VAT On Multi-products

Newsletter issue - September 2014

Most products and services are subject to standard rate VAT at 20%, but some products are zero-rated (VAT applied at 0%), while others, e.g. rent for certain buildings, are exempt from VAT. There is a limited range of products and services that attract 5% VAT.

If you supply a package which is made up of products and services which carry different rates of VAT, you need to be sure of the split to charge the right amount of VAT to your customers. The VAT man may insist that you charge VAT at the highest rate if he thinks the lower-rated product is only incidental to the total package the customer is buying. For example a printed leaflet (zero rate) sold with a DVD (standard rate).

Say you own a large retail building and let out space within it as shops and in it are shops for antique dealers. The rent is exempt from VAT if you have not "opted to tax" your whole building. Each dealer can ask you to sell stock on their behalf if he is not present when a customer arrives. This selling service should be standard rated as an agency service.

In a similar case to this the VAT man argued that the whole charge to the dealers (rent and selling service) should be charged at 20% VAT. Fortunately the Tax Tribunal disagreed and ruled there were two elements which should have separate VAT charges, as this is how the antique dealers viewed the arrangement.

If your products have several elements with different VAT treatments, talk to us about how your customers view the mix, and how you should split the VAT charges.