Hi there,
There’s a lot happening at vatexchange.co.uk as we’re busy updating the site and will be introducing a whole new look within the next few weeks. The new look will be much cleaner, fresher and easier to navigate and I can’t wait for the change!
Single or mixed supply
In the meantime I thought it was a good time to focus on one particular issue: that of single (composite) or mixed (multiple) supply. It’s one of those issues that can apply to any business sector, and there have recently been a couple of interesting developments.
The issue applies any time you take a bundle of different elements and sell them for a single price, as you have to decide whether you’re making a single or multiple supply.
There are plenty of every day examples. If you buy a takeaway burger, chips and a milkshake; this is a mixed supply because no one part of the meal is more important than the other. So the milkshake is zero-rated while you pay VAT on the burger and chips. Look in HMRC’s notices about VAT liability for different business sectors and you’ll see references to the single/multiple supply issues.
HMRC have recently been focusing on certain zero-rated goods and services where they believe that the supplies should, at the very least be treated as mixed supplies (i.e. part standard rated) or single standard rated composite supplies. They have recently challenged two separate industry sectors: direct mailing services and verandahs sold with static caravans.
Direct mail marketing
The direct mail marketing industry is very competitive and has taken full advantage of the composite supply rule to zero-rate their sales.
With most of their clients in the charity, financial services and insurance sectors – who can’t normally claim VAT – keeping VAT costs to a minimum was a very important part of the pricing structure for direct mail marketing.
The industry applied the zero-rate to their sales, on the basis that there was a single zero-rated supply of the mailing pack and the marketing services were “for the better enjoyment” of the mailing packs. This was based on HMRC’s guidance set out in previous editions of VAT Notices 701/10: Printed matter and 700/24: Postage, delivery charges and direct marketing.
However HMRC has long been chomping away at the issue on the basis that at least some, if not all, of the supply should have been treated as standard rated marketing services.
HMRC guidance
HMRC accepted that the guidance in the prior editions of Notices 701/10 and 700/24 upheld zero-rating in certain circumstances.
However HMRC has now issued revised editions of the notices, with section 3 of 700/24 confirming HMRC’s revised guidance about the situations when supplies of direct mail which include marketing services are standard rated. This means increased costs for direct mail marketing clients in the future although in some cases, it will be possible to minimize the VAT cost with separate contracts for the marketing services and direct mail services.
As always, I’d recommend taking care if you’re revising such trading arrangements to ensure that your new contracts fully comply with HMRC’s new policy. You can find more information about this change in policy in R&C Business Brief 10 (2015) http://tinyurl.com/p4spg87.
Verandahs sold with static caravans
And at the same time, R & C Brief 12(2015) confirms that following a recent decision by the Upper Tribunal, the sale of verandahs which are sold together with zero-rated static caravans can also be zero-rated.
The reason that the zero-rate applies to certain new static caravans is because they are used as dwellings.
If you buy a new house and the builder offers you an optional extra of a verandah – or a conservatory or swimming pool AT THE SAME TIME – you’d wouldn’t expect to pay standard rated VAT for the optional extra. So the fact that HMRC thought that people who chose to live in static dwellings and pay VAT on the purchase an optional verandah at the same time seems a bit unfair.
Thankfully the Upper Tribunal agreed and HMRC has decided to accept their ruling.
So if you’ve charged VAT on the sale of such verandahs in the past, you can claim the overpaid VAT from HMRC as long as you refund it to your customers, under the normal adjustment rules set out in VAT Notice 700/45: How to correct errors and make adjustments of claims.
So, single or mixed supply: who decides?
The single/mixed supply issue is a difficult area of VAT and business owners are often left to decide with little help from HMRC.
The VAT law specifically states those goods or services that are eligible for the reduced rate (5%) or the zero-rate. HMRC provide very comprehensive guidance of the law in their VAT notices.
But the currently used definition of a single (i.e. composite) supply is based on the term “for the better enjoyment” which isn’t defined by law but is taken from a court decision and there simply isn’t the same level of guidance about the subject.
There is some limited guidance in HMRC’s VAT Notice 700; section 8: http://tinyurl.com/nvuros3/ ande detailed guidance in HMRC’s VAT manuals. But ultimately, it’s up to each business owner to decide, based on the individual facts of their case. Either way, this is one VAT issue that merits careful handling.
New ebook: final month for introductory price
Finally, just a quick reminder that this is the final month for the introductory price for my latest ebook: VATWoman’s Guide to management charges, cost sharing, inter-company services and more…is still available for the introductory price of £27 plus VAT. Click here if you want to see the contents of the book.
Until next time – when, if all goes to plan – our website will look a lot better and function a lot better as well.
Marie