HMRC has published new guidance (para 31) on apportioning output tax. More on apportionment here.
Summary
The guidance gives examples of how to apportion output tax in certain situations.
There are two basic methods of apportioning output tax:
- one based on selling prices
- the other based on cost values
HMRC provide worked examples of both of these methods, including an example of apportionment where a business can only determine the cost of one of the supplies.
Both methods can be adapted to apply to either tax-inclusive or tax-exclusive amounts.
A business does not have to use any of the methods set out in the guidance but, if a different method is used it must still give a fair result.
Apportionment is only necessary if the price charged is the only consideration for the supplies. If the consideration is not wholly in money VAT must be accounted for on the open market value* of the supplies.
* Open Market Value
The VAT Act 1994, section 19 (5) states that “…the open market value of a supply of goods or services shall be taken to be the amount that would fall to be taken as its value …if the supply were for such consideration in money as would be payable by a person standing in no such relationship with any person as would affect that consideration”.