European ruling on VAT rounding

3 September 2008

The recent European Court of Justice case involving Dutch supermarket chain, Albert Heijn, has once again drawn attention to the issue of rounding which, particularly for larger business, can have a significant effect on the amount of VAT payable.

The company tried to claim a repayment of VAT based on changing its policy from rounding up or down the total output VAT on a basket of goods to rounding down on every individual item.

As it happens, the ECJ determined that it should not decide on such matters as they were for the national authorities in each member state to decide through their policy divisions.

However, that is not good news for businesses in the UK because the Topps Tiles case, heard at the VAT Tribunals in 2006, established domestic policy, which is to round up as well as down on baskets of goods.

When the Albert Heijn decision was made, HMRC released a statement saying that it confirmed current UK policy and guidance are correct, so no changes would be made.

The rounding principle covered here should not be confused with the rules for partial exemption apportionment calculations where the recoverable percentage can be rounded up to the nearest whole number, unless the amount to be apportioned (non-attributable input tax) is more than £400,000 per month on average (see paragraph 4.3 of Public Notice 706 ‘Partial exemption’).