Single supplies and packaging

The FTT has held that a lidded wicker basket provided as part of a hamper of food and drink was ancillary element of the supply and not a supply in itself: Clearwater Hampers Ltd v HMRC [2026] UKFTT 567. The particularly interesting features of this decision are that the FTT held that the basket was ancillary to two separate principal supplies (zero-rated food and standard rated drink and food) and that HMRC guidance on whether packaging is ancillary is quite clearly incorrect.

Background

The taxpayer sold a range of different hampers of food and drink in a variety of packaging ranging from cardboard boxes, to trays to lidded picnic baskets. A dispute arose between HMRC and the taxpayer as to whether the packaging used was incidental to the supplies of food and drink. HMRC accepted that more basic containers were ancillary but rejected the argument that lidded baskets were ancillary to supplies of the food and drink. HMRC took the view that the lidded baskets constituted a separate supply for VAT purposes.

In particular, HMRC relied on VAT Notice 701/14 where the guidance states that: “You must treat the following types of containers as separate supplies in their own right… hampers and picnic baskets” and Notice 700 section 8.2 which stated that packaging must be treated as a separate supply where it is more than normal and necessary.

FTT decision

Firstly, the FTT noted that an item might form part of a single supply either on the basis that it is incidental to a principal element and does not amount to an end in itself but simply a better means of enjoying the principal element (a CPP analysis) or on the basis that the elements are so closely linked that they form objectively a single, indivisible economic supply, which it would be artificial to split (a Levob analysis). The taxpayer argued that the basket might be treated as part of a single supply under either analysis.

Secondly, the FTT dealt with the novel proposition that the basket formed a single supply with two different supplies (the zero-rated food and the taxable food and drink). The taxpayer argued that the fact that there are two “principal” supplies should not preclude a CPP analysis and the FTT agreed. “We do not see any principled reason why it should matter if it is ancillary by reference to a single other supply or, as here, ancillary to both a standard-rated supply and also a zero-rated supply, provided that the ancillary supply is apportioned accordingly between the two.”

However, the FTT did consider that this feature precluded a Levob analysis. “A Levob analysis is inherently premised on their (sic) being a single, indivisible, complex economic supply, the nature of which then falls to be identified by reference to its predominant... But here, the Appellant accepts that the Product cannot constitute a single supply irrespective of the treatment of the lidded basket, because there are inescapably two supplies, a standard-rated food/drink supply and a zero-rated food/drink supply.” Essentially, the FTT considered that the taxpayer could not logically support an argument that there was a single indivisible supply whilst accepting that there were in fact two separate supplies to which the basket related.

An average customer in this case would be someone buying the product as a gift for another person. The FTT did not consider that the average customer would consider the lidded basket an aim in itself. Rather the basket serves to attractively present and protect the food and drink and thereby is a better means of enjoying the food and drink. The FTT also noted that the fact that the lidded basket was capable of future reuse did not necessitate the conclusion that it was more than ancillary, the customer had no choice as to the container used for particular hampers and the relative cost of the basket was low compared to the price of the whole hamper.

As regards HMRC’s guidance, the FTT commented that: “we considered it disappointing that the main points that HMRC ran before us were the VAT Notice 701/14 Argument and the Notice 700 paragraph 8.2 Argument, both of which treated the HMRC guidance relied upon as though it was law, when it is not law and does not accurately reflect the law. We reject both arguments.” The FTT was clearly of the view that HMRC guidance on packaging as a single or multiple supply did not reflect the state of the case law on this issue and indeed ignored much of this case law. In addition, neither the fact that a lidded basket could be acquired separately from other suppliers nor the fact that it had “intrinsic value” and “ongoing utility” were inconsistent with the FTT’s conclusion that it was ancillary to the supply of food and drink in the hampers.

Comment

The FTT decision contains an excellent summary of the single supply principles and case law and its application to packaging in particular. Beyond that, the decision that an element can be ancillary to two different principal supplies is novel but practical result requiring apportionment between the two supplies.

The FTT was particularly dismissive of HMRC’s arguments in this case which largely relied on their own guidance. No doubt HMRC’s guidance was the reason it came to its conclusions in this case, but as the FTT pointed out it was entirely insufficient for HMRC to approach the case before the FTT as if that guidance was the law.