© 2025 by Michael Firth KC, Gray's Inn Tax Chambers
Contact: michael.firth@taxbar.com
A2: Rate of VAT
Standard rate
- Current rate: 20%
"(1) Subject to the following provisions and to the provisions of section 29A of this section, VAT shall be charged at the rate of 20 per cent and shall be charged—
(a) on the supply of goods or services, by reference to the value of the supply as determined under this Act; and
(b)...
(c) on the importation of goods, by reference to the value of the goods as determined under this Act." (VATA 1994, s.2)
- Treasury power to change rate
"(2) The Treasury may by order increase or decrease the rate of VAT for the time being in force under this section by such percentage thereof not exceeding 25 per cent. as may be specified in the order, but any such order that has not previously expired or been revoked shall cease to be in force at the expiration of a period of one year from the date on which it takes effect, unless continued in force by a further order under this subsection.
(3)In relation to an order made under subsection (2) above to continue, vary or replace a previous order, the reference in that subsection to the rate for the time being in force under this section is a reference to the rate which would be in force if no order under that subsection had been made." (VATA 1994, s.2)
Rate applies to value of supply/value of goods
"(1) Subject to the following provisions and to the provisions of section 29A of this section, VAT shall be charged at the rate of 20 per cent and shall be charged—
(a) on the supply of goods or services, by reference to the value of the supply as determined under this Act; and
(b)...
(c) on the importation of goods, by reference to the value of the goods as determined under this Act." (VATA 1994, s.2)
Exemption, zero-rating and reduced rate
- Supply both exempt and zero-rated: zero-rating prevails
"[37] In the course of the hearing in your Lordships' House a question was raised as to item 4 of Group 6 in Schedule 9 to VATA 1994, which provides for the exemption (subject to certain conditions) of "the supply of any goods or services (other than examination services) which are closely related to a supply of a description falling within item 1 (the principal supply) [that is, education]." This raises the possibility that the written materials (if they had constituted a separate supply at all) might be both zero-rated and exempt. In such a case zero-rating trumps exemption, because of the wording of section 30(1) of VATA 1994: see the judgment of Millett LJ in Commissioners of Customs & Excise v Wellington Private Hospital Ltd [1997] STC 445, 449. But Mr Sherry (for the College) disavowed any reliance on item 4 of Group 6 and in the circumstances it is unnecessary to go into the complications of EC Commission v United Kingdom [1988] ECR 817 as explained by Millett LJ in the Wellington case." (College of Estate Management v. HMRC [2005] UKHL 62)
Single supply has single rate
"[35] In the second place, it follows from the very classification of an operation composed of several elements as a single supply that that operation must be subject to one and the same rate of VAT. The option left to the Member States to subject the various elements comprising a single supply to the various rates of VAT applicable to those elements would mean artificially splitting that supply and risk distorting the functioning of the VAT system (judgment of 18 January 2018, Stadion Amsterdam, C‑463/16, EU:C:2018:22, paragraph 26 and the case-law cited)." (BlackRock Investment Management (UK) Ltd C-231/19)
- Even if separate prices for different elements can be identified
"[26] As to whether the two elements comprising that single supply, of which one is the principal and the other ancillary, may be subject to different rates of VAT, which would be those applicable to those elements if they were supplied separately, to interpret the Sixth Directive as allowing such taxation would run counter to the case-law referred to in paragraphs 21 to 23 of the present judgment, and as Stadion Amsterdam, the Netherlands Government and the Commission accepted in their respective written observations, it follows from the characterisation of an operation comprising several elements as a single supply that that operation will be subject to one and the same rate of VAT (see, to that effect, judgments of 17 January 2013, BGŻ Leasing, C‑224/11, EU:C:2013:15, paragraph 30 and the case--law cited, and of 10 November 2016, Baštová, C‑432/15, EU:C:2016:855, paragraph 71 and the case-law cited). The option, left to the Member States, to subject the various elements comprising a single supply to the various rates of VAT applicable to those elements would mean artificially splitting that supply and risk distorting the functioning of the VAT system, in disregard of the case-law referred to in paragraph 22 of the present judgment.
[27] That also holds good even in the situation referred to by the referring court, in which it is possible to identify the price corresponding to each distinct element forming part of the single supply. The fact that such identification is possible or that the parties agree on those prices is not capable of justifying an exception to the principles arising from the case-law cited in paragraphs 22 and 23 of the present judgment." (Stadion Amsterdam C-463/16)
Multiple rates to single supply
- Some exemptions depend on identity of customer/intended use (differentiation of single supply)
"[36] BlackRock disputes however that that general rule is applicable in the case in the main proceedings. According to that company, while that rule precludes the various elements of a single supply being the subject of a separate tax treatment, it does not however prevent the tax treatment of a single supply from differing depending on the use made of it. A separate tax treatment depending on the destination of the supply of services was moreover accepted by the Court in paragraphs 53 and 54 of the judgment of 4 May 2017, Commission v Luxembourg, (C‑274/15, EU:C:2017:333).
[37] However, that judgment is irrelevant to the case in the main proceedings.
[38] In that judgment, the Court gave a ruling on a complaint alleging an infringement of Article 132(1)(f) of the VAT Directive. That provision exempts ‘the supply of services by independent groups of persons, who are carrying on an activity which is exempt from VAT or in relation to which they are not taxable persons, for the purpose of rendering their members the services directly necessary for the exercise of that activity’. That provision thus defines the scope of application of the exemption from VAT that it lays down in accordance with the destination of the supplies of services concerned. It thus provides for a differentiated tax treatment depending on that destination, as the Court held in the aforementioned judgment.
[39] By contrast, the exemption provided for in Article 135(1)(g) of the VAT Directive is defined exclusively in relation to the nature of the supply in question, in the present case operations for the management of special investment funds. The wording of that provision does not therefore permit the tax treatment of a single supply to be dissociated according to its uses." (BlackRock Investment Management (UK) Ltd C-231/19)
- Services supplied to person who carried on mixed activities exempt insofar as directly necessary for exempt/outside the scope activities
"[53] Contrary to what the Grand Duchy of Luxembourg contends, that interpretation of Article 132(1)(f) of Directive 2006/112 does not result in the exemption provided for in that provision being deprived of its intended effect. In particular, the application of that exemption is not restricted to groups whose members exercise exclusively an activity which is exempt from VAT or in relation to which they are not taxable persons. Accordingly, the services rendered by an IGP whose members also carry out taxable activities may qualify for that exemption, but only in so far as those services are directly necessary for those members’ exempt activities or activities in relation to which they are not taxable persons.
[54]...Second, the Grand Duchy of Luxembourg has not shown why, if at all, it might be excessively difficult for the IGP to invoice its services excluding VAT, according to the share of its members’ activities in their totality represented by the activities which are exempt from that tax or in relation to which they are not taxable persons." (Commission v. Luxembourg C-274/15)
- Where Member State derogation excluded part of supply from zero-rating
"[32] As regards, third, the judgment of 6 July 2006, Talacre Beach CaravanSales (C‑251/05, EU:C:2006:451), that judgment, as is clear from paragraph 14 thereof, concerns the question of whether the fact that certain goods are the subject of a single supply, including both a principal item which is by virtue of a Member State’s legislation subject to an exemption with refund of the tax paid, within the meaning of Article 28(2)(a) of the Sixth Directive, and goods which that legislation excludes from the scope of that exemption, prevents the Member State concerned from levying VAT at the standard rate on the supply of those excluded items.
[33] The Court, which answered that question in the negative, underlined that, in the situation at issue in the case having given rise to that judgment, to exempt the delivery of goods supplied together with the principal item, those goods being specifically excluded from an exemption by the national legislation, would run counter to the wording and purpose of Article 28(2)(a) of the Sixth Directive, according to which the scope of the derogation laid down by that provision is restricted to what was expressly covered by the national legislation on 1 January 1991 (see, to that effect, judgment of 6 July 2006, Talacre Beach Caravan Sales, C‑251/05, EU:C:2006:451, paragraphs 20 to 22). In that judgment, the Court expressly held that the case-law on the taxation of single supplies did not apply to the exemptions with refund of the tax paid with which Article 28 of the Sixth Directive is concerned (see, to that effect, judgment of 6 July 2006, Talacre Beach Caravan Sales, C‑251/05, EU:C:2006:451, paragraph 24)." (Stadion Amsterdam C-463/16)
- Where Member State has discretion in relation to reduced rate
"[34] As regards, fourth, the judgment of 6 May 2010, Commission v France (C‑94/09, EU:C:2010:253), that judgment concerns the compatibility, with Directive 2006/112, of national legislation providing for a selective application of the reduced rate of VAT by a Member State to the transportation of corpses by undertaker’s vehicles, separately from the other services provided by that firm and the supply of goods related thereto. In order to determine whether the selective application of a reduced rate of VAT complied with Articles 96 to 99(1) of Directive 2006/112, the Court held that the question whether a transaction including several elements must be considered to be a single supply was not decisive for the purpose of the exercise by the Member States of the discretion left to them by Directive 2006/112 as regards the application of the reduced rate of VAT (see, to that effect, judgment of 6 May 2010, Commission v France, C‑94/09, EU:C:2010:253, paragraph 33). Those were the circumstances in which the Court held that it was not necessary to examine whether or not the supply of services by undertakers was to be regarded as a single transaction, but that it was, however, necessary to ascertain whether the transportation of corpses by vehicles constituted a concrete and specific aspect of that category of supply, as set out in Annex III, point 16, to Directive 2006/112, and, if so, to examine whether or not the application of that rate undermines the principle of fiscal neutrality (judgment of 6 May 2010, Commission v France, C‑94/09, EU:C:2010:253, paragraph 34).
[35] In that judgment, the Court thus ruled, as is apparent from paragraph 33 thereof, on, inter alia, the scope of the discretion left to the Member States by Directive 2006/112 as regards the application of a reduced rate. However, the case in the main proceedings concerns a problem of a different nature."(Stadion Amsterdam C-463/16)
- Supplies that were excluded from derogation at relevant date cannot be included even if that means splitting the VAT rate applicable to single supply
"[24] The fact that the supply of the caravan and of its contents may be characterised as a single supply does not affect that conclusion. The case-law on the taxation of single supplies, relied on by Talacre and referred to in paragraph 15 of this judgment, does not relate to the exemptions with refund of the tax paid with which Article 28 of the Sixth Directive is concerned. While it follows, admittedly, from that case-law that a single supply is, as a rule, subject to a single rate of VAT, the case-law does not preclude some elements of that supply from being taxed separately where only such taxation complies with the conditions imposed by Article 28(2)(a) of the Sixth Directive on the application of exemptions with refund of the tax paid." (Talacre Beach Caravans C-251/05)