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, the business will need to work out the most appropriate method to apportion the amount charged between the different types of supply. The business will need to apportion the amount charged between the different components in order to calculate the correct amount of VAT due on the supplies that are liable to VAT at either the standard or reduced rate of VAT. Obviously, if both supplies are liable to VAT at the same rate, then the business will simply charge VAT on the full value of the supply made.
HMRC expects businesses to allocate a fair proportion of the total value to each of the supplies in order to ensure that the right amount of VAT is paid. HMRC will not allow businesses to ‘value shift’ to an unreasonable extent in order to artificially reduce the amount of VAT due on the supply made. There is no prescribed method of carrying out the apportionment but the emphasis is on fairness and achieving a reasonable end result.
When calculating output tax payable in multiple supply situations, the aim is to ensure a ‘fair and reasonable’ approach is adopted. HMRC is unlikely to challenge specific methods if the end result is that a reasonable amount of VAT is declared on the supply.
In practice, there are two main methods of apportioning output tax:
apportionment based on selling prices
These provisions do not include travel-related supplies as VAT must be accounted for using the Tour Operators Margin Scheme and more information can be found in the Tour Operators Margin Scheme (TOMS) ― overview guidance note.
This method of apportionment considers the prices charged by the business where the items are sold separately, and uses these amounts to make a sensible apportionment.
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