Guidance

Point of sale retail scheme (VAT Notice 727/3)

Find out the general rules for the point of sale retail scheme, how the scheme works, records you must keep and how to work out your VAT.

Details

This notice cancels and replaces Notice 727/3 (January 2013). Details of any changes to the previous version can be found in paragraph 1.1 of this notice.

1. Overview

1.1 What this notice is about

This notice tells you about the point of sale scheme, one of the standard retail schemes. It explains the general rules applicable to the scheme, how the scheme works (including the calculation of VAT), and what records you should keep, especially your Daily Gross Takings (DGT) record.

The changes are:

  • paragraph 6.10 has been updated to clarify delivery charges for goods supplied on approval terms
  • the paragraphs noted as having force of law have been reviewed and rationalised

1.2 Who should read this notice

You should read this if:

  • you’re a VAT-registered business making retail sales
  • you are unable to account for VAT on those sales in the normal way see paragraph 2.2
  • your annual retail turnover, excluding VAT, does not exceed £130 million

1.3 Other retail schemes

Other standard retail schemes are the apportionment schemes and direct calculation schemes. Businesses whose annual retail turnover exceeds £130 million cannot use a standard scheme. Instead they can agree a bespoke retail scheme see paragraph 2.7.

1.4 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 2.6, 2.8, 3.2, 3.3, 3.4, 4.2, 5.1, 5.3, 6.3.1, 6.3.2, 6.3.3, 6.7, 7.2 and 7.4.4 have the force of law. The items concerned are flagged accordingly.

1.5 Find out about the other retail schemes

You will find a general introduction to retail schemes as well as guidance on choosing a retail scheme in Notice 727: VAT retail schemes.

2. General rules

2.1 Who can use a retail scheme

Retail is the selling of goods or services to consumers and retail schemes are aimed at retailers that cannot account for VAT using normal accounting.

2.2 Normal accounting for VAT

Accounting for VAT 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 Choosing a retail scheme

Some of the schemes have turnover limits, see paragraph 3.2 for guidance on when to use the point of sale scheme).

Otherwise, as long as your chosen retail scheme produces a fair and reasonable result, you may choose a scheme which suits your business best. VAT Notice 727: retail schemes tells you more about choosing a retail scheme.

2.4 What to account for using the schemes

Under the Regulations, you can only use the retail schemes to account 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 tax due on non-retail sales using the normal method of accounting.

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 section 17 of VAT guide (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 (VAT guide (Notice 700), paragraph 16.6).

2.6 When you can change schemes

Under the Regulations, you can change schemes at the end of a complete year, reckoned from the beginning of the tax period in which you first adopted the scheme. But you must use a scheme for 12 months, unless either:

  • you become ineligible for the scheme you are using
  • HMRC allows or requires an earlier change

The following sentence has the force of law.

If you become ineligible to use a scheme, you must cease using the scheme from the end of the next complete accounting period.

For example, if you account for VAT by reference to quarters ending March, June, September and December and your turnover makes you ineligible for a particular scheme during February, you must cease to use that scheme to account for supplies made on or after 1 July.

Some of the schemes require adjustments when you cease using them.

2.7 Changing schemes retrospectively

Retrospective changes to retail schemes are not normally allowed. The VAT and Duty Tribunals have repeatedly confirmed the principle that, where you operate a scheme according to the published rules (or an agreed variation), the tax which is due under that scheme is the correct VAT for the period. You cannot change schemes retrospectively simply because another scheme produces a lower or different valuation.

HMRC may allow retrospective change in exceptional cases. If you think you have exceptional grounds for a retrospective change you should contact VAT general enquiries giving as much detail as possible.

The maximum period for recalculation following a retrospective change of scheme is 4 years and you must have been, and remain, eligible to use the new scheme during the full period which your application relates to.

2.8 Exceeding the scheme’s turnover limit

The following paragraph has the force of law.

Businesses whose annual turnover from all retail sales exceeds £130 million cannot use any of the standard retail schemes including the Point of Sale Scheme. Instead, they can agree a bespoke retail scheme.

If you think your annual retail turnover (excluding VAT) is about to exceed £130 million, you should contact VAT general enquiries as soon as possible to agree a bespoke retail scheme. A bespoke retail scheme will be tailored to meet the particular requirements of your business and is likely to be a variation of one of the published standard schemes. For further information see VAT Notice 727/2: bespoke retail schemes.

3. The point of sale scheme

3.1 How the point of sale scheme works

The scheme works by identifying the VAT liability of the goods or services you sell at the time you make the sale. This usually means using a till system which can distinguish between goods sold at different rates of VAT. But we accept any system provided you can separate your sales, for example by using separate tills for sales at different tax rates.

3.2 When you can use the point of sale scheme

Section 3.2 has the force of law.

You can use the Point of Sale Scheme if you are a retailer making supplies at two or more VAT rates and you can identify the correct liability of the supplies at the time you make them.

But you must use the Point of Sale Scheme rather than any other retail scheme if you make supplies at only one positive rate (that is, all reduced-rated or all standard-rated).

3.3 Using other schemes with the point of sale scheme

The following paragraph including bullet points has the force of law.

Provided you are eligible to use the schemes:

  • you can mix the point of sale scheme with either a direct calculation or an Apportionment Scheme
  • you cannot use different versions of the Apportionment Scheme at the same time and you must not mix a Direct Calculation Scheme with an Apportionment Scheme

Normally, a retail scheme uses a single calculation for the whole of your VAT registration. But you can use the same scheme separately at a number of distinct business locations or use a number of schemes at the same location, provided that you make any necessary adjustments to account for transfers of goods between schemes and you agree the details of how this will be done with HMRC.

You can always use the normal method of accounting together with any scheme or any allowable mixture for which you’re eligible.

3.4 Keeping records

The following paragraph including bullet points has the force of law.

You must keep a record of:

  • your sales (DGT) by rate of VAT
  • any adjustments you make to the totals
  • any working papers you use to calculate your output tax

Section 5 gives examples of what should be included in your DGT.

The normal record-keeping requirements also apply. VAT guide (Notice 700) tells you what is needed.

3.5 Ceasing to use the scheme

Unlike the other standard schemes there are no specific requirements to follow when you cease to use this scheme.

3.6 Operating the scheme

You’re responsible for ensuring that any staff you employ are able to operate your systems correctly, even at the busiest times. If you operate the scheme incorrectly, you could declare the wrong amount of VAT and be subject to an assessment and a financial penalty.

4. Mechanics of the point of sale scheme

4.1 Calculating VAT under the point of sale scheme

The scheme works by applying the appropriate VAT fractions to your totals of standard rate and reduced rate DGT to establish the amount of tax that is due on your eligible retail sales. This gives you your scheme output tax.

Section 5 explains the DGT rules in detail.

The VAT fraction is simply a way of calculating the amount of VAT contained in the total gross takings. VAT guide (Notice 700) tells you more about the VAT fraction.

4.2 Step-by-step scheme calculations

Section 4.2 has the force of law.

The following table is a step-by-step guide to how you must calculate your VAT using this scheme. From the day you start to use the scheme keep a record of your DGT at each rate of VAT.

For each tax period make your scheme calculation as follows:

Step Description Amount
1 Add up your DGT for standard-rated supplies for this tax period £__
2 Add up your DGT for lower-rated supplies for this tax period, if you have any £__
3 Multiply the total at step 1 by 1/6 (VAT at 20%) £__
4 Multiply the total at step 2 by 1/21 (VAT at 5%) £__
5 Add the totals at steps 3 and 4 to get the scheme output tax £__

4.3 How to complete your VAT Return

Your output tax figure is used to complete box 1 of your VAT Return (form VAT100). If you’re using more than one scheme you must add together the output tax calculated by each scheme as well as any other amounts of output tax due and put the total in box 1.

To help you fill in your VAT Return see VAT Notice 700/12: how to fill in and submit your VAT Return.

5. DGT checklist

5.1 What must be included in your DGT

The following paragraph has the force of law.

The DGT record is a record of all your retail supplies and is a crucial part of your retail scheme records. It is this figure and not simply cash on hand which you must use when calculating output tax due under your retail scheme.

Your DGT record includes:

  • all cash payments as they are received by you or on your behalf from cash customers for your retail supplies
  • the full value, including VAT, of all your credit or other non-cash retail sales at the time you make the supply
  • details of any adjustments made to these figures

5.2 Recording your DGT

You should include all forms of cash payment in your DGT as they’re received from customers. Examples of cash payments are:

  • cash
  • cheques
  • payments by debit or credit card
  • electronic cash payments
  • the face value of gift, book and other vouchers redeemed (subject to paragraph 7.3)
  • any other payments for retail sales
  • the value of any payment in kind for retail sales

5.3 Adjusting your DGT

The following 2 paragraphs have the force of law.

You must retain evidence to support any adjustments to your DGT figure. If you make an adjustment but subsequently receive a payment, you must include that payment in your DGT for the date received.

You must not reduce your DGT for till shortages which result from theft of cash, fraudulent refunds and voids or poor cash handling by staff. See paragraph 6.13 for further details.

But, you may reduce your DGT for the following:

  • counterfeit notes
  • illegible credit card transactions (where a customer’s account details are not legible on the credit card voucher and therefore cannot be presented or redeemed at the bank)
  • unsigned or dishonoured cheques from cash customers (but not from credit customers)
  • chargebacks
  • inadvertent acceptance of out of date coupons or vouchers which have previously been included in your DGT but which are not honoured by promoters
  • receipts recorded for exempt supplies
  • receipts recorded for supplies which are to be accounted for outside the scheme
  • refunds to customers for overcharges, returned or faulty or unsuitable goods
  • float discrepancies
  • till adjustments, for example, correcting mechanical faults, staff training and voids (where a mistake has been made and corrected at the time of error)
  • adjustments referred to in paragraphs 6.2.2, 6.3, 6.4 and 6.6

5.4 Foreign currency

If you accept foreign currency then this should be included in your DGT at the Sterling equivalent value. VAT guide (Notice 700), section 7 sets out how to do this and has the force of law.

Foreign currency inadvertently accepted does not need to be accounted for in the DGT provided that it is of minimal value and not exchanged for Sterling.

5.5 Transactions not covered in this section

If you have a particular type of transaction which is not covered in this section, you may find further help in section 6. There’s also advice on the treatment of business promotions in section 7.

6. Special transactions

If you have a particular type of transaction which is not covered in this section, you should contact VAT general enquiries for advice.

6.1 Acquisitions from other EU member states

VAT and the single market (Notice 725) explains how to account for VAT on goods purchased (acquisitions) from other EU member states.

Suppliers from elsewhere in the EU will not charge VAT on their sales to you but you will have to account for VAT at the rate applicable to the goods in the UK.

For retail scheme purposes, references in this notice to zero-rated goods apply only to goods which are zero-rated in the UK. Goods which you acquire from other EU member states at the zero rate but which are reduced or standard-rated in the UK, should be treated as such in your retail scheme calculations.

6.2 Retail sales to persons residing in other EU member states

6.2.1 Supplies to visitors from the EU

Unlike non-EU visitors see paragraph 6.3.1, there is no VAT relief available for EU visitors. Sales to EU visitors are treated in exactly the same way as sales to UK customers.

6.2.2 Supplies to consumers in other EU member states (distance selling)

These are supplies which you arrange to be delivered to your EU customer in another member state. Unless you are or have a liability to be registered in that other member state see VAT and the single market (Notice 725) section 6 and Notice 700/1: should I be registered for VAT?, section 6, you should charge UK VAT as normal.

Where you’re registered elsewhere in the EU for distance selling then these sales are outside the scope of UK VAT and should be excluded from your UK VAT account.

6.3 Exports to countries outside the EU

6.3.1 Retail export scheme

This is for retailers selling goods for export from the EU by eligible visitors who make the purchase in person.

Section 6.3.1 has the force of law.

If you make supplies under the terms of the retail export scheme as described in VAT Notice 704: retail exports, you should account for tax as follows:

(a) Include in your DGT all amounts, including VAT, for goods sold for retail export. Do not deduct the refunds which you expect to make to customers.

(b) At the end of each tax period, add up the VAT amounts for reduced and standard-rated goods which have actually been exported and where VAT has been repaid. This will be the total of the amounts shown on the officially certified forms returned to you during the period. Do not adjust for any administration charge you have or expect to make to customers.

(c) Adjust the tax at (b) in your VAT account.

6.3.2 Direct refund scheme

Section 6.3.2 has the force of law.

Sales under the ‘Direct reclaim system’ (paragraph 5.7 of Notice 704) should be treated as a normal accounting sale to the refund company.

6.3.3 Administrative charges

Section 6.3.3 has the force of law.

If you make administrative charges or use a refund company to administer the refund on your behalf, you still have to account for the VAT on the principal supply as explained in paragraphs 5.1 and 5.2 of Notice 704: retail exports. Any charges you make should be accounted for as an adjustment to the VAT account and not as a netting off against the refund.

6.3.4 Direct and indirect exports

If you as a retailer, export goods direct or supply goods in the UK to overseas traders for subsequent indirect export by them as described in VAT on goods exported from the UK (Notice 703), you should account for these goods as an adjustment to your VAT account.

6.4 Exempt supplies

Any payments received for supplies which are exempt from VAT must be excluded from your scheme calculations.

If you make exempt supplies, you will need to consider the rules on partial exemption explained in VAT Notice 706: partial exemption and VAT Notice 706/2: capital goods scheme.

6.5 Goods bought at one rate and sold at another

For some goods the rate of tax you charge depends on how they’re offered for sale. For example, meat is zero-rated when sold for human consumption but the same meat becomes standard-rated when sold as pet food.

When using this scheme the liability should be recorded as the liability at the point of sale.

As the retailer, you’re responsible for ensuring that the correct liability for VAT is applied when you sell goods.

6.6 Goods sold on sale or return, approval or similar terms

You should keep a separate record of goods supplied on a ‘sale or return’ or ‘approval’ basis. You should only account for these when the customer has adopted the goods. If the customer pays a deposit see paragraph 6.8.

6.7 Credit transactions

The following paragraph has the force of law.

You must account for output tax on credit retail supplies by including the full value of the goods in your DGT at the time you make the supply. Do not wait until you are paid and do not include the instalments in the DGT when they are received.

Additional rules apply depending on the way the credit sales are financed. You should read Notice 700: the VAT guide section 8.4 which sets out the most common scenarios for supplies on credit and the use of finance companies and the direction of the supplies.

6.7.1 Supplies involving a finance company

If you arrange credit for your customer through a finance company, you should include the full amount paid for the goods by the customer in your DGT at the time you make the supply.

6.7.2 Self-financed credit supplies

If you make a separate charge for credit (additional to the cash price) and you disclose it to the customer, this is exempt from VAT and should be excluded from your DGT.

If your turnover is less than £1 million and you run a business where your customers do not pay for the goods when they receive them (for example, you may be a milkman or newsagent), you may take account of opening and closing debtors in your scheme calculations. Paragraph 4.5 of VAT Notice 727: retail schemes provides an example of how to do this.

6.8 Deposits

Most deposits are an advance payment for a supply and must be included in your DGT.

But if you take a deposit for another reason, for example as security to ensure the safe return of goods, you should exclude this amount from your DGT (regardless of whether it is eventually refunded or forfeited).

6.9 Refunds

If you refund some or all of the payment made by the customer, you may deduct the amount which was refunded or credited to customers from your DGT, to a maximum of the amount originally charged.

6.10 Delivery charges

6.10.1 Single supply of delivered goods

Under the normal rules, if, in order to fulfil your contract for the sale of the goods, you also deliver them, there is a single supply of delivered goods unless the goods are supplied on approval. It does not matter whether the charge you make for delivery is separately itemised or invoiced. Examples of supplies of delivered goods are doorstep deliveries of milk or newspapers. The liability of the delivery charge follows the liability of the goods. In such a case, you should include the full amount charged in your DGT.

6.10.2 Goods on approval

If you supply goods on approval terms, there is no supply of the goods at the point of delivery. Any supply of the goods that does take place will be at the point at which the goods are subsequently adopted by the customer. In such cases, the delivery service provided does not form part of a single supply of delivered goods but is a separate standard-rated supply, that is, the supply of delivery of the goods to enable the customer to inspect them prior to making a decision as to whether or not to purchase them. In such a case, you should account for any VAT as an adjustment to your VAT account.

6.10.3 Separate supply of delivered goods

If you supply goods under a contract that does not require delivery but where, nevertheless, you agree to deliver the goods and make a separate charge, then that charge is normally for a standard-rated supply of delivery services and you should account for any VAT as an adjustment to your VAT account.

6.11 Face value vouchers

Single purpose face value vouchers are vouchers that can be exchanged only for one type of goods at a single rate of tax and must be accounted for in your DGT when they’re sold.

Multi-purpose face value vouchers are vouchers that can be exchanged for a range of goods at different tax liabilities and should be accounted for in accordance with the table below.

Section 7 (Business promotions) explains how to account for vouchers on redemption.

Multi-purpose face value vouchers issued and redeemed by the same taxable person

If you then
sell gift vouchers at a value higher than their face value the excess is consideration for a supply of services and VAT should be accounted for outside the retail scheme. When you redeem the vouchers you must include their face value in your DGT
sell gift vouchers at their face value do not include the amount in your DGT. But, when you redeem the vouchers, you must include their face value in your DGT
sell gift vouchers at a price lower than their face value do not include the amount in your DGT. When you redeem the voucher, if you have evidence to prove that the voucher was supplied at a discount, then you may include the discounted amount in your DGT. Otherwise you must include the full face value of the voucher in your DGT
include gift vouchers with other products for a single charge if the customer has no choice but to accept the voucher when the products are supplied VAT is due on the full price of the products. The voucher is considered to be supplied for free
issue gift vouchers free of charge no VAT is due on issue. When the voucher is redeemed for goods no VAT is due unless the cost of the goods exceeds £50. If the cost exceeds £50, VAT is due on the full amount. But if you also sell such vouchers and are unable to distinguish between the 2 types at redemption, you must include the full face value of the voucher in your DGT when it is redeemed
have purchased a third party’s gift vouchers which you intend to issue free of charge (for example in your own promotion) you normally have not been charged VAT. Equally, you do not have to account for any VAT when you give them away

6.12 Sale of discount vouchers or cards

If you sell discount vouchers or cards entitling the holder to discounts on purchases from you (commonly referred to as money-off coupons), you must include the payment received in your DGT.

For example if the voucher or card can only be used for purchases of zero-rated goods you should add the payments received for the voucher or card to your zero-rated DGT.

If you sell discount vouchers or cards entitling the holder to discounts at several traders, this is a standard-rated supply and you must add the payments received to your standard-rated DGT.

6.13 Theft, shrinkage, leakage and stock losses

If you find that there are unexplained accounting discrepancies between stock and sales, you must consider the extent to which this is attributable to unrecorded sales, such as to the theft of cash by staff, and add the value back to your DGT.

Where possible, these adjustments should be allocated to the specific VAT period in which the theft took place. Otherwise, such shrinkage should be apportioned across relevant tax periods on a fair and reasonable basis.

Unless you have evidence of the liability of the unaccounted supplies, adjustments must be in line with the usual proportion of standard against zero-rated supplies.

Losses due to shoplifting or damage do not affect your DGT records as no supply will have been made.

6.14 Disposal of business assets

If you dispose of a business asset, such as a cash register or a van, you should account for VAT as an adjustment to your VAT account.

6.15 Private or personal use of goods

Under the normal rules, tax is due (at cost price) on any positive rated goods purchased for resale which you then take out of your business for private or personal use (see VAT guide (Notice 700)). You must adjust your VAT account by the value at cost of any goods taken out of the business for your own use.

6.16 Part-exchange

When you accept goods or services in part-exchange for a supply, you should include in your DGT the full selling price, including VAT, of the goods you supplied.

If you resell goods you have accepted in part-exchange you may be able to use the second-hand margin scheme (see paragraph 6.17). If you are unable to use that scheme you should include the resale of the part exchange goods in your retail scheme.

6.17 Second-hand goods

You may be able to use the special scheme for second hand goods see VAT Notice 718: the margin scheme and global accounting for second hand goods, works of art, antiques and collectors’ items. These should be accounted for as an adjustment to your VAT account. If the scheme is not used, then sales of second hand goods should be accounted for within your retail scheme in the same way as new goods.

6.18 Sale or assignment of debts

If you sell or assign debts due from your customers, no adjustment to your VAT account is necessary since you will already have included the correct amount when you made the supply.

6.19 Sales where you act as an agent for a third party

Normally you will be paid a commission which should be accounted for as an adjustment to your VAT account. Payments you receive and pass on to the third party do not form part of your DGT.

6.20 Amusement and gaming machines

You should add the ‘taxable take’ of the machine to your standard-rated DGT on the day you remove the cash and tokens from the machine.

For details of how to work out the taxable take, see VAT Notice 701/29: betting, gaming and lotteries.

6.21 Florists

If you’re a member of an organisation such as Interflora and Teleflorist see VAT Notice 727: retail schemes. Section 9, which has force of law, sets out how florists should account for VAT.

7. Business promotions

The general guidelines on the VAT treatment of business promotion schemes covered in this section are given in Business promotions and VAT (Notice 700/7).

This guidance tells you how to account for VAT on the most common forms of business promotion. If you wish to operate a particular promotion scheme which is not covered below you should contact VAT general enquiries.

7.1 Business entertainment or gifts

If you purchase goods or you use goods from your normal stock for business entertainment, you should read VAT Notice 700/65: business entertainment.

If you give stock away as gifts, you should read Business promotions and VAT (Notice 700/7).

Subject to the rules set out in these notices, you must account for any tax due by adjusting your VAT account by the value at cost.

7.2 Voucher redemptions

7.2.1 Discount vouchers

These are also known as money-off coupons, see Business promotions and VAT (Notice 700/7)) section 7 for further details.

Details Accounting procedures
As part payment See Business promotions and VAT (Notice 700/7), paragraph 7.3 redemption of coupons
Handling charges If you make a further charge to a manufacturer for handling the vouchers after redemption, this is payment for a supply which is exempt from VAT and should not be included in your DGT. Other charges for example relating to running the promotion should be accounted for as an adjustment to your VAT account
Sale If you sell discount vouchers, see paragraph 6.12 of this notice

7.2.2 Face value vouchers

Details Accounting procedures
Single purpose voucher VAT is due upon issue and no further VAT is due when the voucher is used by the customer to obtain the reward goods. If you subsequently receive payment for the voucher from the issuer, this is the consideration for the supply and should be accounted for as an adjustment to your VAT account
Credit voucher No VAT was due upon issue. When the voucher is redeemed, it should be entered into the DGT at its face value. If you subsequently receive payment for the voucher from the issuer, there is nothing further to account for. Any fee charged by the issuer should be treated as a cost to the business
Retailer voucher No VAT was due upon issue. When the voucher is redeemed, it should be entered into the DGT at the value it was initially sold for
Other vouchers No VAT was due upon issue. When the voucher is redeemed, it should be entered into the DGT at its face value. If you subsequently receive payment for the voucher from the issuer, there is nothing further to account for. Any fee charged by the issuer should be treated as a cost to the business

7.2.3 Vouchers with no values or amounts but redeemable for goods

Details Accounting procedures
Vouchers issued by you to customers making a specific purchase or purchases No VAT is due upon issue and no further VAT is due when the voucher is used by the customer to obtain the reward goods. But the linked supplies concession (paragraph 6.2, Business promotions and VAT (700/7)) may apply to the package of the specific purchase and the goods the voucher entitles the customer to
Vouchers issued freely by you No VAT is due upon issue. When the voucher is redeemed for goods, no VAT is due unless the business gifts rules apply. See section 2 of Business promotions and VAT (Notice 700/7)
Vouchers issued by another person but redeemable with you They are likely to be subject to the terms and conditions of that person’s promotion. For example, you may be given certain stocks to give away on behalf of that person. These stocks must not be included in your retail scheme calculations. Business promotions and VAT (Notice 700/7) contains further information. Alternatively, contact VAT general enquiries

7.3 Vouchers redeemed for cash with you

If you redeem vouchers for cash, the cash payment is outside the scope of VAT. You must not alter your DGT by the cash paid out.

7.4 Goods linked in a promotion

Third party sponsorship payments for a promotion must be included in the DGT.

7.4.1 Types of promotion

Main types of promotions are 2 different articles are sold for a single price in a combined offer, for example:

  • washing machine with an iron
  • a jar of coffee with a packet of chocolate biscuits

A number of the same articles are sold in a multibuy offer, for example buy:

  • two and get a third free
  • a sandwich and get a free can of drink

7.4.2 Promotional goods having the same liability

If both articles are liable to VAT at the same rate of tax (as in the washing machine and iron combined offer and the first multibuy example above), then there are no additional rules to follow under the point of sale scheme.

7.4.3 Promotional goods having mix of liabilities

If the articles are liable to VAT at different rates of tax (as in the coffee and biscuits combined offer and the second multibuy example above), then you must apportion the payment received for them as follows:

  • you may use the method explained in VAT guide (Notice 700)
  • in the case of goods linked by the manufacturer, you may treat the articles in accordance with the information shown on the supplier’s invoice (for example, if the invoice shows separate prices and amounts of tax, you may apportion your selling price on the same basis)

7.4.4 Accounting for third party payments

When you receive a contribution from a manufacturer or joint sponsor representing partial payment for goods supplied to a customer, you should account for this in the period the goods are supplied.

But as a concession, you may account for such contributions in the period they are received from the manufacturer or joint sponsor.

If a manufacturer or joint sponsor contributes, for example, towards advertising, you have made a separate supply of services and this must be dealt with outside your retail scheme.

7.4.5 Liability

A retail scheme cannot alter the VAT liability of the elements to 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 and VAT (Notice 700/7), you may account for VAT on the minor item at the same rate as the main article.

7.4.6 Scheme treatment

Section 7.4.6 has the force of law.

If an apportionment of the selling price is necessary, you must separate the amount allocated to the zero-rated article from your standard-rated takings before carrying out your scheme calculation.

8. Appeals

8.1 Disagreeing with a decision made by HMRC

If you disagree with a decision made by us, you can ask for it to be reconsidered.

8.2 If you are still not satisfied

You can also appeal to an independent VAT and Duties Tribunal if you are still not satisfied. You will find out more about the appeal procedure in Disagree with a tax decision.

Your rights and obligations

Read Your Charter to find out what you can expect from HM Revenue and Customs and what we expect from you.

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Published 11 January 2013