V3.572 Apportionment schemes

The apportionment schemes (APP1 and APP2) are used to calculate output tax on goods supplied at more than one rate of tax. The schemes are described in Notice 727/4/201 (Part V8). The schemes may not be used for supplies of services or catering. The first apportionment scheme may not be used for goods grown or manufactured by the retailer2.

An annual adjustment is required for APP13. No stock adjustment is required, but goods in stock on commencement which are to be sold and not restocked may be included in the calculation, unless they have been allowed for in a previous scheme4.

Users of APP2 must make a stock adjustment in the first year of using the scheme5.

Calculation under APP1 scheme

The first apportionment scheme (APP1) is restricted to businesses with an annual tax-exclusive turnover below £1 million. The scheme is relatively easy to operate, but not as accurate as scheme APP2. In particular, where zero-rated goods are sold at a higher mark-up than positive-rated goods, more tax may be paid than by using another scheme6.

The scheme works by analysing the proportions of goods purchased for resale, and applying those proportions to the daily gross takings for each accounting period.

The APP1 calculation to be used for each accounting period is7

The value of outputs to be entered on the VAT return is—

At the end of each tax year (which ends on 31 March, 30 April or 31 May depending on the VAT return stagger), an annual adjustment must be carried out

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