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Subjective judgement required to apply the basic principles and guidance, as a recent tax case illustrates.

The basic principles and guidance on whether something is a multiple or a single supply for VAT purposes have been long established. Applying the principles and guidance is difficult as it requires subjective judgement to be applied for each situation and quite often for each transaction.

The lead case setting this principle was Card Protection Plan (CPP).

A recent Upper Tribunal decision in W M Morrison Supermarkets Plc v Revenue and Customs Commissioners [2013] UKUT 0247 (TCC) explores when carve-out can apply.

The case concerned the VAT liability of disposable barbeques. The taxpayer had claimed that the charcoal and the lighting paper (accelerant) were a ‘concrete and specific’ element of the supply and should therefore be liable to VAT at the reduced rate under VATA 1994, Sch 7A, Group 1, Item 1(a). Based on this, the remainder – ie the foil container, cooking gauze and cardboard container – were liable to VAT at the standard rate.

The First Tier Tribunal accepted that whilst the charcoal and the lighting paper were a separate ‘concrete and specific’ element based on principles of CPP this was a single supply at the standard rate of VAT.

The decision specified that unless there was a provision within domestic legislation that provided for reduced rate of charcoal in a barbeque, no ‘carve out’ would be allowed and therefore this was a single supply of a disposable barbeque.

The ‘carve out’ element refers the reduced rate part being removed from a single supply and can only be effective if legislation allows. This refers directly to the recent case EC v France (C-94/09) (The French Undertakers).

Article contributed by ACCA