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HMRC internal manual

VAT Retail schemes guidance

Mechanics of the standard retail schemes: Adjustments to DGT


There are a number of required and allowable adjustments to be made to arrive at the final DGT figure for retail scheme purposes. These are detailed in each scheme notice. This paragraph deals with common difficulties arising from the required and allowable adjustments. Retailers with an annual turnover under £1 million are permitted to adjust their DGT for unpaid supplies without prior HMRC approval.

VRS4150 and VRS4200 deal with the special problems you may encounter in establishing the DGT. VRS4400 also details a concession available to small retailers.

General principles

The following principles underlie the policy on adjustments.

  • Retail scheme law does not change basic principles of the tax concerning consideration and supply. It therefore follows that DGT should reflect as far as possible the supplies made by the retailer, and the consideration received for those supplies.
  • Where there is a theft of goods from the retailer, no supply has taken place. It follows that no VAT is due and therefore nothing should be included in the DGT.
  • Where there is a theft of cash, the position is different. There has been a supply. VAT remains due on that supply and therefore its value should be reflected in the DGT.
  • The till operator/cashier is the servant of the retailer. Any errors or dishonesty by the cashier are therefore the responsibility of the retailer. In such circumstances, DGT must reflect the consideration actually received. However see paragraph VRS4150 for where there is collusion between the till operator and the customer.

Special cases

Bounced cheques and similar

The DGT can only be adjusted for bounced cheques and similar to the extent that the payment related to taxable supplies under the retail scheme. For example, an electrical store sells a washing machine for £399 with an extended warranty (which is exempt as provided by an approved insurer) for £50. At the time that the supply is made the retailer includes £399 in the DGT for retail scheme purposes. The customer pays by cheque, which subsequently bounces: the adjustment to the DGT should only be £399 and not the total £449 because only the former figure relates to the taxable supply.

The same principle applies to banknotes which are subsequently found to be forged, and to refunds given by a retailer.

Foreign currency

Many retailers accept foreign currency in order to encourage spending by tourists to the UK. In this case, no reduction to the DGT can be made for commission payable to the bank or similar for converting the currency. The total sterling equivalent of the value charged on the day the supply is made must be included in the DGT: the VAT Act 1994 Schedule 6, paragraph 11 and paragraph 7.7 ofNotice 700 The VAT Guide refer.

For example, an item with a ticket price of £20 is sold to a French customer and the retailer agrees to accept €30. For VAT purposes, the value of the supply is not necessarily £20 but is calculated in accordance with the above provisions. This may be a different figure, depending on the exchange rate applicable at the time of supply.

If the retailer also charges the customer a premium for accepting payment in foreign currency, this is an additional consideration for the supply of goods (or services) and must also be included in the DGT. The retailer does not provide a service of changing foreign currency to the customer so there is no exempt supply.

Profit or loss arising from any difference between the value thus computed and the rate at which the currency is actually exchanged have no VAT consequences: any commission charged to the retailer for converting the currency to sterling does not affect the value of the supply made to the customer and no adjustment to the DGT can be made.

Note: The inadvertent acceptance of foreign coins tendered by customers is an allowable adjustment. But some banks reimburse the retailer with the nominal value of foreign coins on the basis that the coins had been included in change/float bags; and no adjustment to the DGT can be made in such cases.

So, if the DGT contains £10 of foreign coins and the bank assumes it has supplied 75% of such coinage and reimburses the retailer in the sum of £7.50, the DGT can only be reduced by the balance, £2.50.

Common causes of discrepancy

This table lists common causes of discrepancy between a retailer’s record of DGT (usually the till roll) and the actual cash in the till, together with the effect this has on the DGT. The table deals with cases of genuine error. Where there is collusion between the till operator and the customer, see the section on Collusion in VRS4150.

Type of discrepancy Description of error Consideration Effect on DGT
Over-ringing Goods value £1.    

Customer hands over £1.

Cashier rings £10 into till.

£10 recorded in DGT. £1 DGT should reflect consideration.
Adjustment allowed if error is evidenced.    
  Under-ringing Goods value £10.

Customer hands over £10.

Cashier rings £1 into till.

£1 recorded in DGT. £10 DGT should be increased to reflect consideration.
  Over-changing Goods value £10.

Customer hands over £10.

Cashier rings £10 into till but gives customer £5 change in error.

£10 recorded in DGT. £10 DGT should reflect consideration. No adjustment for cash shortfall.
  Under-changing Goods value £10.

Customer hands over £20 in error.

Cashier rings £10 or £20 into till.

Same amount recorded in DGT. £10 DGT should reflect consideration. In theory the customer could return to the shop and ask for the extra £10 back.
  Under-charging Goods with shelf price £10.

Customer hands over £1.

Cashier accepts this in error, but records sale of £10 in DGT. £1 In principle, this is an allowable reduction.
BUT unless the error can be evidenced £10 should be included in DGT.    
  Over-charging Goods shelf price £1.
Customer hands over £10 in error and this is recorded as a sale of £10. £1 In principle, the DGT may be adjusted to reflect the lower amount. Any adjustment must be evidenced.