The Trouble With Games Retail

Posted December 19th, 2010 by Christopher in News | Leave a comment

Oh dear oh dear, where do I start…

The Game Collection
Winner of iG’s favourite retailer ever award, though not averse to issues with order packing. Well it seems those lads have somewhat of an issue down in Swansea, and Christmas isn’t helping. Their wholesale arm are iG’s primary supplier, so it’s fair to say I purchase a decent amount of stock from them, and wouldn’t be surprised if the odd one or two things went wrong.
However, in the last couple of months, barely a single order has been fault free. Starting from the odd missing game, to a bunch of entirely wrong games, to incorrect pricing, to one £700 order being delivered, twice, whilst only being charged once, to an entire pallet of PS2 Buzz Buzzers containing twice as much as originally ordered, and each set coming bundled (without any extra charge) with a free game. And that’s ignoring the fact that every single order has gone to an old unused shipping address, long since changed via their website. New accounts, alternative payment methods and emails to CS and managers seem to have had little affect. Oh what fun it was transporting an entire pallet halfway across town. Actually, it was fine, luckily someone was at home to point out the error and the truck driver was more than happy to pop down the road instead of trying to unload in some tiny residential back street. But that’s not the point. Here’s hoping someone there just doesn’t like me, otherwise the near 100% failure rate to successfully process an order down there doesn’t bode well for their other customers. On the plus side, they are really nice guys. So fear not, you’re in good hands if you do order from them, just don’t go changing address anytime soon…

Blockbuster
Ahh Blockbuster Entertainment Ltd, that wonderful place of terribly scratched non-functioning ex-rental bargains, returned the previous week due to said failure to perform, just to be stuck out on sale again the next by an uncaring money grabbing store employee. I mean really, did they expect me not to notice? I’m in there every damn week…
Speaking of which, being such a great place for the unexpected bargain, stuck between their knuckle ripping metal edged shelves in the 4 for £20 or 3 for £10 ranges, I am therefore in there every damn week. And, given a recent trend for other stores to mess up orders, I decided to start checking out exactly how correct Blockbusters pricing was compared to the PoS calculations. Turns out, not very.
Much like TGC’s inability to process orders, Blockbuster have a stageringly high error rate on their product pricing. In the four transactions in a single branch since I started checking, but one was correct. Turns out they’ve been overcharging me between £5.00 and £10.00 for 3 out of every 4 transactions. Times that by once a week for two years, then multiply over about 6 seperate branches. Dear. God. No.
And of course, how much have they overcharge everyone else? One word: Ouch.
Still, it mostly affects their multi-buy deals (having to hand-scan seperate barcodes to initiate the deal doesn’t help, especially if the store assistant forgets / doesn’t notice they need to), and I do tend to buy quite a lot in one go (think, 5 x 3 x £10 + 4 x 2 x £20 + 3 x 4 x £20, confusing even on paper). Plus, it’s more likely an issue with incorrect pricing stickers attached to stock, than anything on the PoS end, but either way… Next time you purchase a 3 for £10 deal at BB, just make sure you really are charged £10.

Everyone who’s VAT registered.
Yes, even you small independent city centre Leeds store, who insist you’re owned by a parent company as an excuse for not knowing VAT details, yet are unable to provide contact details for said company, who presumably consist of the man stood next to you. And yes, your director’s details and annual accounts are filed at companies house, though no, I can’t be arsed to spend £2.00 to confront you with it.

Them, GAME Plc, Cash Converters, Blockbuster, CeX, Tesco, Asda, possibly even the man down the market… all of you VAT guys, what, the hell, are you up to? And more importantly, how are you getting away with it?

One shall explain.

See, once one is unlucky enough to become VAT registered, a number of things happen. One: you loose 17.5%, 15%, or 20% (depending on the year) of your turnover. Two: You befall certain legal obligations required by law. One of these is paying VAT. The other is letting your customers know, when requested, what VAT it is that you are paying. Or rather, they’re paying to you in order for you to pass on to HMRC.
And that’s where my problem lies (well, actually it primarily lies with the first bit, given my margins are <20% to start with and I'm about to have to probably already should have had to register, but I digress...).

Firstly, a little background, for those (like a certain GAME store manager) who have so little knowledge of VAT that they're unaware of even the 2.5% rise in it next month...
VAT is charged on most goods at a certain percentage rate of the entire sale. There are some exceptions - firstly goods permanently excemt from VAT such as medical supplies, the kinda thing that everyone would get up in arms about if they had to pay more for. Also, there's goods that encur VAT, but are currently charged at a rate of 0% (ie. nothing, for now) - think kids clothes, staple foods, children's books, etc. Used goods are a little different, as they're assumed to already have had VAT paid on them by the original purchaser, but I'll get to that later. But, for the most part, all new goods encur 17.5% VAT in the total price.

Businesses purchasing new goods for business purposes (use or resale) that encur VAT are entitled to claim that VAT back - the reason most wholesalers show prices excluding VAT as this is effectively what the retailer will pay - but they must then pay VAT on the entire selling price if those goods are re-sold. That way, VAT is only ever paid once on the entire sale price of a new item.

For used items, it differs. VAT is presumed to have already been paid on the original purchase price, so a business purchasing a used item (an item that has not had VAT reclaimed on it by the, presumably, non VAT registered original user) are entitled to sell these used goods under a specific accounting scheme called the VAT Margin Scheme, that allows the company to only pay VAT on the profit they make from a sale, do not have to pay any VAT if they sell it at a loss, though are unable to reclaim any VAT from the original purchase amount. On the plus side, the VAT Margin Scheme does work out cheaper when selling goods, so any company in the country selling used goods would be first grade insane not to use it.

Further to this, any goods purchased by a VAT registered business/individual from another business/individual selling these goods under the Margin Scheme, must only be resold under the VAT Margin Scheme (unless the seller is not VAT registered themselves).

At this point, let me point you all to the HMRC website:
http://www.hmrc.gov.uk/vat/managing/charging/vat-invoices.htm

See, by law, once registered for VAT, and if requested by another VAT registered business/individual, a company must issue a VAT receipt. These come in two types, depending on the amount spent – “simplified” receipts, or more detailed “modified” receipts that show a breakdown of all VAT charged – and allow the purchasing business to correctly and legally go about claiming and re-selling these goods by having all the correct details on the amount of VAT that was charged (and therefore reclaimable) or the scheme under which these goods were sold. Should a business be using the VAT Margin Scheme to sell goods, it’s a legal requirement for them to add this information to their receipts, so that purchasing businessed know a) not to reclaim VAT on these goods, and b) to know that they can only legally re-sell these goods under the VAT margin scheme.

If you’re interested in the specific details required, see:
http://www.hmrc.gov.uk/vat/managing/charging/vat-invoices.htm#6
http://www.hmrc.gov.uk/vat/start/schemes/margin.htm#5

And here is my problem.

No one does it.

No one. At all. Anyone.

From Tesco to Blockbuster to GAME to that bloke in that indie store. Even TGC managed to mess up their VAT calculations on discounted stock (ok ok, I won’t go on about em…).

Seriously, try going in to a store and asking for a VAT receipt. Unless they just happen to be issued as standard, many stores won’t even have someone on hand that knows if the store even *is* VAT registered. God forbid you try spending £250 and ask for a full, modified receipt. To date, after talks to many an educated manager, I’m yet to find anyone who knows how to issue one (except, just possibly, The Game Collection, when they’re not discounting things and sending the wrong stuff to the wrong place at the wrong time). And lets not forget that not-entirely small matter of mentioning the Margin Scheme on invoices, when used. Remember how anyone selling used goods would be crazy not to use it (it does work out around 50p per item cheaper)? So, let’s assume pretty much everyone selling used goods uses the margin scheme. Mention it to any store assistant, manager or store owner in the land, and god bless their little selling socks, they stare at you with a blank face as if only the most educated of accountants would ever venture in to anything that includes the letters V, A and T. If anyone out there is using the margin scheme, they ain’t telling.

Legal requirements be damned, not a company in the land seems to know how to or want to issue VAT receipts, however hard you ask for one. And when they do, they’re not really acceptable as receipts anyway as, no, the VAT Number isn’t all that’s required.

I guess it makes sense then that my accountant advised me just to guess, and HMRC will believe whatever I say. It’s not like I’m given a choice, so… Margin Scheme it is. For you, and you, and maybe you… yep that looks a little torn, deffinately used… and you… and… no wait that’s just TGC’s £1000 of missing stock… meh, used it is.

DISCLAIMER: I’m not an accountant. I’m a random internet freak who happens to think he maybe might know what’s what. I don’t, so take professional advice.

One Response to “The Trouble With Games Retail”

  1. [...] had VAT reclaimed on them already, in to their pre-owned stock. Their pre-owned stock, as previous discussed, are more than likely sold under the VAT Margin [...]