Use a VAT retail scheme

If you sell mainly to the general public and cannot issue a VAT invoice for every sale, a VAT retail scheme lets you calculate your VAT liability from your total takings rather than tracking VAT on each individual transaction.

Who cannot use retail schemes

You cannot use a retail scheme if you:

• Use the VAT Flat Rate Scheme - you must use the flat rate percentage instead
• Make all your sales to VAT-registered businesses (issue VAT invoices instead)
• Only sell goods at a single VAT rate (standard accounting is straightforward)

When you sell to VAT-registered businesses, you must issue a VAT invoice regardless of which retail scheme you use. Retail schemes only apply to sales where invoicing is impractical.

Point of Sale scheme

When to use Point of Sale

This scheme works best if you:

• Have an electronic point of sale (EPOS) system that can track VAT rates per product
• Use barcode scanning linked to a product database with VAT information
• Can programme separate till keys for different VAT rates
• Want the most accurate VAT calculation with no estimation

Apportionment schemes

Apportionment schemes calculate VAT based on the proportion of your purchases at each VAT rate. They assume your sales mix roughly mirrors your purchase mix.

There are two versions with different turnover limits and calculation methods.

Apportionment Scheme 1

When to use Apportionment Scheme 1

This scheme suits your business if:

• Your turnover is within the scheme's limit
• You apply similar mark-ups across all product categories
• You want a simple calculation based on purchase records you already keep

If you apply higher mark-ups to zero-rated goods than standard-rated goods (or vice versa), this scheme will not accurately reflect your actual VAT liability.

Apportionment Scheme 2

When to use Apportionment Scheme 2

This scheme suits your business if:

• You apply different mark-ups to different product categories
• You can calculate expected selling prices for purchases
• You need more accuracy than Scheme 1 provides

For example, a convenience store might apply a 50% mark-up on confectionery (standard-rated) but only 20% on newspapers (zero-rated). Scheme 2 accounts for this difference; Scheme 1 does not.

Direct Calculation schemes

Direct Calculation schemes work by identifying sales of your minority goods (the smaller category by value) and calculating the majority by deduction from total takings.

These schemes are efficient when most of your sales are at one VAT rate with relatively few exceptions.

Direct Calculation Scheme 1

When to use Direct Calculation Scheme 1

This scheme suits your business if:

• Your turnover is within the scheme's limit
• Most sales are at one VAT rate (for example, mainly standard-rated with some zero-rated)
• You can easily identify minority goods at point of sale
• The minority category is genuinely small by sales value

Direct Calculation Scheme 2

When to use Direct Calculation Scheme 2

This scheme suits your business if:

• Most sales are at one VAT rate
• You cannot easily identify minority goods at point of sale
• You can maintain accurate stock records for minority goods

Choosing the right scheme

The right retail scheme depends on your turnover, available systems, product mix, and the accuracy you need.

You must also use a scheme for at least 12 months before changing, unless you become ineligible or HMRC permits or requires an earlier change, and keep a record of which scheme you used and when you changed.

If your turnover makes you ineligible, continue using the current scheme through the end of the next complete accounting period, then move to a scheme with a higher limit. Above £130 million, you need a bespoke scheme.

Bespoke schemes

If none of the standard schemes suits your business circumstances, you can apply to HMRC for a bespoke retail scheme. This requires written agreement and must demonstrate that standard schemes would produce unfair or impractical results for your business.

Record keeping requirements

All retail schemes require specific records that HMRC can inspect. Poor record keeping can result in HMRC rejecting your scheme calculations and assessing VAT based on their own estimates.

Use the same calculation method throughout each accounting period, and keep full workings showing how you calculated any year-end adjustment.