DCM (Optical Holdings) Ltd v Revenue and Customs Commissioners
| Jurisdiction | UK Non-devolved |
| Judgment Date | 05 December 2018 |
| Neutral Citation | [2018] UKUT 409 (TCC) |
| Date | 05 December 2018 |
| Court | Upper Tribunal (Tax and Chancery Chamber) |
[2018] UKUT 0409 (TCC)
Lord Tyre, Judge Dean
Upper Tribunal (Tax and Chancery Chamber)
Value added tax – VATA 1994, s. 19(4) and 73(6) – Opticians – Separately disclosed charges – Information Sheet 08/99 – Attribution of discounts – Whether decisions issued more than four years after repayment returns submitted time barred – Whether assessments out of time – Appeal allowed in part.
The Upper-tier Tribunal (UT) considered whether the FTT had erred in law when it determined that the appellant had been obviously negligent in its failure to file Inward Processing Relief (IPR) returns.
DCM is engaged in a long and complicated dispute with HMRC regarding the VAT liability of its sales. This decision relates to an appeal against a decision of the FTT in relation to six separate appeals. The UT concerned four matters of principle and, having made its ruling, the Tribunal referred determining the practical implications of its decision to the parties (para. 85) although they are open to seek directions should it be required.
The four issues under consideration were as follows:
- The amendment issue: DCM had submitted several repayment returns. HMRC did not make the repayments claimed as the returns had been put on hold while various matters were disputed between the parties. HMRC then amended the returns prior to the repayment being released. DCC argued that HMRC had no power to simply amend the returns, assessments should have been issued. Given the length of time the issues had been in dispute any assessments would have been out of time.The UT succinctly summarises the issue as whether HMRC had power in 2013, many years after ends of the periods in respect of which repayments were claimed [in this case periods 07/05–12/08, to amend the amounts claimed by reducing them to lesser amounts or nil.Having considered the arguments before it the UT accepted HMRC's contention that it was not, statutorily required to reduce repayment returns by means of assessment. It therefore followed that the time bar provisions in s. 73 VATA 1994 did not apply and repayment returns which had been put on hold could be corrected more than four years after their period ends (para. 37).DCM's appeal on this issue was refused.
- The Separately Disclosed Charges issue: As an optician DCM made exempt supplies (dispensing) and taxable supplies (spectacles). The price paid by the customer was apportioned between the two. In Information Sheet 08/99 HMRC had published guidance on how opticians should apportion customer payments and how this apportionment should be disclosed to customers. DCM contended that it has applied this guidance correctly. HMRC challenged the methodology.The UT examined the evidence regarding the information which was made available to DCM's customers and determined that the FTT had been incorrect to conclude that it was not possible to identify the amount paid by customers for dispensing. However, the UT expressed its regret that DCM had only provided some of the evidence in support of its case to HMRC on the eve of the Tribunal hearing.DCM's appeal on this issue was allowed.
- The discounts issue – DCM applied various discounts to which customers were entitled against their (taxable) spectacles whereas HMRC argued that the discounts should be pro-rated between taxable and exempt supplies.HMRC stated that it had always accepted that, if DCM and its customer agreed, prior to entering into a transaction, that a discount was to apply in a particular way then the VAT treatment would follow this agreement. UT considered the evidence that DCM had placed before the FTT (some of which had been placed on the eve of the Tribunal despite the issues having been under dispute for many years) and was unconvinced by its argument. The UT concluded that the FTT had not erred in law when it decided that HMRC was entitled to proceed on the basis that discounts should be apportioned.DCM's appeal on this issue was refused.
- The time bar issue – DM argued that some assessments issued in respect of some periods were out of time.Section 73(6) of VATA 1994 requires HMRC to issue assessments no later than one year of evidence of the facts sufficient in the opinion of the Commissioners to justify the making of the assessment comes to their knowledge. Having examined the evidence available to HMRC in the course of the dispute the UT disagreed with the FTT and concluded that in respect of some periods HMRC had issued assessments outside this time limit.DCM's appeal on this issue was allowed.
Much of this appeal related to the specific facts of the dispute between DCM and HMRC and therefore may not be of wider interest. However, the UT's decision that HMRC are not subject to time limits if repayment returns are put on hold and adjusted prior to the repayment being made will affect other taxpayers involved in long running disputes.
Roderick Cordara QC and Andrew Legg, instructed by Harper Macleod LLP, appeared for the appellant
(DCM (Optical Holdings) Limited) David Thomson QC and Elizabeth Roxburgh, instructed by the Office of the Advocate General for Scotland, appeared for the Respondents (HMRC)
[1] The appellant (“DCM”) carries on business as an optician under the trading name Optical Express, specialising in the sale of dispensed spectacles and the provision of refractive eye surgery. For the purposes of value added tax, DCM, in common with other opticians, makes both taxable supplies of goods and exempt supplies of medical services. This gives rise to complexities as regards both output tax chargeable and input tax recoverable. The current proceedings are concerned only with output tax related issues.
[2] DCM appeals against a decision of the First-tier Tribunal (“FTT”) which concerned six separate appeals. In accordance with the approach adopted by the parties in their written and oral submissions and by the FTT in its decision, we will not address the six appeals individually. Instead we will deal thematically in turn with the four disputed matters that are identified in the grounds of appeal, some of which relate to more than one appeal.
[3] The original decision of the FTT was issued on 23 March 2017. Following the submission by DCM of an application for permission to appeal, the FTT decided that it was appropriate to review its decision. A revised decision bearing the original release date was issued on 30 October 2017. DCM submitted an amended application for permission to appeal which was granted by the FTT on 13 February 2018. One of the grounds of appeal raised the question whether the revised decision was wholly or partly outside the scope of the power to review permitted by rule 41 of the Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009. In the event no submissions were made to us in support of this ground of appeal, and it is unnecessary for us to address it. Our consideration of the appeal proceeds on the terms of the FTT's revised decision.
[4] As already noted, opticians make both taxable and exempt supplies for VAT purposes. In EC Commission v UK (Case No 416/85) (1988) 3 BVC 378, the Court of Justice ruled that a supply of goods such as spectacles was physically and economically dissociable from the provision of medical care and should not therefore be exempted from VAT. Thereafter HMRC sought to treat the supply of spectacles as a single standard-rated supply to which the dispensing opticians' services were merely ancillary. This approach was rejected in C & E Commrs v Leightons Ltd [1995] BVC 192, in which it was held that in substance and reality there were two separate supplies: a taxable supply of spectacles and an exempt supply of services of the dispensing optician.
[5] Section 19(4) of the Value Added Tax Act 1994 states:
Where a supply of any goods or services is not the only matter to which a consideration in money relates, the supply shall be deemed to be for such part of the consideration as is properly attributable to it.
Applying this provision to supplies made by opticians has not proved to be a straightforward matter.
[6] In 1999 HMRC published VAT Information Sheet 08/99 entitled “Opticians: Apportionment of charges for supplies of spectacles and dispensing”. This information sheet consolidated guidance contained in previous information sheets and business briefs. HMRC noted, under a heading “Current position”:
If a single charge is being made for supplies of spectacles and dispensing, opticians should now be apportioning this in accordance with a method that has been agreed with their local VAT Business Advice Centre. Alternatively, they may be making separate charges for spectacles and dispensing which should be disclosed to all patients at the time of sale. Customs have no preference as to which of the above arrangements individual opticians adopt.
[7] One of the methods that opticians could choose to adopt was what is known as the full cost apportionment method (“FCA”). Annex A to the information sheet contained HMRC's technical guidance about a suggested full cost apportionment method, although it was open to opticians to propose other methods for approval. Alternatively, if an optician chose to use a method in which charges were separately disclosed to customers (“SDC”), Annex B contained guidance about the criteria that needed, according to HMRC, to be satisfied to establish a true separation of charges. Annex B stated inter alia as follows:
Opticians will not be required to perform an apportionment of charges for spectacle sales if they make separate charges for the spectacles and the dispensing, thus establishing a separate consideration for each of the supplies. One of the normal criteria for establishing separate considerations is that customers should be able to obtain the supplies separately at the individual specified charges should...
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