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HMRC internal manual

VAT Taxable Person Manual

HM Revenue & Customs
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Particular Trades: direct selling or party plan sales: accounting consequences

To protect the revenue and to avoid distortion of competition with taxable persons using ordinary retail outlets, we want to ensure that output tax is declared on the full price paid by the final consumer. If, having considered the above factors, you conclude that the dealer is a selling agent of the distributor, the distributor must declare output tax on the full sale value. If however, you conclude that the dealer has purchased the goods from the distributor and sold them on to customers as a principal (and the total value of the distributor’s sales to unregistered dealers for resale exceeds £50,000 per annum), a notice of direction (NOD) must be issued under Schedule 6, paragraph 2 of the VAT Act 1994: see sections 5.5 and 5.6 of guidance V1-12: Valuation.

Thus, by one means or another, output tax will be declared on the full sale value of the goods. But it is nevertheless vital that you establish the correct position; not least because a notice of direction may only be issued from a current date, whereas a decision that the distributor has supplied the goods as principal to the customers may enable us to assess for arrears of tax.