I recently took part in a webinar about the subject of single and multiple supplies. My co-presenter was the very accomplished solicitor Chris Bates from Norton Rose Fulbright, who discussed recent caselaw about the subject, while my job was to discuss some of the more practical issues. For me, it was a great opportunity to listen to Chris’s comments. You can access the webinar on the Lexis Nexis website http://tinyurl.com/y8gvq6rh.
While there have been some very useful developments following Card Protection Plan (“CPP”), the judgement in CPP remains, to my mind, the best starting place for dealing with practical situations.
A single/composite supply is a supply of goods or services that is liable to VAT at one rate of VAT, even if it contains different elements each of which have different rates. A mixed/mulitple supply is where the price is apportioned between the different elements and charged at the different rates because there is no one predominant element.
The principle affects a whole range of other issues; from apportionment to VAT recovery; and pretty well every business sector. The difficulty with it is that there is no definitive definition – applying the precedents from caselaw depends on how you interpret both the caselaw and how it applies to the facts of the case.
What does this mean? Well, the CPP decision is based on the premise that the VAT liability of a single composite supply is based on the VAT liability of the predominant element if the other elements are for the “better enjoyment” of the main element. But who gets to decide what is “predominant” and what isn’t? Your approach as a business owner or as an accountant may be completely different from that of HMRC and your only recourse is to appeal HMRC’s decision to the Tax Tribunal. And even then, the decision of the Tribunal or courts will reflect the opinion of the judges/chairperson etc.
So how do you approach this subject?
VAT is a self-assessed tax so there MUST be some element of certainty so that businesses can apply the tax correctly on a day to day basis.
The problem is that when it comes to this particular subject, there isn’t any definitive guidance.
HMRC’s guidance about the subject is actually quite minimal – VAT Notice 700: The VAT Guide, section http://tinyurl.com/y72vssle contains about half a dozen short paragraphs about the subject, with a link to HMRC’s manual about the subject. It’s good to have a link to the manual, but the problem with the manual is that it is written for HMRC staff and is written on the assumption that the reader has a working knowledge of VAT. Personally I find the manuals to be very helpful, but they are not easy reading and it’s easy to miss relevant content if you don’t actually understand what exactly it is that you need.
However in practice, many people probably wouldn’t recognize a single or mixed supply in practice, never mind how to decide which is which. Unless you’re familiar with the principle then chances are that you’ve never had to think about it in any depth.
The other thing to remember is that this subject can affect ANY type of transaction, goods or services, large or small, in any business sector.
So how do you decide?
This subject affects any supply that includes 2 or more elements, each of which has a different VAT liability.
Once you’ve identified this, then the best place to start is VAT Notice 700, s8. It’s not very detailed but it’s still a useful starting point.
In practice, there are 3 possible scenarios, all of which are based on caselaw:
- CPP – is there one predominant element that determines the VAT liability of the whole supply?
- Or is it like Levob where separate, equally important elements are part of one single supply?
- Could it follow Talacre in being a single supply at 2 or more rates?
If you’ve never come across these cases or the principles involved, then you may need more help than I can give in a blog post. It’s always worth contacting HMRC’s helpline for their comments.
But once you’ve identified a multiple supply, that’s when you have to start thinking about the other issues.
There are 3 main steps:
- First of all, the value has to be apportioned between the different rates – see VAT Notice 700, s31 http://tinyurl.com/ya3583mg which contains very detailed guidance and examples about doing this.
- Then we have to make sure that the information is correctly shown on the invoice and charge the correct rates for different elements.
- If any part of the supply is exempt from VAT, I then have to consider if and how that affects the business’s entitlement to claim VAT on related costs.
Each one of these issues can be difficult.
Some examples of mixed supplies
Here are just a few examples of the types of supplies and business sectors:
- Services provided by landlords to tenants.
- Lunch deals or zero-rated food that is sold with special packaging, eg commemorative tins.
- Business services.
- Financial and insurance services
- Construction services
Businesses from pretty well every business sector make supplies that contain a number of elements that are each liable to VAT at different rates.
The key is to identify such transactions and then consider whether you have a single or multiple supply.