HMRC’s new VAT guidance for ‘goods delivered on approval’

Hillier Hopkins LLP

Chartered Accountants & Tax Advisers

Call +44 (0)330 024 3200 and discover how we can help you.

Written by Ruth Corkin, VAT specialist and indirect tax advisor

Are you a mail order retailer or supply goods delivered on approval? You might be affected by HMRC’s latest VAT guidance.

​HMRC released a brief on the 18th of June 2018 (Revenue and Customs Brief 5 (2018)) to clarify their policy for goods delivered on approval.

The brief takes a look at two aspects:

  • whether or not goods are actually deemed to be supplied on approval, and;
  • the subsequent VAT application for the delivery charges of such goods.

Determining whether or not you are deemed to supply goods on approval
HMRC has indicated that, whether or not a business is deemed to supply goods on approval, will depend on the individual facts of each case and a number of indicators have to be taken into consideration to come to an accurate conclusion.

These indicators are laid out in HMRC’s guidance notes. It is these guidance notes that HMRC reviewed and updated.

It initially included a statement that said, “mail order retailers normally supply goods on approval terms”. However, with a focus on the word normally, HMRC has now said that this statement is incorrect.

“Such companies may supply goods on approval terms but often this will not be the case.”

The precedent to determine sale on approval was set by the Tribunal in the case of The Littlewoods Organisation PLC (1997). Sales of goods on approval have a delayed tax point and in this particular instance, the dispute arose when the transaction overlapped with a VAT increase (from 15% to 17.5%). Therefore, depending on when VAT became applicable would have resulted in two different VAT amounts due.

The Tribunal found that, if there is no contract of sale, goods are supplied on approval, unless the recipient adopted, or was deemed to have adopted the goods. Such a transaction is fundamentally different from one where goods are supplied but the recipient has a right to return such goods if it does not suit them

The different VAT application for delivery charges
If goods are not supplied on approval, HMRC stated that: “In a single supply of delivered goods, the delivery is ancillary to the supply of the goods.”

Ancillary here means “accompanying the supply of goods”. Therefore, the VAT liability on the delivery charge follows that of the supplied goods and is part of the goods order.

However, if goods are classified as supplied on approval, the delivery charge is not deemed to be ancillary to the goods order.

In this case, the purpose of the delivery is to give the customer a chance to inspect the goods before they decide to purchase them (or not), so delivery happens before the customer or retailer knows whether there will, in fact, be a supply of goods.

As such, with the delivery of goods supplied on approval, the delivery charges are not dependant on the actual supply of the goods and will be taxed at the standard rate.


So what’s the issue?
Based on HMRC’s previous guidance that mail order retailers normally supply goods on approval terms, some organisations may have incorrectly treated goods supplied as being on approval and therefore accounted for VAT at the wrong time.

The good news is that if your company has incorrectly treated goods as supplied on approval, you are not required to rectify past VAT returns. However, you will have to make sure your business accounting systems are updated to account for VAT on these goods accurately and at the right time by the end of the transition period. The transition period will run for 3 months from the date of the brief (18 June 2018).

If you are unsure of how your business might be affected by these guidance notes, or would like to discuss the topic in more detail, please get in touch with our team. One of our VAT Experts will be happy to walk you through the specific impact on your organisation.

Do you need extra information?

Ruth Corkin - Prinicipal - VAT and Indirect Tax Advisory at Hillier Hopkins

Ruth has been involved with VAT for over 30 years. She started her VAT career as a Customs and Excise Officer in Essex and then moved into consultancy with a variety of well-known accountancy firms. She is well known in the VAT world and is the proud author of many articles and technical works.

Contact Ruth at or on +44 (0)1908 713860

Based at the following office - Milton Keynes, Watford and London