VAT retail schemes
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1. How VAT retail schemes work
If you sell goods you must calculate how much VAT to record in your VAT account.
For goods sold inclusive of VAT, you must deduct the VAT you have to record. For goods sold exclusive of VAT, you must add it.
VAT retail schemes can make calculating your VAT simpler. Instead of calculating the VAT for each sale you make, you do it once with each VAT return.
There are 3 standard VAT retail schemes:
- Point of Sale Scheme - you identify and record the VAT at the time of sale
- Apportionment Scheme - you buy goods for resale
- Direct Calculation Scheme - you make a small proportion of sales at one VAT rate and the majority at another rate
If your turnover excluding VAT is over £130 million you must agree a bespoke retail scheme with HM Revenue and Customs (HMRC).
You can use a retail scheme together with the Cash Accounting Scheme and the Annual Accounting Scheme.
You can’t use retail schemes with the Flat Rate Scheme.
Joining and using a scheme
You can join a retail scheme at the beginning of any VAT period. You don’t need to tell HMRC.
It’s up to you which scheme you join. The calculations you have to do vary for each scheme.
You must provide an individual VAT invoice if a customer asks for one.
Changing and leaving a scheme
You can leave a scheme at the end of any VAT period. If your turnover rises above £130 million you’ll have to leave the scheme immediately.
You can change to another scheme after 1 year of joining a scheme.
Caterers, pharmacists and florists
There are separate rules if you’re a:
2. Point of Sale Scheme
Who can use it
You can use this scheme if you can identify the VAT rate for goods sold at the time of sale, eg you have an electronic till that does this for you.
How to calculate your VAT
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Add up all the sales for each VAT rate for the VAT return period.
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For 20% rated goods, divide the sales by 6. For 5% rated goods, divide the sales by 21.
Example:
You’ve sold £24,000 worth of 20% rated goods and £105 worth of 5% rated goods.
£24,000 / 6 = £4,000
£105 / 21 = £5
You need to record a total of £4,005 for the VAT return period.
3. Apportionment Scheme
Who can use it
You can only use this scheme if you buy goods for resale.
You can’t use apportionment if you provide:
- services
- goods that you’ve made or grown yourself
- catering services
Your turnover, excluding VAT, can’t be more than £1 million a year.
There is a separate scheme for businesses with a turnover of between £1 and £130 million.
How to calculate your VAT
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Calculate the total value of goods purchased for resale in the VAT period for each VAT rate.
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Divide the total of purchases for each VAT rate by the total for all purchases.
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Multiply the outcome by your total sales, divided by 6 for 20% rated goods, and divided by 21 for 5% rated goods.
Example
In the VAT period you buy goods at the following VAT rates:
- £16,000 of goods at 20%
- £1,000 at 5%
- £10,000 at zero rate
Total purchases: £27,000
Your total sales are £34,000.
(£16,000 / £27,000) x £34,000 / 6 = £3,358.02
(£1,000 / £27,000) x £34,000 / 21 = £59.96
Total VAT for the period = £3,417.98
4. Direct Calculation Scheme
Who can use it
You might want to use this scheme if you make a small proportion of sales at one VAT rate and the majority at another rate.
Your turnover, excluding VAT, can’t be more than £1 million a year.
There’s a separate scheme for businesses with a turnover of between £1 million and £130 million.
How to calculate your VAT
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Calculate the expected selling prices (ESPs) for your minority or majority goods. Use the one that’s easier.
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Total up the ESP for the VAT period.
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If your goods are standard rated at 20% divide the total ESP by 6. If they’re zero rated, deduct the total ESP from your total sales. This will give you your sales at 20%. Then divide by 6.
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If you have reduced-rate (5%) goods deduct the ESP of this from your sales before calculating your VAT at 20%. Then calculate the VAT due on reduced-rate goods by dividing the ESP of these by 21. Add this figure to your 20% VAT to get total VAT due.
Example
Your total sales are £25,000.
Deduct the ESP of zero-rated goods = £2,500.
Deduct the ESP of reduced-rate (5% goods) = £105.
Sales of goods at the 20% VAT rate = £22,395.
Divide by 6 to calculate the VAT due on the 20% goods = £3,732.50.
Divide by 21 to calculate the VAT due on the 5% goods = £5.
Total VAT due is £3,732.50 + £5 = £3,737.50.
You must make an annual stock adjustment if your annual turnover is between £1 million and £130 million.