VATVAL03800 - Apportionment of monetary consideration: apportionments based upon selling-prices
A general method of apportionment is one based upon the selling-prices of the relevant supplies. Section 31 of Notice 700 The VAT Guide explains these methods and provides some example calculations.
Generally, an open market valuation method would not be appropriate for an apportionment. This is because we are not looking at what value businesses in general attribute to the supplies made, but the value that a particular business can be regarded as having attributed to its supplies.
This method is therefore looking at the prices the particular business normally charges for their supplies, when done for separate considerations, and using the relationship between those amounts to apportion a single consideration given in return for comparable supplies.
Take for example a ‘meal deal’ where a supermarket offers a main course, side dish, dessert and a bottle of wine for a single consideration of £10, which is below the combined shelf price of £15.
| Item | Individual item shelf price | Proportion total shelf price | Proportion deal price |
|---|---|---|---|
| Main course | £6.00 | 6 / 15 x 10 | £4.00 |
| Side dish | £1.50 | 1.5 / 15 x 10 | £1.00 |
| Dessert | £1.50 | 1.5 / 15 x 10 | £1.00 |
| Bottle of wine | £6.00 | 6 / 15 x 10 | £4.00 |
| Total | £15.00 | - | £10.00 |
The appropriate VAT fraction can then be applied to the positive rated proportion of the deal.
The method works irrespective of whether the supplies made for a single consideration are sold for an amount higher or lower than the total would have been if they had been sold separately. This can be illustrated by a simple example:
Business A sells:
Book - £5
DVD - £10
Both - £18
Therefore a ratio of 1:2 based on individual selling prices
Applying the same ratio to the single selling-price of £18, would give values of £6 for the book and £12 for the DVD
Business B sells:
Book - £5
DVD - £10
Both - £12
The individual selling-prices have the same 1:2 ratio
Applying this to the single selling-price of £12, would give values of £4 for the book and £8 for the DVD.
In VATVAL04200 we look at the situation where a business claims to be deriving their profits from one supply only. The above example shows how it is possible for the reverse to be argued i.e. business B could claim that the £3 “loss” it incurs is attributable to the DVD. It would therefore argue that a proper apportionment of the price should be £5 for the zero-rated book and £7 for the standard-rated DVD. Just as profits must be attributed to all of the supplies involved so must losses. You should resist these claims in the same way that you would resist a claim that profits only arise upon one supply.