Credit where credit’s due: this is a story about HMRC trying to do the right thing and being thwarted. Why? Because it’s VAT on food, of course.
We all know that VAT on food is extremely complicated at the level of individual items but when you add in the absurdities caused by selling multiple items in a package, it all goes absolutely haywire.
HMRC tries hard to be fair in its judgement of how VAT should be applied to these packages. At a very simple level, a “meal deal” consisting of a sandwich, a packet of crisps and a drink will consist of two standard-rated items (the crisps and the drink) and one zero-rated item (the sandwich). HMRC allows the zero-rated item to be zero-rated but frowns on value-shifting (a £5 sandwich with a free drink and crisps).
So far, so good. But there is a principle under which multiple items can be taxed as if they were a single supply. To make this as simple as possible, this happens when one of the items supplied is the real thing being sold and the others are just along for the ride.
As an example, a takeaway fried-chicken meal would be standard-rated, because it’s hot. However, a dip that goes with the meal might potentially be a cold takeaway item and therefore zero-rated. Normally, the dip would be seen as subsidiary to the meal (especially if the customer gets it without extra charge) and the whole would be a single, standard-rated supply.
Another example would be a food hamper containing various items, some standard-rated, some zero-rated. HMRC is happy to allow the whole to be partly standard-rated, partly zero-rated, without trying to claim it’s mainly one or the other. However, HMRC came unstuck recently when trying to argue that the wicker hamper itself should be a separate, standard-rated supply (being a useful, reusable item in itself). A tribunal ruled that the hamper was subsidiary to the food and its VAT rating should be apportioned between standard- and zero-rated.
HMRC also came unstuck through no fault of its own in the case of the dip that was part of a takeaway. This is where things wander off into the twilight zone, so hang on. The takeaway offering of a meal, including dip, might normally have been a single supply. However, it was part of a takeaway that also included a number of optional extras, such as coleslaw or a cookie. These were separate, zero-rated supplies. HMRC argued, quite reasonably, that the way to treat this transaction was as a standard-rated meal, including the dip, plus two separate zero-rated items. The Upper Tribunal made the Family Fortunes noise (“uh-oh”) and said no. Apparently, it’s not possible to split a transaction into an amalgamated supply (the meal) and separate supplies (the extras). The transaction can only be one amalgamated supply (and nothing else) or separate supplies of each individual item. Nothing in between.
Pick the bones out of that if you dare.
