HMRC targets VAT value shifting

HMRC has started to issue practical guidance on the apportionment of consideration between supplies where supplies with different liabilities to VAT are included in a single transaction. HMRC had previously consulted on how best to address the problem of value shifting, where consideration is overly weighted towards the non-standard rated items in a package of goods.

In Revenue and Customs Brief 2/23: VAT and value shifting consultation update, HMRC concludes that the best course of action is to produce practical guidance for businesses, rather than making changes to the VAT rules.

Following publication of the brief which explains HMRC’s new approach, HMRC has also recently published GFC2 (2023): Help with VAT apportionment of consideration outlining recommended approaches to apportionment.

VAT Notice 700 (VAT Guide) had already been updated. Section 31 ‘Apportionment of output tax’ covers two basic methods of apportioning output tax – one based on selling prices, the other based on cost values. HMRC’s VAT Valuation Manual at VATVAL03000 ‘Apportionment of monetary consideration’ has also been revised.

HMRC says that the changes ‘encourage businesses to first consider a selling price method, where appropriate and available, before considering a cost price method or any alternative’.