Revenue and Customs Brief 5/18 - VAT liability on goods supplied on approval
Submit Articles Back to Articles
The purpose of this brief is to explain HMRC policy on when goods
are supplied on approval, and the liability of the delivery charges for
This brief should be read by mail order retailers and anyone
supplying goods delivered on approval.
We recently reviewed our guidance in this area and concluded that in
our guidance (VRS9150) the statement ‘normally’, in that
retailers ‘normally supply goods on approval terms’ is not
Such companies may supply goods on approval terms but often this will
not be the case.
‘Sale on approval’ was considered by the Tribunal in the
Littlewoods Organisation plc (VTD 14977). The Tribunal held that goods
were supplied on approval where there is no contract of sale unless and
until the recipient concerned adopted or was deemed to have adopted the
goods. This is different from a supply of goods with a subsequent right
to return them.
The Tribunal found in that case that Littlewoods did not supply
goods on approval.
4. Goods supplied on approval
Whether or not goods are supplied on approval will depend on the
facts in each case. Relevant indicators can be found in the updated
guidance at VRS9150: Mail order traders: Time of supply under retail
If you have incorrectly treated the goods you supply as being on
approval terms, you may have accounted for VAT at the wrong time. We
will not require you to correct past VAT Returns for time of supply
discrepancies but you should take steps to ensure that you are
accounting for VAT correctly by the end of the transitional period
referred to below.
5. The liability of the delivery charge
In a single supply of delivered goods, the delivery is ancillary to
the supply of the goods. Therefore the liability of the delivery charge
follows that of the goods being supplied.
Where goods are supplied on approval, the delivery service is not
ancillary. As delivery happens before the customer or the mail order
retailer know whether there will be a supply of goods, delivery is an
aim in itself. If the goods are sent on approval, the purpose of the
delivery service is to facilitate the customer inspecting the goods to
decide whether or not they wish to purchase them.
The supply of the delivery service is therefore not dependent upon
the supply of the goods. Consequently the delivery of goods supplied on
approval terms is always a separate supply that is taxable at the
Updated guidance can be found at:
- paragraph 8.3 of VAT guide (Notice 700)
- paragraph 6.10 titled delivery charges of VAT point of sale
retail scheme (Notice 727/3)
- paragraph 6.10 VAT direct calculation retail schemes (Notice
- paragraph 7.10 of How to use the VAT retail apportionment scheme
If you’ve incorrectly treated delivery charges as zero-rated
should follow the normal error correction procedures, as set out in VAT
6. Transitional period
Businesses that are incorrectly treating goods as supplied on
approval must cease to do so. HMRC is allowing a period of 3 months
from the date of this brief within which affected businesses must
change their accounting systems to account for VAT on these supplies
correctly and at the right time.
About the Author
© Crown Copyright 2018.
A licence is needed to reproduce this article and has been republished
for educational / informational purposes only. Article reproduced by
permission of HM Revenue & Customs.
Follow us @Scopulus_News
Article Published/Sorted/Amended on Scopulus 2018-06-18 19:00:00 in Tax Articles