HMRC has issued new guidance on when goods are supplied on approval and how this impacts the time of supply and postage costs for VAT.

HMRC’s previous guidance indicated that mail order retailers would normally supply goods on approval terms. 

They have updated this guidance on the basis of a 1997 case, Littlewoods Organisation plc, in which it was held that goods are only supplied on approval where there is no contract of sale unless and until the recipient adopted or was deemed to adopt the goods.

This is different to a supply of goods with a right of return, as most mail order retailers provide.

Where the goods are goods on approval the Time of supply is per s6(2)(c) VATA 1994:

  • They are supplied at the time it becomes certain that the supply has taken place, or
  • 12 months from after the date the goods were removed, if sooner.

Where the goods are supplied, with a right of return, the normal time of supply rules apply.

In addition, where the goods are goods on approval, the delivery service is a separate supply to the goods themselves, not an ancillary supply. This is because the delivery occurs before it is known if a supply of goods has taken place.

The delivery service will have to be assessed to VAT separately.

Some suppliers may have treated the delivery service as zero-rated, for example those providing children’s clothes, when that service should be standard rated.

Where the goods are not on approval, the delivery service will normally be part of the Single supply of the goods and charged at the goods’ applicable VAT rate.

HMRC will not be assessing for VAT not declared on delivery services for goods on approval and are giving businesses until 18 September 2018 to arrange for their accounting systems to correctly account for the VAT going forward.


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