On 18 June 2018, HMRC published “Revenue and Customs Brief 5 (2018): VAT liability on goods supplied on approval”. The Brief explains HMRC’s policy in circumstances where goods are supplied on approval and the liability in relation to delivery changes.

HMRC is of the view that its previous guidance (VRS9150), which stated that mail order retails “normally supply goods on approval terms”, is incorrect. HMRC has indicated that this may be the case in certain circumstance but that this would be unusual.

In Littlewoods Organisation plc (VTD 14977), it was 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 the goods.

HMRC states that retailers may have wrongly accounted for VAT on approval terms and that this may have led to them accounting for VAT at the wrong time.

While not requiring any retrospective correction, HMRC has indicated that retailers will be expected to correct any anomalies within the next three months from the date of the Business Brief.

A copy of the Brief can be viewed here.