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HMRC internal manual

VAT Valuation Manual

Apportionment of monetary consideration: apportionments based upon customary selling-prices (market values)

Other than cost-based methods, the other general method by which an apportionment may be performed is one based upon the customary selling-prices of the relevant supplies. In Section 32 of Notice 700 The VAT Guide, this is referred to as a “market value method”. Use of the term “market value” is not ideal because it is easily confused with “open market value”.

Generally, an open market valuation method would not be appropriate for an apportionment. This is because we are not looking at what value traders in general attribute to the supplies made but the value that a particular trader can be regarded as having attributed to his supplies.

This method is therefore looking at the prices the particular trader normally charges for his 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 an 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:

Trader A sells:

Book - £5

DVD - £10

Both - £18

Therefore ratio of 1:2 based on customary 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

Trader B sells:

Book - £5

DVD - £10

Both - £12

The customary 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 VATVAL04100 we have already looked at the situation where a trader claims to be deriving his profits from one supply only. The above example shows how it is possible for the reverse to be argued i.e. trader B could claim that the £3 “loss” he incurs is attributable to the DVD. He 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.