Chapter 22 - Retail Schemes

Question 1

Introduction

Answer 1

VAT retail schemes were introduced to remove the need for retailers to account for VAT on each transaction

Question 2

Retail Schemes

Answer 2

A retail scheme will take the cash in the till, it’s then divided into the different types of sales. The split is an apportionment which is fixed according to the RS rules. Hence it’s only an approximation of the VAT due on sales, but HMRC takes it as correct for the period. The VAT is then entered onto the VAT return in the normal way

Question 3

Retail Schemes Cont.

Answer 3

HMRC can refuse to allow the use of the scheme if:
1) use of the scheme doesn’t give a just and reasonable result
2) if it’s necessary to do so for the protection of the revenue; or
3) if it’s reasonable to expect the retailer to account for VAT in the normal way
If a business makes retail and non-retail sales, the non-retail sales must be excluded from the scheme. Sales to registered businesses are also to be excluded

Question 4

Gross takings

Answer 4

Measure of all supplies which the business has made. Figure then split between zero, reduced and standard rate and the VAT fraction is applied.
Gross takings:
- all payments received from cash customers including cheques, credit and debit cards
- credit sales
- cash value of any payment in kind for retail goods
- face value of any vouchers or tokens accepted in place of cash
- any other payments

Question 5

Point of Sale Scheme

Answer 5

Can be operated:

1) where all sales are made at a single positive rate of VAT
2) if electronic or similar tills are used which can analyse sales at the point of sale

Question 6

Apportionment Scheme 1

Answer 6

Can be used by retailers with annual sales, which exclude VAT, of up to £1 million. Each quarter, the purchases of goods for resale are expressed as a percentage calculated by dividing the cost of SR goods VAT included by the cost of all goods purchased. This % is applied to gross takings in order to calculate the standard rated sales for the quarter

Question 7

Apportionment Scheme 2

Answer 7

Slightly more complicated. Available to retailers with supplies not exceeding £130 million per year. The scheme is based on VAT inclusive expected selling prices of goods acquired for resale.
Gross takings x (ESP of SR goods received in last year / ESP of all goods received in last year) = SR supplies
No annual adjustment required.

Question 8

Direct Calculation Scheme 1

Answer 8

Allows for a difference in mark ups, available where retailers have turnover of £1 mil or less.
Quarterly calc done to get output tax and no annual adjustment or stock adjustments are made.

Question 9

Direct Calc Scheme 1 Cont.

Answer 9

Use ESPs again. The category of goods with the higher ESP is the majority goods and the lower is the minority goods. 
If ZR is minority goods:
Gross takings - ESP of ZR goods x 1/6
If SR is minority goods:
ESP of SR goods x 1/6

Question 10

Direct Calculation Scheme 2

Answer 10

Available for retailers with turnover not exceeding £130 million. Quarterly calc done to get output tax.
Annual adjustment is made and there are stock adjustments in the annual calc. Opening stock is added to purchases figures and closing stock is taken off

Question 11

Summary

Answer 11

Point of Sale: till identified VAT rate at point of sale (727/3)
Apportionment (727/4):
- < 1m: 1. mix of purchase purchases at cost -> annual adjustment
- < 130m: 2. mix of purchases at ESP -> rolling four quarters
Direct Calculation (727/5)
Deduct ESP of minority goods bought:
- < 1m: 1
- < 130m: 2 -> annual adjustment