What VAT rate do we apply to a hamper?
Q. We trade as a food and drinks wholesaler. With Christmas approaching, we will be selling a hamper that includes a range of food and drink items, including tins of luxury fruit, jams, cakes, wine and chocolates. Our plan is to sell each hamper for £49.99 to include VAT but how much VAT should we declare on each sale?
A.The hamper clearly includes some zero-rated food items, such as the tinned fruit and cakes but also standard-rated products such as wine and chocolates. The hamper itself will have value for the customer and is also standard-rated. You are therefore making a mixed supply for VAT purposes and must apportion your output tax.
You can use any calculation that is fair and reasonable, but the best method will probably be to work out how much you paid for the zero-rated products and how much for those which are standard-rated to give an overall percentage of standard-rated items in the package, i.e. a cost-based apportionment. To illustrate, suppose 60% of the items are standard-rated, including the hamper, your output tax on each sale will be: £49.99 x 60% x 1/6 VAT fraction = £5.
Are invoices addressed to company director a problem?
Q. We trade as a limited company and all of our income is subject to VAT, i.e. we have no exempt sales. Our office premises are rented from a landlord who has opted to tax the property so we are charged VAT on the rent. However, the problem is that the lease agreement is between one of the company directors and the landlord so all invoices are addressed to this director. Does this cause us a problem with claiming input tax?
A. It’s a well-established principle of VAT that only a business or entity receiving a supply of goods or services can claim input tax. However, the good news is that HMRC accepts that this is quite a common arrangement, mainly because landlords want to be able to pursue an individual for unpaid rent, rather than a company with very few assets.
So, as long as the company fully reimburses the landlord for the rent and uses the premises wholly for business purposes, then input tax can be claimed. Another condition specified by HMRC is that the individual director must not be VAT registered in their own right. In effect, HMRC recognises that the director is a nominal tenant only.
Can a business have two VAT numbers?
Q. We have just formed a new VAT group registration, consisting of two trading companies and a holding company that controls the shares in the other two. My concern is that HMRC has registered the group for VAT but not cancelled the separate registrations previously held by the two trading companies. Should we just submit nil returns for these old registrations?
A. A business cannot have more than one VAT registration number at any time. The individual registrations of the trading companies should have been cancelled the day before the new group registration took effect. You should have completed the deregistration FormVAT7 for each trading company and submitted it to HMRC at the same time as completing the registration forms for the new group.
There is a specific box to tick on FormVAT7 concerning the reason for your deregistration – “I am joining a VAT group”. It sounds likely that the VAT7 forms were never submitted, and you need to correct this situation as soon as possible. When the trading companies issue sales invoices, they should show the VAT number for the grou