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HMRC internal manual

VAT Retail schemes guidance

Expected selling price (ESP) schemes: Points to watch in ESP schemes

Officers should be aware of the possible benefits to a retailer of using particular ESP schemes.

  • If the proportion of standard rate to zero rate purchases in a department or store is increasing, apportionment scheme 2 will produce a lower amount of output tax than a direct calculation scheme. This is because the calculation is based on the average proportion of such purchases over the last 12 months and so prolongs the historically lower standard-rated proportion.
  • If the proportion of standard-rated purchases is falling, however, the reverse will be true. The direct calculation scheme is more responsive and will therefore reflect the change immediately. Under apportionment scheme 2, the falling standard-rated mix will be reflected incrementally during the course of the following year.

Retailers may wish to propose a mixture of methods to take advantage of such effects, and it is for this reason that certain mixtures of schemes are not allowed: see VRS3350.

Guidance on setting ESPs

  • Notices727/4 How to work the apportionment schemes and727/5 How to work the direct calculation schemes give guidance on setting ESPs.Notice 727/2 Bespoke retail schemes gives a checklist of the most common factors to be taken into consideration under ESP schemes.