Accounting for VAT can be problematic when the supply of goods and services consist of multiple components. In such cases it is necessary to consider whether each component of the supply should be assessed independently or whether the components should be dealt with as one.
Precise treatment is not specifically addressed in UK or European Law and instead a decision is made based upon a review of the essential features of the transaction. For instance, a meal on an airplane is a normal feature of the zero rated travel provided and is not considered a separate standard rated supply to the travel itself. Conversely a meal on a river cruise is a separate supply to that of the zero rated cruise itself and as such is a separate standard rated supply.
A single price is not therefore a decisive indicator of a single supply. Instead what needs to be considered is whether there is just one principal supply or several distinct independent supplies that are provided.
Through the development of case law and HMRC guidance the following situations have been clarified. I have written about the most important, recent cases here, here, here, here and here.
The 50% rule
If a distinct supply represents 50% or more of the overall cost it can not be considered ancillary to the principal supply. In such cases an apportionment will usually be required.
Postal charges
VAT on postage follows the treatment of VAT on the main supply. For example, for mail order items the postage on book is zero rated, whereas the postage on a printer is standard rated.
There are however situations where postage is treated as a separate supply to the goods if, for example, the postage is not expected and is an additional request by the customer.
Subscriptions
If there is one particular reason for the subscription then the fee is considered to be one single supply. If there are separate reasons for the subscription then the fee should be proportioned accordingly and the appropriate VAT treatment should be applied to each element of the supply.
Printed matter
Usually books, newspapers, magazines and music are zero rated whilst items seen as stationery such as membership cards and notebooks are standard rated. For materials supplied with items that can be used independently then there are two supplies, for example a film supplied with a magazine.
A package test can also be applied, where if there are more zero rated items then standard rated items the entire package becomes zero rated, or vice versa.
Two part tariffs
If there are two payments relating to a single supply, the two payments are treated as one and the VAT treatment follows that of the one supply.
Supplies involving land
Services provided on land tend to be viewed as one complete supply. The land aspect is not usually a separate service that the customer receives and instead allows the main service to be provided.
One instance where this may not apply is service charges, which may need to be apportioned if they contain independent supplies such as rent and cleaning. Independent supplies are made if the customer can choose which of the services they would like.
Summary
Card Protection Plan Ltd has become a landmark case in determining the VAT treatment for single and multiple supplies. In this case the ECJ ruled that standard rated handling charges were not distinct from the supply of exempt insurance. It was noted that ‘a supply that comprises a single service from an economic point of view should not be artificially split’. Notably many subsequent court decisions have since followed this outcome thereby suggesting a general lean towards viewing cases as single supplies where there are reasonable grounds to do so.