Commentary

V7.242 The retail schemes in detail

Part V7 Tax planning
Part V7 Tax planning | Commentary

V7.242 The retail schemes in detail

Part V7 Tax planning | Commentary

V7.242 The retail schemes in detail

Introduction

The aim of a retail scheme is to enable a retailer to calculate his output tax liability in a simple, cost effective manner. If the retailer only sells goods at one rate of tax, then his output tax position is very simple but it becomes more complicated if he sells goods at different rates of tax. See Example 1.

Example 1

Jones is a clothes retailer and has two shops in the local High Street. The first shop sells women's clothes; the second shop sells a mixture of women's and girls' clothing.

On 15 July, the gross takings from the first shop were £2,400; the sales of the second shop were £3,250.

What is the position of the two shops as far as output tax is concerned?

Solution – there is no problem with the output tax position of the first shop because all goods are being sold at one rate of tax, ie standard rated for adult clothing. The output tax liability at a 20% rate will be: £2,500 × 1/6 = £400.

Note – 1/6 is the fraction relevant to a VAT rate of 20%.

However, there is a problem for the second shop because some of the sales are standard rated (adult clothing) and some sales are zero-rated (children's clothing). A special method of calculation is needed to establish how much of the £3,250 is zero-rated and how much is standard rated – this objective will be achieved by the business adopting one of the five

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