VAT RETAIL SCHEME

Under the VAT system the normal method of accounting for the output tax due on supplies is by the issue of “tax invoices”. These invoices must by Law include details/information specified in the regulations and this includes the tax value, rate of tax and the actual amount of tax charged. This is important because it shows the amount of tax that the supplier must account for as output tax and the amount that the customer, if he is registered for VAT as a Standard rate operator, may be able to claim as input tax. However, in the case of a taxable person who is a retailer or a wholesaler of goods, the VAT is a flat rate of 3%. In certain business circumstances it is recognized that invoices are not normally issued for individual supplies and that it would be impracticable to do so. These circumstances normally apply to retailers (for example: supermarkets) who sell high volume, low value goods to customers who are themselves not registered for VAT. It is for this reason that the retail schemes have been designed. They enable certain eligible VAT registered traders taxpayers to calculate the output tax due on their supplies without having to issue the normal tax invoices.

WHAT THIS NOTICE EXPLAINS
  • Who is eligible to use a retail scheme?
  • What schemes are available?
  • How the schemes are operated?
APPROVAL TO USE A RETAIL SCHEME

Before using a retail scheme you must obtain written approval from the Commissioner-General.

WHO IS ELIGIBLE TO USE A RETAIL SCHEME?

The schemes normally apply to retailers of goods only. If you make both retail and non-retail sales, you will be able to use a retail scheme for your retail sales only. If you make any other supplies, for example to other VAT registered businesses, you must account for them outside the scheme. Any supplies which you deal with outside a scheme must be dealt with in the normal way, i.e. by issuing tax invoices. You must therefore follow the rules in the General Guide -Public Notice No 3 (PN3) on the download section for that part of your output tax. For example, the tax charged on most supplies of hotel accommodation and restaurant meals will be accounted for by the issue of tax invoices in the normal way. However, if you supply catering services and also have a retail outlet, such as a retail shop, which makes non-catering supplies, you may use a Retail Scheme for that part of the business provided you can keep completely separate records for both activities.

WHAT SCHEMES ARE AVAILABLE?

Scheme 1

This scheme is for calculating VAT when all of your supplies are at the flat rate only. If all your supplies are flat – rated, this is the only scheme you can use.

Scheme 2

This scheme is for use when the supplies you make are of mixed liability (i.e. both taxable and exempt supplies). Under this scheme you have to separate your takings at the point of sale, for example, by using separate or multi-total tills. Provided you can do this accurately, the scheme is very simple to operate.

Scheme 3

The third scheme can be used as an alternative to Scheme 2 where a person cannot differentiate at the point of sale between the different types of goods sold (taxable or exempt supplies). This scheme bases the proportion of taxable goods sold on the proportion that the taxable goods form out of the total value of all goods purchased for resale in the same state. This assumes that if goods for resale are purchased in a certain proportion then they are sold in the same proportion.

HOW DO THE SCHEMES OPERATE?

Each of the schemes has three common components:

  • Daily Gross Takings (DGT) – is a record of the payments received from customers for supplies made (see Part II)
  • Retail Scheme Calculation (RSC) – is a calculation necessary to determine what proportion of the Gross Takings is from the sale of taxable supplies (see Part III)
  • VAT Fraction – is applied to the Taxable Proportion of the Gross Takings (calculated above) to obtain the VAT content of the Takings – this is the Output tax due on the sales (see Part IV)
  • The VAT Fraction applicable is the VAT Rate divided by the VAT Rate + 100% i.e. (3%/100%+3%) or (3/103).