# VAT Retail schemes

I wonder if any one can help.

I would like to understand how VAT Retail Schemes under Direct Calculation scheme (1) and (2) works. HMRC Notice 727 and 727/5 has the following for Direct Calculation scheme (1):

“Under this scheme, you calculate the ESP of goods for retail sale at one or more rates of VAT so that you can calculate the proportion of your takings on which VAT is due.

As a general rule you must normally calculate the selling price of your minority goods. These are the goods at the rate of VAT which forms the smallest proportion of your retail sales.

However, you may mark up your majority goods if this would be a simpler option for your business and would produce a fair and reasonable result. For example, if you are a newsagent you may find that marking up your majority sales of newspapers and magazines is more straightforward than marking up your minority sales of tobacco and confectionery which may have been purchased from various sources.”

Can some one explain how this works in practice by way of an example? Say if we assumed as below:

 Goods Costs Mark- up Expected Sales Price (EPS) % of ESP £ £ £ Zero rated 4,000.00 1,200.00 5,200.00 42% Standard rated 6,000.00 1,200.00 7,200.00 58% 12,400.00 100% Assume sales by retailer as follows: Month 1 Month 2 Month 3 Quarter £ £ £ £ Total takings 2,000.00 3,000.00 1,000.00 6,000.00

How would VAT be calculated assuming the only record the retailer maintains of his/her revenue is a mere total of takings (totalling £6,000)?

HMRC Notice 727 states with respect to Direct Calculation scheme (2):

“Direct Calculation scheme (2) works in the same way as scheme (1), but requires you to make an annual stock adjustment.”

Many thanks – Ash

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