Are children’s activity boxes a mixed or single supply?

The company sold three products for children aged between three and eight. These consisted of reading matter and materials that could be used for craft activities linked to a theme such as dinosaurs or kings and queens. HMRC accepted that ‘super’ and ‘grand’ packages which sold for £19.90 and £12.90 respectively constituted a mixed supply of a zero-rated book and standard-rated craft activities.

However with the ‘petite’ product the book was replaced by a magazine so that it could slide through a letter box when delivered to the customer; this was sold for £5.95. HMRC did not agree that this was a mixed supply and assessed output tax for £697 656 on the basis the product was a standard rated supply only. It claimed the magazine was ancillary to the craft materials.

The taxpayer said that in a customer survey 91% of respondents stated they considered...