When items of mixed VAT status (e.g. when one is exempt or zero-rated and the other is standard-rated) are supplied together, the VAT treatment can be complicated. Where the two supplies are in effect inseparable, they become a ‘composite supply’, the VAT status of which is normally determined by the dominant supply. Typically, HM Revenue and Customs (HMRC) will argue that the correct treatment is the one which means they collect the most VAT.
In a recent case, a business that supplied a weight-loss system, which included counselling and support as well as specialised foods, argued successfully before the VAT Tribunal that there were two separate supplies being made: the standard-rated supply of support services and a zero-rated supply of food. HMRC appealed and was successful. The Court of Appeal agreed with HMRC’s argument that there was a single (standard-rated) supply and it would be artificial to split the supplies into two for VAT purposes.
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This is the sort of case which could probably have been avoided altogether had the way the business dealt with its customers been considered from a VAT perspective at the outset. Contact us for advice on any tax matter.
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