Vat treatment of (milk) transport costs

Vat treatment of (milk) transport costs

Didn't find your answer?

Dairy farmer (client) provides milk, to another local farmer under monthly contract arrangement. The milk is collected by the local farmer.

Each month the client (dairy farmer) is provided with a self-billing arrangement, which shows; the gross value of the milk supplied and the transport costs in respect of the milk collection (charged at £0.01p per litre).

Both parties are registered for Vat but, as regards the transport costs, no vat has been charged.

My question; I consider that Vat should be charged, on the element of transport costs.

 

Replies (21)

Please login or register to join the discussion.

Portia profile image
By Portia Nina Levin
23rd Jul 2016 12:01

You want your client to be charged VAT on the transport costs and then have to recover it, ending up in the same effective position?

Arguably farmer 1 has made a supply to farmer 2 of "collect it yourself" milk, the consideration for which is, say, 5p per litre (calculated as 6p per litre for the milk itself - the going rate for milk, whatever it actually is - less 1p per litre for the fact that farmer 2 is collecting it himself).

Thanks (0)
Replying to Portia Nina Levin:
Time for change
By Time for change
23rd Jul 2016 12:16

No Portia, I'm not WANTING my client to be charged, only to recover it, I'm looking at this from the angle of, the CORRECT (Vat) treatment.
I'm taking the situation that the transport costs are "value added" and therefore, that element should have Vat charged by, in this case, farmer 2, being supplied with milk but, arranging their own collection (at a cost to farmer 1).

Thanks (0)
Replying to Time for change:
Portia profile image
By Portia Nina Levin
24th Jul 2016 13:25

Then you need to provide a fuller analysis of whether:
- farmer 1 is contractually obliged to deliver the milk to farmer 2, with farmer 2 then making a separate supply of transportation to farmer 1, or
- farmer 1 is just obliged to provide milk for farmer 2 to collect and the agreed consideration is a price of Xp per litre for the milk, reduced by 1p per litre to take account of the fact that farmer 2 is responsible for its transportation.
What are the supplies? What is the true consideration for the milk?

Thanks (0)
avatar
By shaun king
23rd Jul 2016 15:49

If the customer is being charged for transport then VAT is chargeable at 20%. If the value of the milk was reduced to take account of the transport costs then VAT would be due on the reduced consideration.
Eddie Stobart doesn't Zero rate his transport because he is moving foodstuffs does he?

Thanks (0)
Replying to shaun king:
Portia profile image
By Portia Nina Levin
24th Jul 2016 13:20

Yes, but Eddie Stobart is not the same person that is purchasing the milk. As Basil notes this is all about whether there is any supply by farmer 2 to farmer 1 (none that I can see) and what is the consideration for the supply of milk from farmer 1 (the milk "price" less the agreed "transport cost").

Thanks (0)
RLI
By lionofludesch
24th Jul 2016 17:52

Prima facie, VAT needs to be charged on the transport costs but, once again, we're left in the dark as to who is providing what to whom.

Is this £0.01 (or 0.01p, depending on what £0.01p means) a separate charge for a separate supply ? What does the contract say ? Transport costs seem to be separated out which suggests a separate supply and that may be the killer point.

Thanks (0)
Replying to lionofludesch:
Portia profile image
By Portia Nina Levin
25th Jul 2016 11:17

So you are saying that if I raise an invoice for lecturing and charge £500 for my attendance and £100 for my first class train travel, I should only charge VAT on the £500 because I have made a separate charge for a separate supply of zero-rated travel?

Thanks (0)
Replying to Portia Nina Levin:
avatar
By shaun king
25th Jul 2016 12:01

Portia
You can't supply zero rated transport services so your £100 charge is subject to VAT in the same way the charge for delivering Milk is standard rated.

Thanks (0)
Replying to shaun king:
Portia profile image
By Portia Nina Levin
25th Jul 2016 12:22

I know I cannot and must. My question was (I thought patently obviously) rhetorical. However, I also do not believe that there is a separate supply of transporting the milk to be standard-rated. The OP has not bothered to come back to elaborate though.

Thanks (0)
Replying to Portia Nina Levin:
Time for change
By Time for change
25th Jul 2016 12:39

Sorry Portia, for the delay, although people do tend to have lives away from Aweb. Mine, at the moment, includes caring for my wife, following a bilateral hip replacement.
To clarify, Farmer 1 - (the supplying farmer) provides milk to Farmer 2 (the farmer who buys the milk) and indeed a co-operative arrangement exists.
The (gross) price per litre, for the milk is 30p. For every litre of milk collected - from farmer 1, farmer 2 charges farmer 1 - 1p per litre of milk transported.
Of course, for vat purposes, milk is zero-rated although, I consider, that standard rate vat would be (correctly) charged by farmer 2, to farmer 1, in respect of the transport costs.

Thanks (0)
Replying to Time for change:
Portia profile image
By Portia Nina Levin
25th Jul 2016 12:58

You still have not clarified.

Is farmer 1 obligated to deliver the milk to farmer 2, and is farmer 1 contracting with farmer 2 to carry out the transportation of the milk for him, such that there is indeed a supply of transportation, which should indeed be standard-rated.

Or, is farmer 1 simply obligated to provide farmer 2 with milk for collection with farmer 2 paying 30p per litre for the milk and "charging" 1p per litre for its transportation back to his farm. In this situation farmer 2 is not making any supply of transportation. The 1p "charge" is an adjustment to the zero-rated consideration for the milk, which (net) is 29p per litre.

VAT is charged on supplies (of goods and services), and not on monies in and monies out. Nor is it a tax on "value added". In a fully taxable business, the recovery of input VAT on supplies received mean that VAT is only paid on the amount of "value added", but VAT is a tax on supplies made.

I hope hop-a-long makes a speedy recovery.

Thanks (0)
Replying to Portia Nina Levin:
Time for change
By Time for change
25th Jul 2016 13:03

Is farmer 1 obligated to deliver the milk to farmer 2, and is farmer 1 contracting with farmer 2 to carry out the transportation of the milk for him, such that there is indeed a supply of transportation, which should indeed be standard-rated.

There is indeed a formal agreement.

Thanks (0)
Replying to Time for change:
RLI
By lionofludesch
25th Jul 2016 13:06

What does it say ?

My breath is bated.....

Thanks (0)
Replying to Time for change:
RLI
By lionofludesch
25th Jul 2016 12:59

Time for change wrote:

Sorry Portia, for the delay, although people do tend to have lives away from Aweb. Mine, at the moment, includes caring for my wife, following a bilateral hip replacement.
To clarify, Farmer 1 - (the supplying farmer) provides milk to Farmer 2 (the farmer who buys the milk) and indeed a co-operative arrangement exists.
The (gross) price per litre, for the milk is 30p. For every litre of milk collected - from farmer 1, farmer 2 charges farmer 1 - 1p per litre of milk transported.
Of course, for vat purposes, milk is zero-rated although, I consider, that standard rate vat would be (correctly) charged by farmer 2, to farmer 1, in respect of the transport costs.

The issue is does Farmer 2 charge Farmer 1 for transport or does Farmer 2 get a discounted price because he fetches the milk himself ?

Thanks (0)
Replying to lionofludesch:
Portia profile image
By Portia Nina Levin
25th Jul 2016 13:02

It is not about frigging charges! It is about whether farmer 2 actually makes a supply of transportation to farmer 1, or simply adjusts the consideration for farmer 1's supply of milk to take account of the fact that he is transporting the milk at his own expense. Please can we focus on who supplies what to whom, and not on amounts of money, which might only be giving the appearance of flowing in opposite directions.

Thanks (0)
Replying to Portia Nina Levin:
RLI
By lionofludesch
25th Jul 2016 13:04

Yeah, ok, I agree. It was badly worded. It is indeed about who is supplying what to whom.

I did say that at the outset.

Thanks (0)
Replying to lionofludesch:
Time for change
By Time for change
25th Jul 2016 13:07

Farmer 2 does indeed charge Farmer 1 for transport.
The agreed (gross) price for the milk, is 30p per litre.
Farmer 2 charges 1p per litre because he actually collects the milk. There is no question of discount although, apparently, there are two distinct transactions.

Thanks (0)
Replying to shaun king:
RLI
By lionofludesch
25th Jul 2016 12:48

shaun king wrote:

Portia
You can't supply zero rated transport services so your £100 charge is subject to VAT in the same way the charge for delivering Milk is standard rated.

I don't agree that Portia's analogy is valid.

In the analogy, the travel is part of Portia's fee to the customer.

In the instant case, one of the farmers is paying for the transport. Which one ?

Thanks (0)
Replying to Portia Nina Levin:
RLI
By lionofludesch
25th Jul 2016 13:00

I see what you're saying, Portia, and I agree that the issue is to whom the transport service is supplied.

Thanks (0)
Time for change
By Time for change
25th Jul 2016 13:08

This debate also clearly demonstrates that the Office of Tax Simplification have, and, will always have, an uphill struggle in their remit.

Thanks (0)
Portia profile image
By Portia Nina Levin
25th Jul 2016 13:26

Well you have by now had the CORRECT answer, but I think you are the only person that is sure which of the two possibilities applies.

Incidentally, VAT is a perfectly simple tax. People complicate it when they focus on amounts of money rather than supplies.

Thanks (0)