Rules and ethics
VAT on subscription boxes: mixed boxes, zero-rated food, the £135 import rule and the flat rate scheme
How VAT applies to UK subscription boxes: multiple supplies, zero-rated food, the £90,000 threshold, £135 imports and the 16.5% limited cost flat rate.
What to take away
- VAT on a subscription box sold for one price can reflect several separate supplies, each with its own rate.
- Most food is zero-rated, while the standard rate is 20%, so a mixed box needs a fair apportionment.
- You must register for VAT when taxable turnover for the last 12 months goes over £90,000.
- Imported box components valued at £135 or less in total usually mean the seller accounts for VAT at the point of sale.
- The flat rate scheme can be costly for a box business with little spend on goods: the limited cost rate is 16.5%.
How VAT applies to a mixed subscription box
A mixed box might hold biscuits, a mug and a printed guide. You make a multiple supply where you charge a single inclusive price for a number of separate supplies. A multiple supply is different from a single composite supply, which has a single rate of tax.
That matters because most food is zero-rated, some goods such as children's car seats and home energy are reduced-rate, and the standard VAT rate is 20%. A box that mixes rates cannot simply carry one. Multiple supplies are covered in paragraph 8.1 of VAT Notice 700. The UK regulations article covers the contract and marketing rules that sit beside VAT.
If the items carry different rates, you need the tax value of each supply, so you split the price between them. This is an apportionment. There is no special method, but your calculations must be fair and justifiable.
Illustrative example: a £36 box includes biscuits worth £20, which are zero-rated, and a mug and guide worth £16 gross at the standard rate. The VAT in the £16 is £16 divided by 6, or £2.67. The biscuits carry none, so the box VAT is £2.67.
Which foods are zero-rated
Most traditional bakery products, such as bread, biscuits and cakes, are zero-rated. Confectionery (apart from cakes and some biscuits), alcoholic beverages and potato crisps are not.
Roasted or salted nuts and some other savoury snacks are standard-rated too. So are beverages and products for preparing beverages, which means tea and coffee boxes carry 20%. VAT Notice 701/14 sets out which foods are which, so check every item before you price a box.
Postage and delivery
Delivery is part of the supply. If the goods are zero-rated, the zero rating also extends to cover the delivery or postage. That does not help a mixed box, because the goods are not all zero-rated. Check the courier comparison for the postage costs you will need to apportion.
Record the box contents, the price of each part and the postage charged. Those records support the treatment you choose.
Imported components and the £135 rule
Imported components follow the consignment value. The £135 limit applies to the value of a total consignment that is imported, not the separate value of individual items. Unless sent individually, the seller adds the values of all items in the consignment together.
For consignments valued at £135 or less, the seller must charge and account for VAT at the point of sale, unless it is a business-to-business sale and the customer has given a UK VAT registration number. The HMRC overseas goods guidance sets out the rest.
If changes push the consignment total above £135, the seller may be liable for import VAT and Customs Duty and may have to adjust the VAT already accounted for at the point of sale. Import VAT is one of the hidden costs that surprise new sellers. Model it before you set a price.
Registration and the flat rate scheme
You must register if your total taxable turnover for the last 12 months goes over £90,000, as the GOV.UK VAT registration guidance explains. Review the figure each month, because subscription revenue builds steadily.
You may be able to join the flat rate scheme if your VAT turnover is £150,000 or less, excluding VAT. A business is classed as a limited cost business if its goods cost less than 2% of turnover or £1,000 a year. This means it pays a higher rate of 16.5%.
Talk to an accountant before joining. The cost guide shows where VAT sits in a subscription budget.
VAT treatment by box type
| Box type | Typical VAT treatment | Watch out for |
|---|---|---|
| Food only | Most food is zero-rated | Confectionery, snacks, drinks and coffee are standard-rated |
| Non-food goods | Standard rate of 20% | Reduced-rate items such as children's car seats |
| Mixed goods | Multiple supply, apportion the price | A fair, documented method |
| Imported components | Seller accounts for VAT at £135 or less | Total consignment value |
Pricing and cancellation
When you test prices, remember that a consumer price includes VAT. Compare gross and net margins in your pricing test ideas before changing a plan. If stock and demand vary, inventory forecasting helps you plan quantities without tying up cash.
For distance sales, you must tell the customer they can cancel their order up to 14 days after it is delivered. Check the cancellation terms with the subscription rules that apply to recurring billing.
Before you act
- List every item in each box and its VAT rate.
- Choose a fair apportionment method and write it down.
- Add up the value of each imported consignment.
- Track rolling 12-month taxable turnover against £90,000.
- Compare flat rate scheme costs before applying.
- Ask an accountant to approve the treatment.
Common questions
Do I charge VAT on a subscription box of physical goods?
If you are VAT registered, it depends on each item. Most food is zero-rated, while the standard VAT rate is 20%. Check each item, and apportion the price if the box mixes rates.
Can I use the flat rate scheme?
You may be able to if your VAT turnover is £150,000 or less, excluding VAT. If your goods cost less than 2% of turnover or £1,000 a year, you pay the higher 16.5% rate.
What about imported components?
For a consignment valued at £135 or less, the seller must usually charge and account for VAT at the point of sale. Add up the whole consignment, not single items.
