HMRC internal manual

VAT Retail schemes guidance

VRS9220 - Mail order traders: Agents’ own purchases (AOP): Establishing the level of AOP

You should check the other guidance available on GOV.UK from HMRC as Brexit updates to those pages are being prioritised before manuals.

If the mail order house is unable to distinguish between agents’ own purchases and other sales on an item-by-item basis, sampling methods may be used to establish an agreed rate of AOP. In any negotiation with the business, a balance must be struck between the burden placed upon the business by the sampling exercise and the level of assurance required.

The business will normally request permission to sample rather than analyse all transactions and propose a sampling method

  • which they believe is workable,
  • which is based on their knowledge of what information their systems can produce, and
  • which has been developed by the statistics section of their accountancy department.

Once a method has been proposed, officers will need to consider whether there are any revenue risks inherent in the method before deciding whether it offers an acceptable level of assurance. For example, any exclusions from the sample population could have a significant effect on the validity of the method. Officers should also consider whether another, more valid, method could be produced with a little more work.

Advice may be obtained from Computer Audit, sector lead accountants or Retail UoE on the acceptability of sampling methods. The basis of sampling is to be agreed in writing by an officer of not less than SO grade.

As an alternative to permanent sampling, you may consider applications to use a fixed percentage, provided you are satisfied that it is impractical for the business to do otherwise and that the figure proposed is fair and reasonable. Again, such a concession is to be agreed in writing by an officer of not less than SO grade.

In either event, the agreed percentage may be used for a stated period (three years at most, we suggest); but this may depend on anticipated changes within the business, their systems, and so on. The time period must be specified within the agreement letter.

In the Court of Appeal decision in the case of GUS Merchandise Corporation Ltd (No 2) [CA October 1994, [1995] STC 279], reference was made to the fact that the correspondence between the company and the Commissioners constituted a series of offers to cover the ensuing three-year period, and when such offers were accepted (by the submission of the first return made on the offered basis), this acceptance was binding on the company for the next 3 years. As such it could not unilaterally resile from that agreement. Likewise, neither would the Commissioners be able to unilaterally resile from an agreement. See also Tesco plc, [1994] VATTR 425, London October 1994.