Accounting & Tax for Retail & Wholesale Businesses

The Retail Scheme is an alternative to invoice-based VAT accounting, designed for retailers who make large numbers of small sales to consumers (where issuing a VAT invoice for every sale is impractical). Under the Point of Sale scheme, you use your till system to identify the VAT fraction of mixed-rate sales. Under the Apportionment Scheme, you apportion VAT based on purchase cost ratios. The right scheme depends on your till system capabilities and product mix — we assess and implement the most beneficial option.

Slow-moving stock should be reviewed at each accounting date and written down to net realisable value (NRV) where NRV is below cost. Damaged, obsolete or out-of-season stock should be written off. Stock write-downs are allowable for corporation tax. The key is documentation — HMRC requires evidence of the write-down decision (stock condition records, disposal confirmation or evidence of reduced selling prices).

Commodity code classification determines the rate of customs duty on imported goods — UK duty rates vary from 0% to 20%+ depending on the product. Misclassification (whether over or under) creates either overpayment or compliance risk. HMRC’s post-clearance audit team increasingly challenges classifications for high-volume importers. We review commodity code classifications and, where uncertain, apply for a Customs Tariff Classification Ruling (BTI equivalent) from HMRC.

Consignment stock (goods held on behalf of a third party, not yet sold) should not be included in your own stock figure — it remains on the consignor’s balance sheet. Consignment stock in your possession that you can return unsold is particularly common in wholesale. The contractual terms of the consignment arrangement determine the correct accounting treatment.

Zero-hours contract workers are employees for payroll purposes — subject to PAYE, NIC and Auto-Enrolment (if they meet the earnings trigger in a pay period). Holiday pay must be calculated on average earnings over the preceding 52 weeks (excluding weeks with no work) — the 12.07% rule was overturned by Harpur v Brazel in 2022. We calculate holiday pay correctly for all variable-hours staff.

Switching between FIFO and AVCO each year, or applying one method to some stock lines and another to others, creates inconsistent accounts. HMRC can challenge valuation methods that appear to be selected to minimise tax rather than to present a true and fair view.

Assuming duty rates are correct because a freight forwarder has always used a particular commodity code is risky. Freight forwarders are not tax advisers — their classification may be incorrect. A HMRC customs audit resulting in incorrect classification can result in duty assessments going back 3 years.

Shop fit-outs and retail refurbishments include significant amounts of qualifying plant and machinery (fixtures, HVAC, POS systems, security, lighting) eligible for the AIA. Many retail businesses capitalise the whole fit-out and depreciate over 10–15 years when the AIA could provide immediate 100% tax relief in the year of expenditure.

The Harpur v Brazel 2022 Supreme Court ruling changed how holiday pay is calculated for irregular-hours workers. The 12.07% method (widely used) is no longer lawful for all workers. Many retailers are still using the old calculation — creating employment tribunal risk and HMRC compliance exposure.