HMRC and Retail Ltd. The purpose of this agreement is to determine the value of retail output tax where a retailer is unable to account for VAT using normal accounting.
2. Scope of this agreement
2.1 This agreement covers the retail supplies made by Retail Ltd (VAT registration (123 4567 89)) (and by the members of the VAT Group listed in an annexe to this agreement).
2.2 The agreement begins on (date) and will remain the basis for retail accounting until or unless one of the events in section 4 occurs.
2.3 The methods of retail accounting described in the annexes to this agreement constitute a scheme agreed under Regulation 67 of the VAT Regulations 1995. The signature of an officer of HMRC on this document constitutes permission to use this scheme.
2.4 The terms of this agreement do not amend the normal provisions of VAT law except to the extent necessary to simplify the valuation of output tax on retail supplies.
3. Basis of this agreement
3.1 In the absence of an agreed retail scheme, Retail Ltd is required, by law, to use normal accounting.
3.2 Both parties enter this agreement on the basis of a full disclosure of the relevant facts.
3.3 The signing of this agreement is confirmation that both parties consider the scheme of retail accounting produces a fair and reasonable result.
3.4 Retail Ltd will notify HMRC of any significant change in business structure, activities or accounting processes. Significant change in this context is any single change or any accumulation of changes, which impact on the scheme’s accuracy or its ability to produce a fair and reasonable result.
4. Cessation or variation of agreement
4.1 Cessation: This agreement will continue in force until or unless any of the following occur:
a: Both parties agree to its cessation. Such agreement will usually be prospective but may be retrospective if both parties agree.
b: Either party gives written notice that it’s no longer bound by the agreement in whole or in part.
Such unilateral termination will be prospective and any notice to that effect given by HMRC will:
- specify which parts of the agreement HMRC is no longer bound by if not the whole agreement
- take effect no earlier than the start of the VAT accounting period, which begins after the date of the notice
- be given only for one of the reasons specified in regulation 68 of the VAT Regulations 1995
c: On the identification of a fundamental flaw, which indicates either that the agreed scheme (in whole or in part) was entered into on a basis inconsistent with section 3 or has a scope beyond that described in section 2, subject to the normal rules on capping and the rights of both parties to contest the existence of a fundamental flaw, the scheme, in whole or in part, will be treated as invalid from the time the fundamental flaw came into existence.
4.2 Variation: Where the parties agree, individual components of this agreement may be altered prospectively without invalidating the agreement as a whole. The fact of such variation must be evidenced by amendment to this agreement or in correspondence referring explicitly to a variation of this agreement.
4.3 Either party may request a review of part of the agreement, without invalidating the whole of the scheme. If both parties agree that the scheme can continue to be used pending such a review, either party may, by written notice, reserve the right to apply the treatment that results from the review from the date the review was requested, subject to the normal rules on capping.
5. Disputes and omissions
5.1 In the event of a disagreement about the meaning or effect of the terms of the scheme, the normal VAT treatment will determine the meaning or effect of the term.
5.2 In the event of a declaratory judgment by the Courts which indicates that either party to this agreement has proceeded on a mistake about a significant feature of the scheme, that party shall be entitled to correct the scheme retrospectively, subject to the normal rules on capping.
5.3 In the event of a published change in policy by HMRC affecting a significant feature of the scheme, either party to this agreement shall be entitled to amend the scheme to reflect the terms of the change, subject to the normal rules on capping.
5.4 In the event of a dispute about the meaning or effect of a term, the agreement may nevertheless continue in force if both parties so agree. Where both parties agree that the scheme can continue pending resolution of a dispute, either party may, by written notice, reserve the right to apply the correct treatment from the date of the notice, subject to the normal rules on capping.
5.5 In the event of a significant omission from the terms of this agreement or a failure to notify a significant change under paragraph 3.4, either party shall be entitled to correct the error retrospectively, subject to the normal rules on capping. A significant omission in this context is an omission that results in a material inaccuracy or prevents the scheme from producing a fair and reasonable result.
List of annexes attached
Signature of parties
Date
Updates to this page
Published 10 August 2011Last updated 17 January 2020 + show all updates
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Section 7.2 has been updated with information about the changes in the treatment of vouchers.
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First published.