Independent VAT Consultant
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Tourist canal boat

HMRC to overhaul VAT rules for mixed supplies


HMRC plans to overhaul VAT rules for mixed supplies – but is this wise, asks Neil Warren.

14th May 2021
Independent VAT Consultant
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The phrase ‘opening up a can of worms’ is much-used in the world of tax. I am afraid that HMRC might be doing exactly that with their proposals to change the law on how VAT is accounted for on mixed supplies. I’ll explain the current rules and HMRC proposals with a practical case study. The proposals are contained in VAT and Value Shifting consultation.

Bundle of goods or services

A mixed supply for VAT purposes occurs when a ‘bundle’ of goods or services are sold for a single price to a customer, and the items within the bundle attract different rates of VAT. However, if any of the goods or services are ‘incidental’ to the main supply, they are ignored. So, for example, if you buy a standard rated washing machine that includes a zero-rated leaflet on how to operate the machine, you ignore the leaflet – you pay 20% VAT on the entire price.

Boat trip with meal 

Let me introduce you to Barge Ltd. The company’s business model is very simple: customers enjoy a two-hour canal trip and a three-course meal for a single price of £45. How much of the £45 is subject to VAT, ie linked to the standard-rated catering? And how much is zero-rated as a supply of transport in a vehicle designed for ten passengers or more? 

The answer is that the company can currently apportion output tax using any method that is ‘fair and reasonable’ – no method is prescribed in law. But HMRC proposes to change that situation:

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Replies (5)

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By Hugo Fair
14th May 2021 16:51

The current status of 'VAT rules for mixed supplies' is akin to quantum entanglement ... so maybe HMRC should be made aware of what is believed to happen if they try to describe each particle of the group independently of the state of the others!

Thanks (2)
By johnjenkins
17th May 2021 10:01

No doubt there will be many more hair brained schemes as HMRC try desperately to fill the coffers.

Thanks (1)
Replying to johnjenkins:
By vstrad
17th May 2021 12:20

Or possibly hare-brained. :-)

Thanks (0)
Replying to vstrad:
By johnjenkins
17th May 2021 12:34

I was scratching my head in amazement when I posted.

Thanks (1)
By Martin Pooley
17th May 2021 10:31


Was not the very idea of a mixed supply knocked on the head by CPP? Then in 2014 there was a draft Information Sheet suggesting an assumption that there was a single supply, except in certain specified situations.

Of course in TOMS world there always has been an uneasy co-existence of the rule in Art 307 "shall be regarded as a single service" with the annual calculation which allows one transaction to produce supplies liable at different rates and with different place of supply rules. Eg a ski holiday in a catered inhouse chalet in France (step 7) packaged up with hotels en route (step 2 and step 3 if via eg Switzerland) and a ferry sold as agent (step 9).

And a similar debate about cost based apportionment vs market value.

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