Gift boxes, starter kits, subscription boxes and meal deals all combine items that may carry different VAT rates. Before working out the VAT, the business has to answer one question: is the customer buying one thing or several things sold together?
Single or multiple supply
The courts have built up a test over many cases. In outline:
- It is a single supply if one element is the principal thing the customer wants and the others are ancillary (they make the main item better or easier to enjoy), or if the elements are so closely linked that splitting them would be artificial. The whole price takes the VAT treatment of the principal element.
- It is a multiple supply if each element is something the customer would value for its own sake. The price must then be apportioned and each part taxed at its own rate.
| Bundle | Usual outcome |
|---|---|
| A book with a free bookmark | single supply of a book (zero-rated) |
| A magazine with a cover-mounted DVD that is a major selling point | can be a multiple supply |
| A food hamper with chocolates, biscuits, wine and a wicker basket | multiple supply; the basket may be ignored if it is a normal, low-value container |
| A computer sold with installation | usually a single supply of goods |
Apportioning the price
There is no single prescribed method. Any fair and reasonable basis can be used, and it should be applied consistently and documented. Common methods:
- Cost-based: split the selling price in proportion to the cost of each element.
- Market value: split in proportion to what each element sells for separately.
Example: a gift box sells for £36 (VAT-inclusive) and contains a book (cost £6, zero-rated) and a scented candle (cost £9, standard-rated). On a cost basis, 40% of the price (£14.40) is zero-rated and 60% (£21.60) is standard-rated, giving output VAT of £3.60 (one sixth of £21.60).
Small extras and packaging
HMRC treats most small-value items that come with a main product as part of a single supply when they are ancillary to it or inseparable from it, such as a free bookmark with a book. The old “linked goods” concession that covered some of these cases has been withdrawn, but HMRC has said this does not change the VAT treatment, because such supplies are single supplies under the law anyway.
Packaging is ignored if it is normal and necessary for the goods. Packaging beyond that, such as a decorative tin or basket that could be sold on its own, creates a multiple supply and VAT is due on it. The rules are in VAT Notice 700.
Subscription boxes
Recurring boxes are assessed per box: if the content changes each month, so may the split. Building the apportionment into the product setup in the shop, rather than calculating it after the event, keeps the VAT return accurate.
Records to keep
- the analysis of each bundle (contents, costs or values, method used);
- the calculation for each period’s sales;
- any advice or rulings relied on.
Delivery charges on mixed orders follow a similar apportionment; see VAT on delivery charges for online sellers. For the VAT codes themselves, see VAT codes in bookkeeping.