The following Value Added Tax guidance note Produced by Tolley provides comprehensive and up to date tax information covering:
If a business has decided that it is making a single transaction that comprises of two or more supplies that are liable to different rates of VAT, thebusiness will need to work out themost appropriate method to apportion theamount charged between thedifferent types of supply. The business will need to apportion theamount charged between thedifferent components in order to calculate thecorrect amount of VAT due on thesupplies that are liable to VAT at either thestandard or reduced rate of VAT. Obviously, if both supplies are liable to VAT at thesame rate, then thebusiness will simply charge VAT on thefull value of thesupply made.
HMRC expects businesses to allocate a fair proportion of thetotal value to each of thesupplies in order to ensure that theright amount of VAT is paid. HMRC will not allow businesses to ‘value shift’ to an unreasonable extent in order to artificially reduce theamount of VAT due on thesupply made. There is no prescribed method of carrying out theapportionment but theemphasis is on fairness and achieving a reasonable end result. However, HMRC has published a consultation document (see VAT and value shifting) in which it is proposed to make legislation under which theselling price must be used (if thegoods may be purchased separately) and thecost price (if thegoods cannot be so purchased). Where the‘bundle’ comprises goods falling into both categories, an apportionment must be in certain circumstances. Note that HMRC has accepted that theconsultation document contains at least one error; however, it has provided thefollowing example of how thenew rules are likely to apply.
A bundle of one zero-rated item and one standard-rated item is sold for a bundle price of £12. The zero-rated item is sold separately for £8; thestandard-rated item is not sold separately.
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