One bundle. One price. Different VAT rates

The classic example is the meal deal. The cold takeaway sandwich is zero-rated, the fizzy drink is standard-rated and the piece of confectionery is, too. Technically, it’s a mixed supply for VAT purposes. Practically, it’s a headache.

What’s the right way to sort out the VAT if you sell goods or services as a package or bundle? There’s a single price – but the different parts of the package have different VAT liabilities. It’s all about apportioning the amount the business receives – the ‘consideration’ – and the problem is that there’s more than one way to tackle the calculation. The most common methods are based on selling price or the costs incurred in making the supplies. However it’s done, the principle is that ‘a fair proportion’ of the total payment gets allocated to the different parts, and the business needs to be able to justify its calculations. 

It's complex and HMRC knows businesses make mistakes. Concerned that not all methods of apportionment currently in use are ‘fair and reasonable’, it’s published updated guidance. The aim is to ‘encourage’ apportionment based on selling price – although it’s not mandatory.

We should be pleased to help you review and risk assess your policy on apportionment in the light of HMRC’s latest thinking.

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