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HMRC internal manual

VAT Traders’ Records Manual

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HM Revenue & Customs
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Rounding on invoices and rounding at retailers: Rounding at retailers

Sophisticated accounting packages allow retailers the possibility of identifying VAT at line level and/or providing VAT invoices. You can find guidance in Notice 700, The VAT Guide paragraph 17.6.

As a general rule the concession to round down is not appropriate for retailers. This is because the effect of rounding down the VAT charged to final consumers is not to reduce the VAT payable (which is the VAT fraction X the consideration received) but only to reduce the VAT accounted to HMRC.

Most retailers continue to account for VAT using a retail scheme. The problem of rounding only arises for retailers whose accounting systems allow them to identify and calculate VAT at line level and to issue invoices. In other words, it arises only for retailers who are on normal accounting. See VAT Retail Schemes VRS Chapter 10 paragraph 2.4 for the definition of normal accounting. Alternatives will include:

  • the use of any published retail schemes for which they are eligible;
  • the negotiation of a bespoke scheme;
  • rounding (up and down) to the nearest 1p;
  • calculation of the VAT due on every transaction to at least 5 digits after the decimal point and then rounding to 4 digits; or
  • truncation of VAT calculations at no less than 6 decimal places.

If a retailer genuinely sets prices on a VAT-exclusive basis - so that the VAT charged to the customer and the VAT accounted to HMRC are the same - the existing rounding concession may be appropriate. In considering such a system, you should examine how prices are actually set. If the retailer genuinely arrives at a tax inclusive selling price by starting with a net value expressed in whole pennies, then the existing concession may be appropriate. Before you accept such a system, you should discuss the case with the Retail Unit of Expertise.