Displaying retail prices
Retail businesses that sell goods to consumers are required to display their prices inclusive of VAT under The Price Marking Order 2004 (SI 2004/102) (the Order). Where there is a change in the rate of VAT, for businesses that adjust their prices in consequence, the Order allows a grace period of up to 28 days during which businesses may inform consumers, by way of a general notice (rather than alter individual price tickets or shelf labels for goods) that an adjustment in price to take account of the VAT rate change will be made at the till. The repricing task will need to be completed by the end of that grace period.
Note: Some businesses, as a commercial decision, may absorb the increases by not changing their prices until after the busy January period. For example, in the press John Lewis has announced that it will not change its prices until after its sales and just absorb the tax increase.
Six hour extension of 15% rate on New Year's Eve for certain retailers
Telecoms providers, pubs, clubs, restaurants and other retail businesses remaining open past midnight on New Years Eve 2009 will be allowed to continue charging VAT at 15% on their sales until the earlier of when they close or until 6am on 1 January 2010. However, this concession is restricted to the cost of telephone calls or texts made and billed in the early hours of 1 January 2010 and to businesses that account for VAT at the point of sale, such as businesses on a retail scheme (which may include pubs, shops and restaurants).
Returned Christmas gifts
Retailers and consumers need to know how to deal with Christmas gifts bought when the VAT rate was 15% and returned to a shop on or after 1 January 2010.
For example, a jumper is bought for £25 (including £3.26 VAT at 15%) on 19 December 2009. The jumper is returned to the shop on 2 January 2010. How much should be refunded to the customer? What if the jumper is exchanged for another item?
Where the shopkeeper refunds £25 on 4 January 2010, if it issued a VAT invoice for the original sale, it will need to give the customer a credit note reflecting £3.26 VAT at 15% (see section 18.2.3 (Tax rates) of The VAT Guide (HM Revenue & Customs Notice 700 sections 9-18), which confirms that "The rate of VAT to be used for a credit or debit note is the one which was in force at the time of the tax point of the original supply.").
If the jumper is exchanged for another item, then the shopkeeper will need to apply VAT as follows:
- If you replace returned goods with similar goods
Then you may either:
Let the original VAT charge stand (in which case, you need not account for VAT on the replacement goods, provided that they are supplied to the customer free of charge);
OR
Cancel the original VAT charge (by issuing a credit note if a VAT invoice has previously been issued) and charge 17.5% VAT on the replacement goods. - If the replacement goods are supplied at a price that is lower than the original goods
Then you may reduce the VAT charge by issuing a credit note, provided that a VAT invoice has previously been issued. - If the replacement goods are supplied at a price that is higher than the original goods
Then you must account to HMRC for the additional VAT.
