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HMRC internal manual

VAT Retail schemes guidance

From
HM Revenue & Customs
Updated
, see all updates

Mechanics of the standard retail schemes: Theft, leakage and shrinkage

General principle

VRS4100 explains the general principle that where there is a theft of goods from the retailer, no supply has taken place and no tax is due. However, where there is theft of cash, which results in the DGT being reduced, a supply has taken place. Reductions to the DGT may be the result of, for example, till shortages; fraudulent refunds or voids; or pre-till thefts of cash which result in the takings not being recorded at all in the DGT. VAT is due on the supply and the value of the supply should be included in the DGT.

The Retail UoE has operational expertise in the issue of staff cash theft and unrecorded sales and should be contacted in cases of difficulty.

Where to look

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How much cash has been stolen?

To the extent that leakage or shrinkage derives from thefts of cash, the amounts stolen should in principle be added back into the DGT. The difficulty arises in quantifying the element of reported leakage which should be added back in to the DGT.

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Further adjustments

In both direct calculation and apportionment schemes we require expected selling prices (ESPs) to be adjusted for stock shrinkage. Where unexplained accounting discrepancies between stock and sales are attributable to staff theft of cash or unrecorded sales, the sales involved will have been written out of ESPs as part of the shrinkage. They must therefore be added back into the ESPs as well as into the DGT.