Question about bundling goods with different VAT rates

pramsandstuff

A little advice would be greatly appreciated. I run an online pram store and we are shortly about to start selling car seats. VAT on prams is 20% while VAT on car seats is only 5%.

I want to run an offer where I give away a free car seat with every pram order. But I want to structure the purchase so that they are paying full price for the car seat and a discounted rate on the pram, in order to maximise the amount of VAT I can reclaim.

Is it legal to offer "Free Car Seat With Every Pram" but structure the sale how I have mentioned above? Would HMRC have an issue with this?

uknick

I don't understand your thinking.  If the car seat is free, how can your customer pay full price?

But, with regard to VAT and free offers look here;

Business promotions (VAT Notice 700/7) - GOV.UK (www.gov.uk)

What you sell an item for, assuming it is a business transaction, has no bearing on the input VAT you can claim on the purchase.

Wonka_2

pramsandstuff said:

A little advice would be greatly appreciated. I run an online pram store and we are shortly about to start selling car seats. VAT on prams is 20% while VAT on car seats is only 5%.

I want to run an offer where I give away a free car seat with every pram order. But I want to structure the purchase so that they are paying full price for the car seat and a discounted rate on the pram, in order to maximise the amount of VAT I can reclaim.

Is it legal to offer "Free Car Seat With Every Pram" but structure the sale how I have mentioned above? Would HMRC have an issue with this?

I've seen this and your previous post and, in the nicest way, have concerns.

Your market is crowded/price sensitive
The items are bulky/easily damaged in transit
Freight costs can easily swallow up any online savings

It's not my market but I have a friend who came from my industry and had a an innovative/exclusive pushchair product - demand was there, price was right and had a significant social media following but the distribution complexity/costs killed it.

Back to your specific question above - it's a minefield and could easily become a full time job for both a lawyer and an accountant - espcially if the offer becomes available across a number of markets. Your claim of Buy x get y free needs to be validated across the markets you advertise in as some have specific wording/claims that need to be added

This is the sort of area where local assistance for SME's is invaluable - have you engaged through your local council/Regional Enterprise organisations etc where you may be able to talk face to face with others in a similar position or who have direct expertise - that's what they're there for 

DullGreyGuy

pramsandstuff said:

A little advice would be greatly appreciated. I run an online pram store and we are shortly about to start selling car seats. VAT on prams is 20% while VAT on car seats is only 5%.

I want to run an offer where I give away a free car seat with every pram order. But I want to structure the purchase so that they are paying full price for the car seat and a discounted rate on the pram, in order to maximise the amount of VAT I can reclaim.

Is it legal to offer "Free Car Seat With Every Pram" but structure the sale how I have mentioned above? Would HMRC have an issue with this?

Apple do similar, if you get their "back to school" offer which is a "free" £100 gift card what shows on the order form is just one row but you'll see two transactions go through with the computer marked down by £100. Obviously there is no VAT on gift cards. 

I agree with others and don't see how you plan changes what VAT you can recover? If you were selling VAT exempt products and VAT applicable then it'd be a different matter but you recover the same VAT if the rate is 0%, 5%, 20% or anything else... thats why those selling only 0 rated products go for voluntary registration.

pramsandstuff

DullGreyGuy said:

pramsandstuff said:

A little advice would be greatly appreciated. I run an online pram store and we are shortly about to start selling car seats. VAT on prams is 20% while VAT on car seats is only 5%.

I want to run an offer where I give away a free car seat with every pram order. But I want to structure the purchase so that they are paying full price for the car seat and a discounted rate on the pram, in order to maximise the amount of VAT I can reclaim.

Is it legal to offer "Free Car Seat With Every Pram" but structure the sale how I have mentioned above? Would HMRC have an issue with this?

Apple do similar, if you get their "back to school" offer which is a "free" £100 gift card what shows on the order form is just one row but you'll see two transactions go through with the computer marked down by £100. Obviously there is no VAT on gift cards. 

I agree with others and don't see how you plan changes what VAT you can recover? If you were selling VAT exempt products and VAT applicable then it'd be a different matter but you recover the same VAT if the rate is 0%, 5%, 20% or anything else... thats why those selling only 0 rated products go for voluntary registration.

You are quite right, I meant minimise VAT charged not reclaimed. By charging full price for the car seat and the discounted price for the pram I would get to keep more of the revenue. 

If I charged £1000 for the pram and gave the carseat away free I would be liable to pay HMRC £200 in VAT. But if I were to charge £800 for the pram and £200 for the car seat I would only be liable to pay £170 [(800x0.2) + (200x0.05)]. Meaning I am making £30 more profit on the sale by structuring it that way.

My question is, would it be legal to do that if I were advertising the car seat as free? I could lay out the breakdown of the cost on the invoice. 'Free Car Seat With Every Pram' is more attention grabbing than 'Get A Discount On A Pram When You Buy A Car Seat'.

DullGreyGuy

pramsandstuff said:
My question is, would it be legal to do that if I were advertising the car seat as free? I could lay out the breakdown of the cost on the invoice. 'Free Car Seat With Every Pram' is more attention grabbing than 'Get A Discount On A Pram When You Buy A Car Seat'.

As already pointed out... people that can afford much better lawyers and tax advisors than random strangers on a forum (and who are also much more visible to HMRC) are comfortable doing exactly the same thing. Advertising one deal but invoicing it on a different breakdown but same bottom line.