VAT retail schemes are a special set of schemes used by retail businesses to account for VAT. The schemes are used by businesses that sell a significant amount of low value and/or small quantity items to the public with different VAT liabilities.
The use of the schemes can save businesses a significant amount of time in calculating the amount of VAT due to HMRC. In many circumstances, it would be extremely difficult for these businesses to account for VAT using standard VAT accounting. By using the VAT retail scheme, retailers can calculate VAT due to HMRC at the standard, reduced and zero rates of VAT as a proportion of sales. Usually this is done on a day-by-day basis.
There are 3 standard VAT retail schemes:
- Point of Sale Scheme
- Apportionment Scheme
- Direct Calculation Scheme
There is also the option of using a bespoke scheme. The use of a bespoke scheme is obligatory for retailers with a turnover excluding VAT of £130 million or more. The decision as to which retail scheme is to be used is usually driven by a combination of looking at the scheme that provides the best result for the business in question combined with the cost of using the scheme, with the important caveat that HMRC consider that the chosen scheme is fair and reasonable.
HMRC’s guidance on the 3 standard schemes and the bespoke scheme has recently been updated to include information about changes to the treatment of vouchers.
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