Our client is VAT registered and they manufacture and retail confectionary. This year in the run-up to Christmas they sold luxury hampers online. The hamper will contain a small candle, chocolates made by the client, a Christmas pudding, a chocolate recipe book, luxury drinking chocolate powder and a jar of cranberry sauce. This will be presented in a wicker basket which costs the client £4. The VAT liability for the majority of the items in the hamper is zero-rated; does that mean our client could zero rate the sales and what is the liability if the client adds a delivery charge?
When you supply a minor standard rated item with a zero-rated food item, you can treat this as a single supply of a zero-rated item where the standard rated item:
• Is not charged at a separate price,
• Costs you no more than 20% of the total cost of the supply, and
• Costs you no more than £1 (excluding VAT).
This is not the case in our client’s scenario. There are a number of standard-rated items which cost more than £1. These are not minor items and therefore would not be able to use the treatment above.
The liability of the wicker basket will also need to be considered. This is more than just packaging to simply contain, protect and promote the items. The basket could be used again by the consumer. Christmas packaging is usually more elaborate than regular packaging but that doesn’t stop the supply of this basket being a supply in its own right.
The supply of the hamper will be a mixed supply, rather than a single zero-rated supply. The fact that the majority of the goods are zero-rated does not mean the standard rated items are disregarded. Our client will need to attribute the appropriate rate of VAT to each item and then use a fair and reasonable method to apportion the output tax between the liabilities which are as follows:
• Christmas pudding
• Recipe Book
• Drinking Chocolate
• Cranberry Sauce
• Wicker Basket
Examples of apportionment methods are set out in Notice 700 section 32.
If the client is going to be charging for delivery, then this charge will need to be apportioned between standard and zero-rated in the same ratio as the contents. (1)
 Reproduced with permission of Croner Taxwise