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HMRC internal manual

VAT Retail schemes guidance

Special arrangements for certain professions or trades: Concessions/shops within shops


Department stores frequently contain various shops within their shops where part of the premises are operated as concessions by other retailers. This may not always be apparent to shoppers, who can usually pay for their purchases at any till within the store.

Licence to occupy/trade or retail sale by the host store

HMRC originally took the view that the host store provided a licence to the concessionaire to occupy and trade in the store: the concessionaire was considered to be making the supplies directly to the customer and, as such, was liable to account for VAT on their own sales, and their stock, goods received for retail sale and DGT should not be included in the host store’s retail scheme calculations. This was so even where the retailer operating the concession used the host store’s staff and services. The host store was liable to account for VAT on the commission received from the concessionaire (often based on a percentage of the concessionaire’s turnover and self-billed by the host store) in return for such services.

Some retailers have argued that the host store makes the supply to the customer and that therefore the concessionaire only makes supplies to the host store. After examining various contracts, HMRC now accepts that some agreements are constructed so that the host store is the principal as far as the retail sale is concerned. In such cases, the host store will be accountable for the output tax due on the retail supply to shoppers, and the concessionaire will effectively be making wholesale supplies to the host store. Such supplies cannot be accounted for within the concessionaire’s retail scheme.

Officers will need to look carefully at their retailers to establish if they are involved in:

  • operating concessions within stores belonging to other retailers; or
  • allowing other retailers or businesses to operate concessions within their own stores.

Retailers may be involved in both activities and may also operate under both types of arrangements referred to above. Officers will therefore need to examine agreements between a host store and any concessionaires to decide who is actually making the retail supplies to shoppers. If you require further assistance, you should follow the instructions on the Indirect Tax Homepage.

Impact on retail scheme

Consideration must then be given to the impact of those arrangements on the retail scheme in use. For example, where there is only a licence to occupy and the concessionaire accounts for output tax on their retail supplies, a number of difficulties may arise.

  • How does the host store recognise such sales and ensure that they are not included in its DGT?
  • How does the concessionaire ensure that it is advised of the sales figures by the host store in time for the concessionaire to account correctly for VAT?
  • How are retail exports of the concessionaire’s goods dealt with?
  • How are discounts given across the store dealt with?
  • How are bad debts, bounced cheques and similar dealt with when for example, the debt relates to, or the cheque was given as payment for, both the host’s and the concessionaire’s goods?

As retailers operating stores within stores are likely to be using bespoke schemes, officers should ensure that these questions are addressed within any retail scheme agreement drawn up.

Promotional discounts

Where a host store has a concessionaire supplying direct to customers, the host retailer may fund promotional discounts on sales by the concessionaire. For example, to promote sales at the host retailer’s store a 10% discount may be offered on all first purchases made using the host retailer’s store card. These discounts will be available on sales made by the concessionaire as well, in which case the host retailer will usually have agreed to fund the discounts by paying the 10% to the concessionaire. In J E Beale (LON/97/1096) the tribunal ruled that such payments by the host retailer to the concessionaire were consideration for a supply of services and not part of the consideration for the supply of the goods to the customer.

In cases such as this the value of the retail sale, to be included in the DGT, will be the amount charged to the customer less the discount. The payment for the supply of services is not consideration for a retail supply and should therefore be accounted for outside the concessionaire’s retail scheme.