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HMRC internal manual

VAT Retail schemes guidance

Fundamentals of the retail schemes: Incorrect use of a scheme

If a retailer is eligible to use a particular scheme but has operated that scheme incorrectly, you should advise the business of the correct position and consider raising an assessment for any past misdeclarations.


  1. A business may have included in an apportionment scheme supplies of standard-rated services such as video hire. This will have resulted in an underdeclaration of tax, but the business may be unable to quantify the value of the video hire supplies made in past periods. You may, however, be able to agree an estimated figure for past supplies for assessment purposes, based perhaps on an agreed sample period.
  2. A business has set ESPs for zero-rated goods in scheme year x on the basis that he reasonably expected these to form his minority supplies. Part way through the year it became clear that the minority goods will, in fact, be standard-rated. Notice 727/5 Retail schemes: How to work the direct calculation schemes requires the business to set ESPs for goods at the same rate of tax for the whole retail scheme year. Provided you are satisfied that the business had acted reasonably in reaching the initial decision and that the business has gained/will gain no tax benefit as a result of incorrectly operating the scheme, you need take no action with regard to that scheme year.

If you discover that a business has obtained a tax advantage by manipulating a standard retail scheme, you should discuss the matter with your local TAPE manager.