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HMRC internal manual

VAT Retail schemes guidance

HM Revenue & Customs
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Mechanics of the standard retail schemes: Incorrect liability applied to supplies


All retail schemes require the correct VAT liability to be allocated to supplies made. In schemes other than the point of sale scheme, this requirement also extends to supplies received for retail sale. The onus for doing this is on the retailer, although in practice many rely on the liability allocated by their supplier.

Where an incorrect liability is allocated to a particular item, perhaps because of the way that the item is held out for sale, consideration should be given to assessing for any tax misdeclared.

Point of sale scheme

Under the point of sale scheme, the appropriate VAT fraction should be applied to the amounts involved to calculate the under or overdeclaration.

Apportionment/direct calculation schemes

Under the first apportionment scheme and the direct calculation schemes, using the purchase value or expected selling prices of goods at different rates, the scheme will need to be reworked in full (including any annual adjustments) once the correct liability has been allocated to the goods.

Under the second apportionment scheme the retailer would normally be expected to rework the scheme calculation on discovery of such errors. As this scheme requires a rolling 12 month calculation, any correction of a liability error needs to be reworked not only for the periods up to the correction of the error, but also for the 12 months following the correction. This may be onerous both for the retailer - who may have changed schemes during the currency of the error, or who may otherwise have to carry out complex multi-level calculations, possibly for a number of periods - and for officers who must check such calculations.

Where an accurate reworking of such a scheme calculation is impractical, assurance staff may agree a method with the retailer in order to arrive at a satisfactory valuation of the error. For example, this might be to allow the VAT fraction to be applied to gross selling prices of the products incorrectly entered on the system. This could be considered reasonable on the basis that any inaccuracy is likely to even out over a period of time: errors may be in the retailer’s favour or ours.

Such a short-cut approach to correcting product liability errors should not be taken without the agreement of the retailer. It would be best if such agreements were entered into before the event, and they must be in writing.

This relaxation should not be extended to other errors affecting the retail scheme.