As Christmas approaches, many of our clients, particularly those in the farming and corporate sectors, see a notable increase in demand when it comes to the sale of Christmas hampers. Hampers often contain items with differing VAT liabilities and we often get asked whether VAT should be apportioned depending on the liability of the individual items or whether a single rate of VAT should apply, for example, where most of the contents are zero rated.
To illustrate, a typical hamper contains a variety of zero-rated food items, i.e. cheeses, crackers, fruits, cakes or jams/spreads alongside a bottle of wine, standard rated at 20%. Additionally, during the festive season, these hampers are commonly presented in elaborate packaging, such as wicker baskets or decorative tins.
VAT Notice 701/14 states. ‘When you supply a minor standard rated item with a zero-rated food item, you can treat this as a single supply of a zero-rated food item where the standard rated item:
- Is not charged at a separate price,
- Costs you no more than 20% of the total cost of the supply, and
- Costs you no more than £1 (excluding VAT).’
However, this will not be the case as the bottle of wine itself will certainly have a cost price exceeding £1 and would not be deemed a ‘minor’ standard rated item. Furthermore, consideration would also need to be given to the packaging; baskets and tins, which are ordinarily standard rated. These items are often used to display and promote the hamper’s contents and are likely to be reused by the consumer.
On this basis, the supply of the hamper will be a mixed supply. The fact that the majority of the goods are zero-rated does not mean the standard rated items (wine and packaging) are disregarded. A retailer would need to attribute the appropriate rate of VAT to each item and then use a fair and reasonable method to apportion the output tax between the liabilities. If a delivery charge is added, this too must be apportioned according to the contents of the hamper.
If you would like further information or any advice, please contact us by emailing solutions@ellacotts.co.uk or call us on 01295 250401.
Information for readers: This material is published for the information of clients. It provides only an overview of the regulations in force at the date of publication, and no action should be taken without consulting the detailed legislation or seeking professional advice. Therefore, no responsibility for loss occasioned by any person acting or refraining from action as a result of the material can be accepted by the authors or the firm.
