Mixed supply of car hire and optional child car seat

The taxpayer charged car hire fees which were standard rated. Customers could choose whether to hire a child seat for a fee of about £10 a day. This was clearly stated in the terms and conditions of the contract between the customer and car hire company. The reality was that a hirer would only legally need a child seat if they had a child under 7 and in about 75% of cases where hirers had children they had their own seat. The hire of a child seat for a vehicle is subject to 5% VAT (VATA 1994 Sch 7A group 5).

HMRC’s view was that the payment for the child’s seat was part of a single supply of standard-rated car hire. The taxpayer argued that it was a mixed supply because customers had ‘freedom of choice’ whether they paid for this extra benefit.

On appeal to the First-tier...