Poundland has been in dispute with HMRC regarding stock adjustment, and recently won a £2m VAT case against them. Poundland had switched from an old bespoke retail scheme, that they complied with from December 2002 to March 2017, to a new EPOS (electronic point of sale) scheme. HMRC were concerned that Poundland did not adjust the figures for the closing stock of zero-rated items on their March 2017 return, the final return with the old scheme. The officer investigating the return decided that zero-rated sales were being double counted – once with the old scheme when they moved into the store; and once with the new scheme when they were sold after 27 March 2017. As a result, HMRC raised an assessment for £2,150,777.
Judge Jonathan Cannan of the first-tier tribunal said, "Essentially, the issue between the parties is whether in calculating Poundland's VAT liability for the final accounting period of the old scheme, an adjustment ought to be made to recognise the closing stock held by Poundland in its retail stores at the end of that period." HMRC said that Poundland did not adjust its figures for the closing stock of zero-rated items in their final financial return under the "old scheme" and then stated that the zero-rated sales were double counted from when they were moved to the store, and when they were sold following the change in schemes.
However, HMRC did not consider the opening stock adjustment that Poundland had been required to make when adopting the "old scheme" in 2002, which goes together with any closing stock assessments. Judge Cannan said: "It is not to prevent double counting, it is to ensure consistency in the final period of operation of the DC2 [old] scheme where there has been an opening stock adjustment and subsequent annual adjustments. I agree with Mr Hitchmough that the closing stock adjustment on ceasing to use DC2 works together with any opening stock adjustment."
The VAT assessment had previously been made in the sum of £2,349,471 in 2018, before being brought down to £2,150,177 upon appeal. In view of this case and the confusion around it, it seems to make sense that the EPOS approach would not only be the most practical for retailers but would also help to avoid disputes such as this.
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