Daily gross takings (DGT): How DGT is arrived at
Not all the business’s tills may be the same: for example, the business may primarily use an EPOS system but older stores may not be part of that system. It is important to establish what method the business uses for controlling tills outside the main system, such as temporary, remote, or manual tills and those sited in concessions. Tills, particularly electronic tills, do break down. Establish what method the business uses to record takings/sales in the event of till breakdown.
Deliveries direct to customers
Some retailers can arrange for goods, particularly bulky items, to be delivered directly to customers. In some cases, orders are merely taken by telephone and the sale may not be processed through a main till. Establish how the business accounts for these sales within the DGT. Officers should also consider the tax point for such supplies.
General guidance on allowable/unacceptable adjustments is given in VRS4100. You should also consider the impact of the following.
- Discounts: Many discount schemes, including those for staff, restrict availability in that certain supplies e.g. petrol, tobacco, food, etc, are often excluded. It is important to be aware of any such restrictions when determining how the business accounts for discounts under their particular retail scheme.
- Dishonoured or unsigned cheques and debit/credit card slips and forged bank notes: A retailer may accept payment by the above means for taxable, exempt and outside the scope supplies and, in the case of all but the last method, also provide cash-back. The business may reduce the DGT for such items from cash customers only in so far as the payment relates to taxable supplies, and officers should establish how this is done.
- Introduction: Multisave funding payments are made by suppliers to retailers to partially or fully support the price of goods supplied to retail customers in promotions such as
* buy one get one free, and * buy four get 50 pence off.
The correct treatment of these payments ultimately depends on the contract between the parties. However, where payments to the retailer bear a relationship with the number of goods sold, the payment will normally be third-party consideration for the retail supply and should be added to the daily gross takings in the period in which the supply is made.
- Concession: As a concession to this treatment, support payments may be accounted for outside the retail scheme, either as a reduction in the original purchase price or as an increase in output tax. The issue of debit notes from the retailer to the manufacturer will usually achieve the former; the latter is effected by the invoicing of output tax to the manufacturer. Where the use of this concession is agreed, it should be reflected in the bespoke scheme agreement (where applicable) or put in writing as an agreed adaptation to the standard scheme. The concession can be withdrawn at any time if it fails to produce a fair and reasonable result in your retailer’s scheme. The following paragraphs provide guidance on additional adjustments that may be required where the concession applies.
- Apportionment scheme 1 (cost-based): As the retail scheme is based on cost values, the value of those items funded under the concession in (b) should be removed from the scheme calculations in the period in which the invoice, credit note or debit note is issued. Remember that, although the support may be based on selling price, it is the cost of the supported goods which is removed from the scheme calculation. It is important to ensure that the cost values of any multi-save zero-rated goods are also removed from the scheme calculation in the same way as for standard-rated goods. If a partial funding arrangement is in place, such as where a supplier supports 50% of the discount allowed to a retail customer, the equivalent proportion of cost value for the goods should be adjusted.
Example: An apportionment scheme 1 retailer receives funding for
* 50% of the sales value of certain standard-rate goods, and * 100% for certain zero-rate goods.
The full cost values of all goods was originally included in the scheme in the previous period: therefore an adjustment is required for
* a 50% reduction of cost value of those standard-rate goods for which funding is received, and * a 100% reduction of cost value of those zero-rate goods for which funding received.
- Apportionment scheme 2 (ESP-based): Since this scheme is based on ESPs and the manufacturer’s contribution is being accounted for outside the retail scheme, the ESPs for support goods should be adjusted. This adjustment is avoided if the retailer simply treats the support payment as third-party consideration and includes it in the DGT. The ESP correction should be made for the period in which the promoted sales are made. However, if this is impractical because, for example, multi-save funding is not quantified at the time of the sale, you may agree locally that the adjustment can be made in the period in which the invoice, credit note or debit note is issued.
- Direct calculation schemes 1 and 2: As with apportionment scheme 2, where a manufacturer’s contribution is accounted for outside the retail scheme, ESPs will need to be adjusted. However, for direct calculation schemes, adjustment is only necessary in respect of those goods that have the same liability as the minority or marked-up goods. The ESP correction should be made for the period in which the promoted sales are made. However, if this is impractical because, for example, multi-save funding is not quantified at the time of the sale, you may agree locally, that the adjustment can be made in the period in which the invoice, credit or debit note is issued.
- Referencing by officers for retailers: Because of the possibility of manufacturers making Elida Gibbs claims to reduce output tax and reducing VAT liability due to the issue of credit notes or receipt of invoices/debit notes, it is advisable to issue references. This should be based on the perceived risk having reference to
* the tax at risk, * the volume of support payments, and * the compliance of the businesses involved.
- Action to take when no adjustments have been made: In any case where a retailer has received multi-save funding but has neither included it within DGT nor followed the appropriate alternative treatments detailed above, assessment action may be appropriate. You should establish precisely what agreement exists between retailer and supplier and why no adjustment was made. Where there is no evidence that the support payments are consideration for a separate supply of services and are related to the quantity of goods sold in the multi-save promotion, then, in the absence of an agreement to use the concession, any assessment should be based on the correct accounting position. In cases of doubt or difficulty contact the Retail UoE for advice.