HMRC have opened a new consultation 'VAT and value shifting' inviting views on a proposed revision to the rules for apportioning consideration between supplies with mixed liabilities in a single transaction.
- Where businesses make supplies with mixed liabilities in a single transaction, they apportion the consideration under s.19(4) VATA 1994.
- This current legislation is non-prescriptive and some businesses pay less VAT by apportioning more consideration to non-standard rated items.
New legislation will introduce mandatory valuation methods.
- Cost-based apportionments will not be permitted where items sold in bundles are also sold separately and therefore their individual sale prices are known.
- Estimates of market value will not be permitted at all.
- Use of cost will be mandatory for items which are not sold separately and therefore their actual market value is not known.
Although the broad principles of the new rules are already set, businesses can:
- Comment on how these can be written into UK law.
- Draw attention to any issues the new rules present.
- Highlight whether greater clarity is required in some areas.
Businesses are also invited to suggest other ways to tackle value shifting.
Consultation questions
1. Does your business sell items of different liabilities in bundles and also sell those items separately? If yes, what goods or services are involved? Are these bought in or developed (or partly developed) in-house?
2. Do you use a cost-based apportionment? If yes, how do you calculate the costs of any goods or services that are developed (or partly developed) in-house? Do you include overheads or indirect costs e.g. transportation or refrigeration? Please provide details.
3. Do you use a market value-based apportionment? If yes, please provide details.
4. Does your business sell bundles where one or more items are not also sold separately? If yes, what goods or services are involved? Are these bought in or developed (or partly developed) in-house?
5. Do you use a cost-based apportionment? If yes, how do you calculate the costs of any goods or services that are developed (or partly developed) in-house? Do you include overheads or indirect costs e.g. transportation or refrigeration? Please provide details.
6. Do you use a market value-based apportionment? If yes, do you use actual market values or estimated market values? Please provide details.
7. Does your business sell bundles where none of the items in the bundle are also sold separately? If yes, what goods or services are involved? Are these bought in or developed (or partly developed) in-house?
8. Do you use a cost-based apportionment? If yes, how do you calculate the costs of any goods or services that are developed (or partly developed) in-house? Do you include overheads or indirect costs e.g. transportation or refrigeration? Please provide details.
9. Do you use a market value-based apportionment? If yes, do you use actual market values or estimated market values? Please provide details.
10. Does your business currently offer such money-off coupons? If so, are these coupons issued for specific items or multiple items in a bundle? In each case, how do you apportion the consideration when coupons are issued; and when they are redeemed?
11. Does your business currently sell bundles involving more than one entity? If so, please provide details.
12. How do you envisage the new rules working with the scenarios outlined at 4.1.1 – 4.1.3 and with regard to 4.1.3, taking into account 4.3 a) – d)? Will applying the new methods of apportionment to bundles increase the administrative burdens or cost for your business? Please provide details of both one-off and ongoing costs.
13. How do you envisage the new proposal working with 'money-off coupons' described at question 10? Does this raise any concerns for your business or organisation? Will applying the new methods of apportionment to bundles increase the administrative burdens or cost for your business in terms of issuing 'money-off coupons' to your customers? Please provide details of both one-off and ongoing costs.
14. The new rules will apply to bundles supplied by more than one entity as described at 3.22 above. How do you envisage this working? Does this raise any concerns for your business or organisation? Will applying the new methods of apportionment to bundles sold by more than one entity increase the administrative burdens or cost for your business? Please provide details of both one-off and ongoing costs.
15. Please suggest any methods of apportionment other than those proposed at 4.1 above that you think would better to address the unfair outcomes caused by 'value shifting'?
The consultation closes on 30 March 2021
Useful guides on this topic
Mixed supplies: Single or Multiple supply?
Is a mixed supply a single or multiple supply for VAT purposes? What tests and case law apply?
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