The splitting into separate supplies results in a lower rate of VAT on each single supply. The kind of arrangements that should be taxed as a single supply include where:

• multiple suppliers are used where the same elements could be provided by one supplier; and
• the customer has no opportunity to decline to take one of the individual elements.

HMRC is issuing no further guidance on supply splitting, bar reference to its own approach as outlined here.

As stated in HMRC note VATSC80400, there is no ‘absolute dividing line’ between single and multiple supplies, ‘and there will always be borderline cases where the argument could go either way’.

However, a factor to consider is whether there appears to be a single transaction from the customer’s perspective, but the contractual arrangements give rise to separate supplies, or vice-versa.

Supplementary note VATSC80500 considers the artificiality and economic reality from a case law consideration. This highlights the Halifax case, where the arrangement in place fulfilled the ‘formal requirements’ of the legislation but produced a tax advantage contrary to the purpose of the European and local tax rules.

Artificiality in relation to supply splitting could include:

1. Supply splitting takes place where different elements of what appears to be a single supply are split into multiple supplies. This often occurs where the overall tax liability is reduced by splitting out a zero-rated element from a standard-rated supply. This may also lead to value shifting to the supply with the lower liability.
2. Supply bundling takes place where different elements which would normally be supplied separately from each other are alleged to be a single supply. An example is reducing the overall tax liability by alleging a separate standard-rated element is ancillary to a single zero-rated supply.

The Finance Bill 2011 introduced legislation to counter specific supply splitting tax avoidance.

Report by Kevin Reed