05/07/2017

Splitting a single supply of goods or services into separate supplies in order to pay a lower rate of Vat on each of the separate supplies than on the single supply is classed as ‘supply splitting’ and will be viewed by HM Revenue & Customs as tax avoidance.

‘VAT: supply splitting tax avoidance schemes (Spotlight 38)’ * explains that HMRC considers all such arrangements should be taxed as a single supply if

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

Whether a transaction comprises a single supply or several different supplies will nevertheless depend on the facts of each case and HMRC accepts there “will always be borderline cases where the argument can go either way”.

Rather than offering advice, the guidance includes a link to an explanation of HMRC’s general approach to the Vat treatment of single and multiple supplies to help taxpayers make up their own minds and take appropriate action.

Where HMRC does find that supply-splitting arrangements have taken place, it may apply principles established by case law** to determine if these arrangements, while fulfilling the formal requirements of the law, still produce a tax advantage that is contrary to it. If so, it will then take the case through the courts.

* ‘Spotlight 38’ denotes that ‘supply splitting’ is the 38th addition to the list of schemes that HMRC believes are being used to avoid tax.

** The guidance links to an explanation of how HMRC applies principles established in the case of Halifax and others (C-255.02) to determine whether an arrangement constitutes abuse.