Retail schemes ― direct calculation

Produced by Tolley
Retail schemes ― direct calculation

The following Value Added Tax guidance note Produced by Tolley provides comprehensive and up to date tax information covering:

  • Retail schemes ― direct calculation
  • Overview
  • Using Direct Calculation with other schemes
  • Records
  • Calculations
  • Calculating the ESP
  • Setting the ESP for zero-rated retail goods
  • Setting the ESP for standard-rated goods
  • Annual adjustments
  • Zero-rated ESP
  • More...

Retail schemes ― direct calculation

IP COMPLETION DAY: 11pm (GMT) on 31 December 2020 marked the end of the Brexit transition / implementation period entered into following the UK’s withdrawal from the EU. At this point in time, key transitional arrangements came to an end and significant changes began to take effect across the UK’s VAT and customs regime. This document contains guidance on subjects potentially impacted by these changes. Before continuing your research, see the Brexit — overview guidance note.

This guidance note provides an overview of the two Direct Calculation retail schemes and should be read in conjunction with the Retail schemes – overview and Retail schemes – specific industries guidance notes.


Businesses can only use this scheme if the total retail turnover does not exceed £130m per annum. If the total turnover exceeds this threshold the business will need to agree a bespoke retail scheme with HMRC. See the Bespoke retail schemes guidance note for more information.

The following thresholds apply to businesses wishing to use a Direct Calculation scheme:

SchemeTurnover limit
Direct Calculation scheme 1Total retail turnover must not exceed £1m
Direct Calculation scheme 2Total retail turnover between £1m - £130m

It is important to note that these thresholds apply to the whole VAT registration and not just to the value of the retail sales made by the business.

Businesses using the schemes need to calculate the Expected Selling Price (ESP) of the retail goods sold at one or two VAT rates in order to identify the proportion of the Daily Gross Takings (DGT) that relates to sales at each VAT rate.

Business are usually required to calculate the ESP of the 'minority goods'. These are the goods that represent the smallest proportion of the overall retail supplies. However, businesses using Direct Calculation scheme 1 can elect to calculate the ESP of the majority goods if this is more straightforward. Once businesses have started to set the ESP for minority

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