What’s the right way to sort out the VAT if you sell goods or services with different VAT rates as a package or bundle?

The meal deal is the classic example of a product ‘bundle’. There’s a single price – but the different parts of the package have different VAT liabilities. The cold takeaway sandwich is VAT zero-rated, while the fizzy drink and piece of confectionery are standard-rated. Technically, for VAT purposes it’s a mixed supply. Practically, it’s a bit of a headache.

It’s all about apportioning the amount the business receives – the ‘consideration’. The problem is that there’s more than one way to tackle the calculation. The most common methods are based on the selling price or the costs incurred in making the supplies. However it’s done, the principle is that ‘a fair proportion’ of the total payment gets allocated to the different parts, and the business needs to be able to justify its calculations.

VAT on bundles is complex and HMRC knows businesses make mistakes. Concerned that not all methods of apportionment currently in use are ‘fair and reasonable’, it has published updated guidance. The aim is to ‘encourage’ apportionment based on selling price – although it’s not mandatory.

We should be pleased to help you review and risk assess your policy on apportionment in the light of HMRC’s latest thinking. Please speak to your RfM advisor, contact us online or visit one of our offices.