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Category: Tax
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Experience:  FCCA - over 35 years experience as a qualified accountant (UK based Practitioner)
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# I sell a novelty gift product. The product they receive contains

### Customer Question

I sell a novelty gift product. The product they receive contains a personalised framed certificate, but also includes a book and a map, which are non-vatable items when I purchase them.

Do I have to pay the full 20% VAT rate when I sell the item or do I pay a lesser rate to take into account that the product contains non-vatable items?
Submitted: 3 years ago.
Category: Tax
Expert:  taxadvisor.uk replied 3 years ago.

Hello, if you have any questions or need further clarification after reading my answer please let me know.

Thank you for your question ...

You should charge VAT at standard rate on only the Vatable item. As an example if the novelty gift product contains personalised framed certificate at £20, the book at £8 and map at £2 then your invoice value should be (20+4)+8+2 = £34 and you would pass £4 to VAT Office.

Customer: replied 3 years ago.

The gift is sold as a package for £20, the customer does not buy each item seperately, so I am not sure how to apportion a retail value on the book and map

I obviously know the cost price of each item and my markup is roughly 3 x cost. If the book and and map combined cost £2 and my markup is 3x, that gives them a retails value of £6. Would I deduct that from the £20 and pay VAT on £14?

Expert:  taxadvisor.uk replied 3 years ago.

You are right.. you would pay VAT on £14 inclusive of VAT value ... ie £.2.33 made up of

vatable element (11.67+VAT £2.33) = 14.00

Not VAtable element = 6.00

Total gift pack value incl VAT (14.00+6.00) = £20.00

Customer: replied 3 years ago.

so would I effectivley put this through my accounts package at a VAT rate of 14%?

Would I have problems with HMRC when I submit online VAT returns?

Thanks again

Expert:  taxadvisor.uk replied 3 years ago.

Provided your mix of vatable and non vatable remains the same ie £14 out of £20 is taxable supply inclusive of VAT then the percentage would come to

Sales value ex VAT (11.67+6.00) = 17.67

VAT = 2.33

Invoice value (17.67+2.33) = £20.00

Average VAT rate on ex VAT value (2.33/17.67) = 13.19%

Average VAT rate on inclusive of VAT value (2.33/20.00) = 11.65%

I have assumed that the novelty gift package priced at £20.00 is inclusive of VAT where applicable.

I don't understand where you get VAT rate of 14%.

If you were to apply the rate as I have calculated you should not have any problems when submitting your VAT returns online.

Customer: replied 3 years ago.

I got 14% from dividing the Vatable amount (£14) by the total amount (£20), to calculate the % amount that is vatable whch equalled 70%.

I then thought that I had to pay 70% of the 20% VAT rate, which = 14%

Expert:  taxadvisor.uk replied 3 years ago.

You should do your calculations as I have done them.

£14 of £20 is inclusive and not exclusive of VAT at 20%.

If you apply ex VAT values then (11.67/17.67) = 66%, then (66% of 20% VAT rate)becomes 13.2%. If you were to apply 14% rate, you will be paying more VAT than is right.

Customer: replied 3 years ago.

will do

thank you once again for your help

Expert:  taxadvisor.uk replied 3 years ago.

Just to calrify ....

You should apply either

13.2% to your VAT exclusive price or

11.65% to your VAT inclusive value.

Expert:  taxadvisor.uk replied 3 years ago.

Hi

I notice you have viewed my response to your last reply (last viewed on 08/02 around 14:16 hrs).

Just checking to see if you have any issues relating to your question that I may not have addressed.

If you are happy and there are no more issues I will appreciate if you would kindly rate the service I provided to ensure I get paid for it.

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