Video cassette films and accounting for VAT (VAT Notice 700/14)

Find out how to account for VAT when you rent out and part-exchange pre-recorded video cassette films.


This notice cancels and replaces Notice 700/14 (January 2014). Details of any changes to the previous version can be found in paragraph 1.2 of this notice.

1. Video cassette films: rental and part exchange

1.1 What this notice is about

It explains how to account for VAT on the supply of pre-recorded video cassette films to the public under rental and part-exchange arrangements. It also explains the difference between the 2 types of transaction.

1.2 What’s changed

Under section ‘Help us improve this notice’ the address for Customs and Indirect Tax Directorate has been updated.

1.3 Who should read this notice

It’s intended for businesses which supply pre-recorded video cassette films to the public under rental or part-exchange arrangements.

1.4 What are the differences between rental and part-exchange

In both cases, your customer may bring you a film and, probably, some money and receive another in return. But the way you must account for VAT on films you lend out is different from the treatment of films you sell by part-exchange.

In a rental scheme your customer borrows the film and must normally return it to you by a given date. The film remains your property. For VAT purposes you’re making a supply of services, the loan of the film, and you must account for VAT on the amount paid for the use of the film over the rental period.

In a part-exchange transaction you accept your customer’s film as payment, or part payment for another film which then becomes your customer’s property. For VAT purposes you’re making a supply of goods, the film itself, and you must account for VAT on the amount that your customer would have had to pay for the film if there had been no part-exchange.

If you sell or resell films that you have accepted in part-exchange, you may be able to use the second-hand margin scheme, see VAT Notice 718: the Margin Scheme and global accounting for second-hand goods, works of art, antiques and collectors’ items.

1.5 How to account for other charges

Membership fees

If you charge a fee or subscription for membership of your club or library you must account for VAT on the amount you charge. This applies even if you refund the membership fee when your customers give up their membership.


If you charge a refundable deposit for the safe return of a rented film, the deposit is not taxable. This applies even if you keep the deposit because the film is lost or damaged.

Overdue films

If you charge for the late return of the film, then this counts as a further payment for use of the film, and you must account for VAT on the amount you charge. This applies whether you call the charge a ‘fine’, ‘excess charge’ or anything else.

1.6 If you use a retail scheme

If you use the Point of Sale Scheme you work out your output tax by including all membership fees and rental payments in your daily gross takings. The rules in paragraph 1.4 about part-exchange goods mean that your daily gross takings must include the value of any films you accept in part-exchange.

If you use the Direct Calculation Scheme and mark up your zero-rated purchases, you may include rental and membership income in your daily gross takings and perform your scheme calculation in the normal way.

If you use any other scheme, you must calculate VAT on rental and membership fees separately outside your normal retail scheme calculation. You must not include in such calculations the value of any videos bought for rental. This is because those schemes are ways of calculating VAT on goods bought for resale and are not suitable for calculating VAT on services.

1.7 Supplies of DVDs and video games

You may also supply DVDs and video games in a similar fashion, if so you should follow a similar approach.

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Published 27 September 2017