Commentary

V3.156 Value—apportionment of consideration

Part V3 Supplies, acquisitions and imports

V3.156 Value—apportionment of consideration

V3.156 Value—apportionment of consideration

Where a supply of any goods or services is not the only matter to which a consideration in money relates, the supply shall be for such part of the consideration as is properly attributable to it1. Where the separate elements of a multiple supply2 are taxed at different rates, it is necessary to apportion the consideration (where the supplier fixes tax-inclusive prices) or attribute a separate value to each element (in other cases) in order to calculate the correct tax due. There is currently no prescribed method of apportionment (see, however, 'Consultation on VAT and value shifting' below), but HMRC suggest two practical methods3:

  1.  

    •     split the consideration according to the cost of supplying each element4, or

  2.  

    •     use the market value of each element. This method was used in Jarmain5. HMRC states that the market value is the price a customer would normally pay for that supply6.

An alternative method may be allowed if it achieves a fair result in the circumstances of the case. Alternative methods were allowed in Thomas7. (uplift added to direct cost of one element) and Aberystwyth Cliff Railway Tow8

Example 1

The consideration for a multiple supply is £276. It costs £61 (including VAT) to provide element A (standard rate) and £183 to provide element B (zero rate, giving a total cost of £244); the balance represents the gross profit made. Since the consideration is a tax-inclusive sum, it is apportioned as follows:

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