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HMRC internal manual

VAT Retail schemes guidance

Adaptations to standard retail schemes: Apportionment scheme 2

Valuing stock

For the first three periods the expected selling prices (ESPs) of opening stock are included in the scheme calculation. Where the business is unable to carry out a physical stock-take, there is already provision withinNotice 727/4 How to work the apportionment schemes to use the ESPs of the goods received for retail sale in the previous 3 months instead.

Further alternatives may be considered where either of the above is impossible or impractical, provided that you are satisfied that the method proposed will provide a reasonably accurate valuation at ESP of the stock at each rate of tax. This might be achieved, for example, by:

  • updating the most recent stock-take to take account of the goods received for, and supplied by, retail sale since the stocktaking took place;
  • allowing a stock-take to be carried out during the first period of use of the scheme, and adjusting this to take account of the goods received for, and supplied by, retail sale from the date on which use of the scheme started to the date on which the stock-taking took place; or
  • stock records produced by management accounts where these are used consistently and are considered by the business to be of such accuracy that they are relied upon for commercial stock management and statutory accounting purposes.

Using a periodic stock adjustment rather than a rolling calculation

If a retailer proposes an adaptation involving a quarterly stock adjustment, this can be accepted as it should accurately reflect the actual retail supplies made in the period.

If the retailer proposes an annual adjustment, you should consider whether:

  • the proposed stock-taking method is fair and reasonable; and
  • there will be a cash flow advantage for the retailer at the outset, for example because his zero-rated opening stock is significantly higher than that of standard-rated goods as a result of particularly heavy buying immediately before the first period of use. If so, you may wish to consider an adaptation whereby any difference between opening and closing stock is merely accounted for in the 4th quarter.

Adjusting historical purchase data to reflect changes in the mix of goods

Where a business’s mix of goods to be sold and accounted for under the second apportionment retail scheme has changed from the first period used under the rolling calculation, it may ask for approval to exclude the ESP values of the goods no longer to be sold from the scheme calculation. For example, apportionment scheme 2 was used in periods 1 and 2 to account for tax on all the retailer’s supplies, including the petrol station sales. For period 3 onwards, it proposes to account for tax on petrol supplies using a point of sale scheme and asks to exclude the ESPs of petrol purchases in periods 1 and 2 from the calculation.

Our policy is that:

  • when tax on supplies made by a particular department or for a specific class of goods is no longer to be accounted for under this rolling calculation scheme, the historic purchase/ESP data should be excluded from the calculation in order to value the future sales under the scheme more accurately; and
  • similarly, when new departments/classes of goods are brought into the scheme, the historic purchase/ESP data should also be included in the rolling calculation.

Provided that any retailer wishing to make such adjustments accepts these principles, and you are satisfied that this will produce a fair and reasonable valuation of supplies made at each rate of tax, you may agree such an adaptation.