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VAT and value shifting: HMRC publishes guidelines for compliance


Published: 07 Mar 2023 Update History

HMRC’s guidelines on apportionment of consideration are relevant for businesses that sell any goods or services with different VAT liabilities for a single price as part of a bundle.

The government ran a consultation on VAT and value shifting between January and March 2021. The consultation reviewed how businesses should assign value to items that are sold as a package for a single price, where the individual items have different VAT liabilities.  

One example is a supermarket “meal deal”; the sandwich is zero-rated, but the snack and the drink are standard-rated. The apportionment of the value between each item affects the value of output tax that the business needs to account for. 

Following the consultation, HMRC engaged further with stakeholders as part of the review of tax administration for large businesses. It has now set out its conclusions in Revenue and Customs Brief 2 (2023): VAT and value shifting consultation update, which states that:  

“After careful consideration of the proposed changes and the views of external stakeholders, HMRC has concluded that the most effective way to address valuation concerns is to provide businesses with practical guidance on apportionment methods. This is through Guidelines for Compliance and improvements to other guidance. No changes will be made to the legislation.” 

Guidelines for compliance offer HMRC’s view on complex, widely misunderstood or new risks that can occur across tax regimes, including VAT. GFC2 (2023): Help with apportionment of consideration outlines HMRC’s recommended approach for apportioning the amount paid between each item. It also tries to help businesses understand approaches that HMRC sees as increasing or lowering “tax compliance risk”. The guidance also suggests the documentation and evidence that businesses should maintain to support their apportionment method. 

It’s important to note that these guidelines only apply to bundles of more than one supply. They do not apply where there is a single supply made up of various parts. This is a complex area; take professional advice if you are unsure. HMRC’s guidance on single and multiple supplies can be found in VATSC11110.  

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