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HMRC internal manual

VAT Retail schemes guidance

From
HM Revenue & Customs
Updated
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Mail order traders: General

Mail order traders sell a wide range of consumer products to private individuals either directly or through agents. In recent years, there has been an increase in direct sales including internet sales and sales made via home shopping TV channels. The products for sale are displayed in big-book catalogues, medium-sized catalogues, brochures, off-the-page newspaper advertisements, internet site catalogue-style pages and home shopping TV channels. Catalogues are sent to individuals who may buy for themselves or act as agents for other customers, although sales to traditional agents with customers are in decline and most orders received are for agents’ own purchases as opposed to agents’ customers. Some mail order companies have introduced a charge for the catalogue and offer an equivalent value first order discount: this is a scheme introduced to attempt to value-shift from a taxable supply to a zero-rated supply. If your trader is operating this scheme you should contact the Retail UoE.

When an agent/customer has selected goods from a catalogue and wishes to place an order, they can do so generally by telephone, post or internet. The goods are then delivered to the customer, either directly or through the agent. On receipt of the goods, the customer has the option to retain or return the goods. Those goods that are retained by the customer may be paid for outright or in weekly instalments. The normal repayment terms/periods allowed by mail order companies are 20, 38 (or 40), 50 or 100 weeks, paid on a monthly basis. Various buy now pay later schemes can further extend the period. For home shopping TV channels, the customer generally pays for the goods by credit/debit card at the point when the goods are ordered.

Credit charges (over and above the price of the goods themselves) may be levied on some or all payment terms: these can be fixed or rolling charges, dependent on the type of trading. Credit is generally self-financed by retailers themselves.

Where an extra credit charge is made over and above the cash price, and is disclosed to the customer, then this separate charge relates to an exempt supply of credit. The retailer may make other exempt supplies: for example, they may arrange insurance policies such as warranties sold alongside consumer durables, payment protection schemes, and various other insurance products. The income received from such supplies is also likely to be exempt.

Many mail order houses are also involved in exports and distance selling to EU member states (such as supplies to British armed forces). Guidance on these matters can be found in VEXP and VATPOSG.

Although this section is specifically for the guidance of officers involved with mail order traders, other forms of home shopping, including methods such as direct sales of products to agents for onward sale (such as Avon and Bettaware) or party plan or network selling have many areas of common interest.