VAT Scope of VAT – Supply Issues Part 4: Single or ...

VAT Scope of VAT – Supply Issues Part 4: Single or Multiple Supplies

Activities

In this section

Where are you now? – 5 mins

Activity 1 – 25 mins

Use the two leading cases to determine whether simple examples consist of one or more supplies.


Use HMRC's structured approach to determine whether six examples consist of one or more supply.


Use two apportionment methods to value components of multiple supplies, and determine how much VAT should have been charged on three supplies from Activity 2.

Where are you now?

Version 1.0 3 of 38 Supply Issues Single or Multiple Supply

Use this learning check to help you establish what you do and don't know about single and multiple supplies.

You can use your results to choose the activities that will be most helpful to you. If you are new to this subject you will probably find it useful to complete all activities.

I can… Relevant activity

apply the principles from case law regarding single and multiple supplies

Activity 1

use HMRC's approach to deciding whether there is a single or multiple supply

Activity 2

apportion the overall cost of a multiple supply to find the value of each component and how much VAT should be charged.

Activity 3

Activity 1


Apply what you've learned so far to the following, and decide whether they are a single or multiple supplies.

In a real case situation it is likely that you will require more information than is given below. However for the purposes of this activity, select your initial impression from the limited information given.

Single supply

Multiple supplies

a) Supply of internet access, computer use and the electricity consumed for 1 hour in an internet café.

b) A clothes shop place a new coat in a thick paper bag with decorative string handles and a ribbon.

c) A pair of glasses in a free case.

d) A basket of supermarket shopping costing £15.40.

e) Dry cleaning for a two-piece suit, including a hanger and plastic cover.

f) A new fridge-freezer with an optional extended warranty.

g) A children's colouring book with crayons.

Activity 1 – Check your answer


Apply what you've learned so far to the following, and decide whether they are single or multiple supplies.

Single supply

Multiple supplies

a) Supply of internet access, computer use and the electricity consumed for 1 hour in an internet café.

b) A clothes shop place a new coat in a thick paper bag with decorative string handles and a ribbon.

c) A pair of glasses in a free case.

d) A basket of supermarket shopping costing £15.40.

e) Dry cleaning for a two-piece suit, including a hanger and plastic cover.

f) A new fridge-freezer with an optional extended warranty.

g) A children's colouring book with crayons.

Activity 1 – Check your answer


a) The service being provided here is internet access. The computer use and electricity are integral elements, therefore it's a single supply. As found in CPP, 'A supply that comprises a single service from an economic point of view should not be artificially split'.

b) Although it sounds like the bag is better quality than a standard plastic carrier bag, it's still ancillary because it's a means of 'better enjoying' the principal supply, ie the new coat. The customer didn't go to the shop to get a nice paper bag.

c) The glasses case is ancillary to the supply of the glasses.

d) When you go to a supermarket you buy a variety of products, probably with a mixture of liabilities, and although you pay for them together it's a multiple supply. Each purchase will usually be itemised on the receipt and each purchase is optional, ie the goods aren't supplied together.

e) The service provided here is dry cleaning. The hanger and cover are ancillary (or incidental).

f) The warranty is optional, so there are two separate supplies.

g) There are two supplies here because both can be used independently. It's particularly important in this case because books are zero-rated and crayons are not.

Activity 2 Question 1


For each supply described, use the questions and indicators to decide how many supplies are involved. You don't need to complete all the boxes if they don't apply.

A farm shop sells a souvenir pair of egg cups with a box of 6 eggs for £6.00. The goods aren't packaged together because the eggs are always freshly laid. The deal is advertised on a board outside the shop as "Special Offer – souvenir egg cups with our fresh farm eggs – £6.00".

A receipt for the purchase is shown opposite.

Green Springs Farm Quick Stop Shop

CR23 4FQ

Till 1 Amy 3 April 2015 1 Box 6eggDeal 6.00 1 Egg cup pair 3.00 1 Egg cup deal -3.00 Total 6.00 20% VAT included 0.50 Total 6.00 PAYMENT RECEIPT Cash 6.00 Change 0.00 Visit our website for visitor information and online ordering: greensprings.co.uk



Question Response

Is there a contract or agreement that describes the supply?

What does the customer get in return for the consideration?

What does the invoice show?

How is the supply advertised?

Single supply descriptors Response

One or more elements is the principal supply with other elements being ancillary (in that they are not an aim in themselves, but a means of better enjoying the principal supply).

Two or more elements are so closely linked as to form, from an objective point of view, 'a single, indivisible economic supply which it would be artificial to split'.

Multiple supply indicators Response

There is more than one supplier.

The customer would think they are buying two or more distinct supplies.

Economic reality/contract suggests more than one supply.

The intention of the legislation.

How many supplies are involved in this transaction?



A further education college provides a hairdressing course that consists of distance learning via a manual and follow-up practical study. The courses result in a vocational qualification for successful students. They have been treating the provision of manuals as a zero-rated supply that is separate from the exempt supply of education services. There is one invoice to students and it is itemised. On the website the course is advertised as Foundation Hairdressing VTCT Level 1. The manual is listed under Course Features. There is a single price.

Question Response
















Brightshore construction is developing new holiday homes in Devon. It requires buyers to enter into two separate contracts.

One with the construction company for the building of the holiday home.

One with the landowner for the sale of the land.

The publicity advertised "Holiday Homes" and there are separate invoices from each supplier.

Question Response













How many supplies are involved in the holiday home purchase?



A sandwich shop, near offices in a city centre, offers a meal deal. Customers can buy a sandwich, a packet of crisps and a canned fizzy drink for £3.50. The cost of most sandwiches in the shop is £2.50, and if a customer were to buy all the included items separately it would cost them £4.25

The deal is advertised as "Lunchtime meal deal – sandwich, crisps and drink for only £3.50". A single price is put through the till and the receipt shows "Meal deal".

Question Response













How many supplies are involved in the meal deal?



An airline flies from London Gatwick airport to Istanbul, Turkey. The flight takes 4 hours and cost £250.00. Lunch is included in the price and is not separately itemised. The ticket is advertised as a flight from London to Istanbul.

Question Response
















Serenity Trips operate two tourist boats on a large lake. During the day it conducts trips around the lake, but at night one of the boats offers a "Barbecue on the Lake". Food is provided on the lower deck. There is a licensed bar, and drinks from the bar are not included in the ticket price. There is a single, fixed price for the trip and meal, and customers pay £30.00 whether they participate in the meal or not.

We've included the answer for 'the intention of the legislation' in case you don't know the liabilities.

Question Response












The intention of the legislation. If supplied separately the transportation can be zero-rated but the supply of the barbecue would be standard rated.



How many supplies are involved in this transaction (not including bar sales)?

Activity 2 – check your answer


In Activity 2 you were asked to use the two leading cases on single supplies and indicators of multiple supplies to make decisions about six scenarios.

Don't worry if you didn't make the same choice as the responses that follow. Most of the questions are based on court decisions, and if the choice had been straightforward then it would never have made it to court in the first place.

Activity 2 Question 1 – check your answer


A farm shop sells a souvenir pair of egg cups with a box of 6 eggs for £6.00. The goods aren't packaged together because the eggs are always freshly laid. The deal is advertised on a board outside the shop as "Special Offer – souvenir egg cups with our fresh farm eggs – £6.00".

A receipt for the purchase is shown opposite.


CR23 4FQ

Till 1 Amy 3 April 2015 1 Box 6eggDeal 6.00 1 Egg cup pair 3.00 1 Egg cup deal -3.00 Total 6.00 20% VAT included 0.50 Total 6.00 PAYMENT RECEIPT Cash 6.00 Change 0.00 Visit our website for visitor information and online ordering: greensprings.co.uk



Question Response


Yes, the board outside the shop reads ‘Special offer – souvenir egg cups with our fresh farm eggs - £6.00.’


Eggs and egg cups.

What does the invoice show? The receipt shows the supply as '1 box 6 egg deal'.

How is the supply advertised? Special Offer – souvenir egg cups with our fresh farm eggs £6.00.



No.


No.


There is more than one supplier. No.


Possibly.


Yes.

The intention of the legislation. This case looks like an attempt to artificially extend the zero-rating of the supply of eggs.


Two – eggs and egg cups.



This question is based on the court decision in MD Foods plc and United Biscuits (UK) Ltd.

The supply in question was a limited edition butter dish that was supplied with two packs of butter.

The tribunal found that

the butter and butter dish were economically and physically dissociable

the butter dish was not used as packaging in delivering packs of butter from seller to buyer

the single price charged was not decisive

the butter dish was designed for long term use

the butter dish was not ancillary to the supply of the butter, nor was it a better means of enjoying the principal item supplied.

Further information

You can read more about this at VATSC82100.



A further education college provides a hairdressing course that consist of distance learning via a manual and follow-up practical study. The courses result in a vocational qualification for successful students. They have been treating the provision of manuals as a zero-rated supply that is separate from the exempt supply of education services. There is one invoice to students and it is itemised. On the website the course is advertised as Foundation Hairdressing VTCT Level 1. The manual is listed under Course Features. There is a single price.

Question Response


We don't have the details of this.


A hairdressing course that consist of distance learning via a manual and follow-up practical study.

What does the invoice show? Invoice is itemised.

How is the supply advertised? Foundation Hairdressing VTCT Level 1.



No – the manual is an integral part of the course rather than a means of better enjoying it.


Yes – the distance learning manual is part of the course.




No.


No.

The intention of the legislation. If supplied separately the manual would be zero-rated but the education services would be exempt.


One– educational services.



This question is based on the court decision in College of Estate Management.

The college supplied their students with printed manuals which they were expected to study.

They considered that they were making an exempt supply of education services and a separate zero-rated supply of the manuals. As a result they considered that the tax incurred in the purchase of the manuals was deductible as their input tax.

HMRC's view was that there was a single exempt supply of education and on that basis that the input tax was irrecoverable.

The tribunal concluded that the college made one supply of the provision of education. The students took the courses in order to obtain the relevant qualification. The transaction was therefore one which gave the students the opportunity, by successfully studying the printed materials and completing the other necessary steps, to obtain a valuable qualification.

That was what the students were purchasing and on that basis the college made no separate zero-rated supply of the books.

Further information

You can read more about this case at VATSC82160.



Brightshore construction is developing new holiday homes in Devon. It requires buyers to enter into two separate contracts.

One with the construction company for the building of the holiday home.

One with the landowner for the sale of the land.

The publicity advertised "Holiday Homes" and there are separate invoices from each supplier.

Question Response


Two contracts – one for construction of the home and one for the land.


A holiday home.

What does the invoice show? Separate invoices from each supplier.

How is the supply advertised? Holiday homes.



Neither is ancillary as both are necessary for the final supply to be made.


This could be applicable.




There is more than one supplier. Yes.


Possibly.


Supplies are interdependent but there are two contracts.

The intention of the legislation. Since there are two suppliers this becomes irrelevant.

How many supplies are involved in the holiday home purchase?

Two – the construction and the land.

In this example, although the two supplies of land and construction are both integral parts of building a new holiday home, the fact that the customer has contracts with two different suppliers is the showstopper.

This question is based on the court decision in The Lower Mill Estate Limited (Upper Tier Tribunal FTC 10/2009).

This case concerned the supply of new holiday homes which would ordinarily have been standard-rated. The developer adopted a supply splitting arrangement where customers were required to enter into separate contracts for the land (with the landowning company) and for construction services (with an associated company). The former was treated as a standard-rated supply and the latter was treated as a zero-rated supply. HMRC argued that there was a single supply of completed holiday homes made by the two entities and, in addition, that the arrangements were abusive.

However, the tribunal held that there were two, separate supplies stating "in our judgment, apart from any abuse or sham, it is not possible to combine supplies by two suppliers under two contracts so as to result in one supply for VAT purposes".

The judgment referred to Telewest, which we covered in the Principles section, as a precedent.



A sandwich shop, near offices in a city centre, offers a meal deal. Customers can buy a sandwich, a packet of crisps and a canned fizzy drink for £3.50. The cost of most sandwiches in the shop is £2.50, and if a customer were to buy all the included items separately it would cost them £4.25.

The deal is advertised as "Lunchtime meal deal – sandwich, crisps and drink for only £3.50". A single price is put through the till and the receipt shows "Meal deal".

Question Response


Not known.


A sandwich, a packet of crisps and a canned fizzy drink.

What does the invoice show? The receipt shows "Meal deal".

How is the supply advertised? Lunchtime meal deal – sandwich, crisps and drink for only £3.50.



No.


No.






Yes.


Yes.

The intention of the legislation. VAT is charged at the standard-rate on crisps and fizzy drinks. Arguably it would be contrary to the intent of the legislation if these became zero-rated because they are bundled with a single sandwich.

How many supplies are involved in the meal deal?

Three – sandwich, crisps and a drink.

The key to the solution here is the view of the customer.

This question is based on the case De Montfort University Students' Union (MAN/02/523).

The Tribunal took into account that the customers were making a specific choice to buy all three items. The crisps and drink were not a better way of enjoying the sandwich, and were therefore not ancillary to a main supply.

The transaction was of separate supplies where 'customers can choose to buy three separate items, or any one or more of them, or they can buy all three at a reduced aggregate price'.



An airline flies from London Gatwick airport to Istanbul, Turkey. The flight takes 4 hours and costs £250.00. Lunch is included in the price and is not separately itemised. The ticket is advertised as a flight from London to Istanbul.

Question Response


We don't have the details of this.


A flight from London to Istanbul and lunch.

What does the invoice show? Total cost for the flight.

How is the supply advertised? Flight from London to Istanbul.



Yes. The flight is the principle supply, and lunch is a means of better enjoying the flight (not getting hungry over the 4 hours).


No.




No.


No.

The intention of the legislation. If supplied separately the lunch would be standard rated catering but the flight would be zero-rated.


One, the flight.



This supply meets the description of a single supply under the CPP principles.

The meal that is provided is clearly ancillary – it doesn't meet a separate aim of the customer. The customer's aim is to get to Istanbul from London, and the meal is a means of better enjoying that supply.



Serenity Trips operates two tourist boats on a large lake. During the day it conducts trips around the lake, but at night one of the boats offers a "Barbecue on the Lake". Food is provided on the lower deck. There is a licensed bar, and drinks from the bar are not included in the ticket price. There is a single, fixed price for the trip and meal, and customers pay £30.00, including VAT, whether they participate in the meal or not.

Question Response


No.


A boat trip, and a meal if they wish to participate.

What does the invoice show? The ticket has a single price of £30.00.

How is the supply advertised? "Barbecue on the Lake".



The barbecue is advertised as a key feature of the experience, so it would be difficult to argue that it's just a means of better enjoying the trip.


No.






Yes.


Yes.

The intention of the legislation. If supplied separately the transportation can be zero-rated but the supply of the barbecue would be standard rated.

How many supplies are involved in this transaction (not including bar sales)?

Two – the barbecue and the boat trip.

This question is based on the case Durham River Trips, which we mentioned in the Principles section. It is the leading case for the consideration of the customer view – "The view of a typical consumer is that they are buying two or more distinct and independent supplies".

In Durham River Trips Limited the trader ran river boat trips on the River Wear around Durham. The subject of the tribunal was an evening trip which included a meal (a bar was also provided, but takings from this were dealt with separately and there was no dispute on this aspect).

The trader argued that the purpose of the transaction was the river trip. A meal was provided in the form of a barbecue/buffet, but this was optional and all the passengers paid the same amount for the trip whether or not a meal was taken. Therefore the trader felt the meal was ancillary to the transport of passengers as it was a better way of enjoying the ride, rather than being an aim in itself.

The courts considered the catering to be significant in its own right rather than a means of better enjoying the transport, because of its prominence in the marketing.

In finding that it was a multiple supply, the judgment said "we are satisfied that the barbecue meal was a distinct feature of the evening cruise as indeed the appellant's brochure strongly suggests. We do not consider that to look thus at the cruise in terms of two separate elements is artificial. It is both practical and realistic to separate the zero-rated from the standard-rated supply in the instant case".



In this activity you will revisit some of the scenarios from Activity 2. From the information provided, apportion the total price to find out whether the values assigned to each supply are appropriate.

A farm shop sells a souvenir pair of egg cups with a box of 6 eggs for £6.00. The goods aren't packaged together because the eggs are always freshly laid. The deal is advertised on a board outside the shop as "Special Offer – souvenir egg cups with purchase of our fresh farm eggs".

The farm shop buys the eggs from local farmers for 13p each. The boxes cost 5p each excluding VAT.

The souvenir egg cups cost £1.10 each wholesale, excluding VAT. The supply of eggs is zero rated. The supply of egg cups is standard rated.


CR23 4FQ

Till 1 Amy 3 April 2015 1 Box 6eggDeal 6.00 1 Egg cup pair 3.00 1 Egg cup deal -3.00 Total 6.00 20% VAT included 0.50 Total 6.00

PAYMENT RECEIPT Cash 6.00 Change 0.00 Visit our website for visitor information and online ordering: greensprings.co.uk



A sandwich shop, near offices in a city centre, offers a meal deal. Customers can buy a sandwich, a packet of crisps and a canned fizzy drink for £3.50.

The deal is advertised as "Lunchtime meal deal – sandwich, crisps and canned drink for only £3.50".

A single price is put through the till and the receipt shows "Meal deal" at £3.50 with VAT included at 22p.

Work out what proportion of the £3.50 should be standard-rated and therefore whether the 22p VAT charge is correct.

The sandwich is zero rated and both the crisps and the drink are standard rated.

Menu

Sandwiches and wraps £2.50

Fillings: Cheese, cheese & ham, cheese mayo tuna mayo, turkey, ham, beef Salad No extra charge

Hot wraps (spicy chicken, roast vegetable, cheese) £3.25

Baked potatoes with:

Butter £2.75 Beans £3.00 Cheese £3.00 Tuna £3.25 Chilli £3.50 Bolognese £3.50

Crisps £0.75

Cakes £1.00

Canned drinks £0.75 Tea £1.00 Coffee £1.20

Lunchtime meal deal £3.50



Serenity Trips operate two tourist boats on a large lake. During the day it conducts trips around the lake, but at night one of the boats offers a "Barbecue on the Lake". Food is provided on the lower deck. There is a licensed bar, and drinks from the bar are not included in the ticket price. There is a single, fixed price for the trip and meal, and customers pay £30.00 including VAT whether they participate in the meal or not.

Serenity Trips have apportioned the cost of the trip as £16.00 for the food and £14.00 for the transport.

You can obtain a normal cost for the trip of £8.00 for adults, but you cannot get this information for the food provided.

Information about the costs to Serenity Trips is available as follows. Catering costs per trip (including VAT) £216.00

Transport costs (zero rated)

Fuel: £20.00 Overheads: £15.65

Staff: £45.00

Total £80.65

Total costs per trip £296.65

Work out what proportion of the £30.00 ticket price should be standard-rated and therefore how much VAT should be charged.



In this activity you will revisit some of the scenarios from Activity 2. From the information provided, apportion the total price to find out whether the values assigned to each supply are appropriate.

A farm shop sells a souvenir pair of egg cups with a box of 6 eggs for £6.00. The goods aren't packaged together because the eggs are always freshly laid. The deal is advertised on a board outside the shop as "Special Offer – souvenir egg cups with purchase of our fresh farm eggs".

The farm shop buys the eggs from local farmers for 13p each. The boxes cost 5p each excluding VAT.

The printed egg cups cost £1.10 each wholesale, excluding VAT. The supply of eggs is zero rated. The supply of egg cups is standard rated.


CR23 4FQ

Till 1 Amy 3 April 2015 1 Box 6eggDeal 6.00 1 Egg cup pair 3.00 1 Egg cup deal -3.00 Total 6.00 20% VAT included 0.50 Total 6.00

PAYMENT RECEIPT Cash 6.00 Change 0.00 Visit our website for visitor information and online ordering: greensprings.co.uk

Answer

From the receipt, we can see that £0.50 VAT has been charged. The egg box is ancillary to the supply of eggs as it is a means of better enjoying them, so it is also zero-rated because there is a single supply of eggs in an egg box.

To work out the value of the supply that has been treated as standard rated

£0.50 x 6 = £3.00 (to calculate VAT from a VAT inclusive price you divide by 6 (20/120 = 1/6)

This is consistent with the top of the receipt, which lists the egg cups at £3.00.

The only information we can base the proper values on is the cost to the supplier.



A box of eggs costs

6 eggs @ £0.13 = £0.78 Plus 1 box @ £0.05 Total £0.83

A pair of egg cups costs 2 x £1.10 = £2.20

Now we need to apportion the cost to the customer using these figures.

1. The supplier buys the eggs for £0.83 and buys the egg cups for £2.20 excluding VAT.

2. The egg cups are standard rated for VAT. First, we calculate VAT on the egg cups. £2.20 x 20% = £0.44. The total cost of the egg cups including VAT is therefore £2.20 + £0.44 = £2.64.

3. Total cost including VAT for both supplies is £0.83 + £2.64 = £3.47 (remember that there is no VAT to add to the cost of the eggs).

4. Next, calculate what percentage of the total VAT inclusive cost the standard rated item and its VAT forms. £2.64 ÷ £3.47 = 76.08%

5. Apply that percentage to the total cost of the final supply. The package will cost the customer £6.00. £6.00 x 76.08% = £4.56

6. To work out how much VAT is included in the standard rated amount. £4.56 x 1/6 = £0.76 VAT

7. To work out the VAT inclusive value of the standard-rated egg cups £4.56 – £0.76 = £3.80.

8. To find the value of the zero-rated eggs, subtract the cost of the egg cups plus VAT from the total cost. £6.00 – £4.56 = £1.44.

To check: £3.80 + £1.44 + £0.76 = £6.00

We can conclude that the value the farm shop has assigned to the egg cup portion of the package is under-stated, and they are not accounting for enough output tax on the supply.

Our calculations suggest that the eggs should be valued at £1.44 and the egg cups at £3.80 and be charging £0.76 VAT.

Whether you would challenge this calculation would depend on the individual circumstances and the overall loss to HMRC.

Note that you could also apply a calculation on a normal selling price basis if that information was to hand. You could ask the business how much 6 eggs would usually sell for and how much the egg cups would sell for.



A sandwich shop near offices in a city centre offers a meal deal. Customers can buy a sandwich, a packet of crisps and a canned fizzy drink for £3.50.

The deal is advertised as "Lunchtime meal deal – sandwich, crisps and canned drink for only £3.50".

A single price is put through the till and the receipt shows "Meal deal" at £3.50 with VAT included at 22p.

Work out what proportion of the £3.50 should be standard-rated and therefore whether the 22p VAT charge is correct.

The sandwich is zero rated and both the crisps and the drink are standard rated.

Menu

Sandwiches and wraps £2.50

Fillings: Cheese, cheese & ham, cheese mayo tuna mayo, turkey, ham, beef Salad No extra charge

Hot wraps (spicy chicken, roast vegetable, cheese) £3.25

Baked potatoes with:

Butter £2.75 Beans £3.00 Cheese £3.00 Tuna £3.25 Chilli £3.50 Bolognese £3.50

Crisps £0.75

Cakes £1.00

Canned drinks £0.75 Tea £1.00 Coffee £1.20

Lunchtime meal deal £3.50



This supply consists of three elements: the sandwich, the crisps and the drink.

The sandwich is zero rated.

The crisps and canned drink are standard rated.

We can apportion these elements based on their normal selling price from the menu, as all are available individually.

1. The sandwich sells for £2.50

2. The crisps and canned drink together sell for £1.50.

3. On the basis of the individual selling prices the standard rated items make up 1.50/4.00 = 37.5% of the 'deal' selling price.

4. The zero rated items make up 100% – 37.5% = 62.5% of the 'deal' selling price.

5. Applying this percentage to the 'deal' selling price of £3.50 would give values of

Sandwich: £3.50 x 62.5% = £2.19 Crisps and drink: £3.50 x 37.5% = £1.31

6. So the proportion of the £3.50 that is standard rated is £1.31.

7. To work out how much of the £1.31 is VAT £1.31 x 1/6 = £0.22.

The receipt is correct, and the items have been apportioned appropriately.



Serenity Trips operate two tourist boats on a large lake. During the day they conduct trips around the lake, but at night one of the boats offers a "Barbecue on the Lake". Food is provided on the lower deck. There is a licensed bar, and drinks from the bar are not included in the ticket price. There is a single, fixed price for the trip and meal, and customers pay £30.00, including VAT, whether they participate in the meal or not.

Serenity Trips have apportioned the cost of the trip as £16 for the food and £14 for the transport.

You can obtain a normal cost for the trip of £8.00 for adults, but you cannot get this information for the food provided.

Information about the costs to Serenity Trips is available as follows. Catering costs per trip (including VAT) £216.00

Transport costs (zero rated)

Fuel: £20.00 Overheads: £15.65

Staff: £45.00

Total £80.65

Total costs per trip £296.65

Work out what proportion of the £30.00 ticket price should be standard-rated and therefore how much VAT should be charged.

The only information we can use to apportion the ticket price is the costs to Serenity Trips.

The only information we can base the proper values on is the cost to the supplier per trip.

The standard-rated portion is the catering, which costs £216.00.

The zero-rated portion is the transport, which costs £80.65.

1. Total cost including VAT for both supplies is £216.00 + £80.65 = £296.65.

2. The standard-rated item forms. £216.00 ÷ £296.65 = 72.81% of the total cost.

3. Apply that percentage to the cost of the combined ticket to give the VAT inclusive value of the standard rated items in the final supply. £30.00 x 72.81% = £21.84



4. Work out how much VAT is included in this amount. £21.84 x 1/6 = £3.64 VAT

5. Work out the tax value of the standard-rated catering. £21.84 – £3.64 = £18.20

6. To find the value of the zero-rated transport, subtract the cost of the catering + VAT from the total cost. £30.00 – £21.84 = £8.16

To check: £18.20 + £3.64 + £8.16 = £30.00

Serenity Trips have apportioned the cost of the trip as £16.00 for the food and £14.00 for the transport. This means that they are charging 16 x 1/6 = £2.67 VAT.

Our Calculation

Their calculation

Standard rated

Catering £21.84 £16.00

Zero rated

Transport £8.16 £14.00

VAT £3.64 £2.67

We can conclude that the value Serenity Trips have assigned to the catering portion of the package is under-stated, and they are not accounting for enough output tax to HMRC.

Whether this is a large enough discrepancy to be challenged will depend on the circumstances and the overall loss to HMRC.

If you found any of this difficult, refer back to the Principles section of Single or Multiple Supplies.

That is the end of the Activities for Single or Multiple Supplies.

You should now move on to the Supply Issues Case Study.

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