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VAT and party bags!

With party bags (food and drink) for childrens' parties, how is the VAT calculated? A typical bag has all zero rated items except for a standard rated soft drink, which accounts for 23% of the total cost. 

We are ideally looking at a way of keeping the party bag as a whole zero rated. Is this possible?

Thanks.

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08th Feb 2013 17:03

Party Bags

If the food and drink is provided to be consumed during the event, then it will be standard rated, as part of the overall supply of catering.

If the food and drink is provided to be consumed after the event, and away from the venue, then two questions arise:

1. should it be treated as a separate supply? My first thought is that there is a single overall supply of a party, of which the party bag is one element. It must therefore be subsumed within the whole. [This view may be challenged, depending on the structure of the event, including the way it is marketed.]

2. if the supply of food and drink is separate from the party, then the usual approach would be to apportion the different elements by cost, and calculate VAT on that basis (23% according to your figures). I can't see how you can treat the party bag as wholly zero rated, unless you remove the standard rated drink.

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Indeed

leshoward wrote:

George Attazder wrote:

http://customs.hmrc.gov.uk/channelsPortalWebApp/channelsPortalWebApp.portal?_nfpb=true&_pageLabel=pageLibrary_ShowContent&id=HMCE_CL_000118&propertyType=document#P481_32587

... and George's post confirms my view!

And with respect to Les's first point. The case of Diana Bryce (not including party bags) may be of some interest.

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Find a cheaper drink!

leshoward wrote:

George Attazder wrote:

http://customs.hmrc.gov.uk/channelsPortalWebApp/channelsPortalWebApp.portal?_nfpb=true&_pageLabel=pageLibrary_ShowContent&id=HMCE_CL_000118&propertyType=document#P481_32587

... and George's post confirms my view!

Forgot about that 20%/£1 rule.  Find a cheaper soft drink and you are OK!

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Single supply?

Are the party bags supplied with the supply a party or alone?  If part of a party, then they would be wholly standard rated I would say.

If however, they are supplied as a stand alone item, it sounds as though 77% of the supply can be argued to be ZR.  It's hard to ignore a SR item that costs 23% of the whole I think.

If you supplied milk however, then the whole supply would be zero-rated.

I presume HMRC might argue that the bag itself would be 23% taxable too.

Be interested in thoughts of others.

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