DCM (Optical Holdings) Ltd
| Jurisdiction | UK Non-devolved |
| Judgment Date | 23 March 2017 |
| Neutral Citation | [2017] UKFTT 288 (TC) |
| Date | 23 March 2017 |
| Court | First Tier Tribunal (Tax Chamber) |
Judge Anne Scott, Member: Eileen Sumpter
Mr Roderick Cordara, QC and Mr Andrew Legg of counsel, appeared for the appellant
Mr Martin Richardson of Counsel, instructed by the General Counsel and Solicitor to HM Revenue and Customs, appeared for the respondents
Value added tax – Dispensing opticians – Partial exemption – Standard and special methods – Disputed commencement of special method – Procedure with unadjudicated repayment claims – Whether HMRC made assessments or decisions – Whether those assessments or decisions out of time – Value Added Tax Act 1994 (“VATA 1994”), s. 19(4), 73(6) – Taxpayers' appeals dismissed.
The case involved six appeals relating to alleged underdeclarations of output tax arising out of the disputed commencement date for the application of an agreed special partial-exemption method applied in returns claiming a right to repayment of surplus input tax. In appeal 1, it was held that the assessment was made on time. In appeals 2 to 6, which revolved around the disputed nature of HMRC decisions reducing the Value added tax (VAT) credit due to the taxpayers, it was held that there had been no assessments, and hence no time bar under VATA 1994, s. 73.
The appellant was the representative member of a group of companies operating as dispensing opticians also providing refractive eye surgery. They were therefore partially exempt, making both taxable and exempt supplies. The appeals arose out of a long-running dispute over the correctness of VAT returns made by the appellant over an extended period of time, following a direction made by HMRC that the appellant apply a standard method for apportioning residual input tax from 30 September 1998. Under a settlement made on 3 June 2003, HMRC agreed to recalculate three notices of assessment covering the periods from April 1998 to January 2001 on the basis that 36% of the consideration received for dispensed spectacles related to a taxable supply and the remaining 64% to an exempt supply. In return, the appellant agreed voluntarily to disclose any output tax underdeclared on the same basis for the periods from April 2001 to April 2003, pending the agreement of a fairer and more reasonable method. No such disclosures were in fact made. When HMRC officers visited the appellant in October 2003, they were told that the special “point of sale” (“POS”) method was being applied. HMRC had not agreed to its application. It was later established that the requisite disclosures to customers necessary for the POS method to be used as prescribed in VAT Information Sheet 08/99 were not properly in place until the period beginning 1 February 2004, whereas the appellant maintained that it had been in place since May 2003. After a further control visit, on 31 August and 1 September 2005, HMRC officers informed the appellant that since approval for the POS method had not been given, they would recalculate the returns for the periods from October 2002 to February 2004 under the 36/64 basis. The appeals heard by the First-tier Tribunal (FTT) concerned the various actions taken by HMRC following that control visit.
Following the control visit, HMRC wrote to the appellant on 7 September 2005, enclosing a Schedule of Assessment, the element of output tax in which was the subject of appeal 1. Under the appellant's interpretation of VATA 1994, s. 73(6), this was out of time since it was made more than two years after the end of the relevant accounting periods. Moreover, counsel for the appellant argued that nothing material was discovered thereafter. Furthermore, he maintained that it should have been evident to HMRC once it received the return for the period ending 31 October 2002 that the return was not consistent with the appropriate basis of calculation. The FTT did not accept this line of argument. In the Tribunal's view, applying the test in C & E Commrs v Pegasus Birds Ltd VAT[2004] BVC 788, it was not until the control visit in August/September 2005 that HMRC found evidence of the facts that underpinned the assessment. The principle of law to be applied to the facts was not when HMRC should have discovered the error but when the evidence of the facts came to its knowledge (per C & E Commrs v Post Office VAT[1995] BVC 292). The assessment was in time.
These revolved around a series of communications from HMRC in its ongoing investigation into the correctness of the VAT returns over an extended period. Those communications were decisions, dating from July 2008 to June 2013, all reducing the VAT credit due to the appellant for various VAT periods ranging from the period ending 31 July 2005 to 31 December 2008. It had initially been argued on behalf of the appellant that these were assessments (indeed, HMRC had erroneously described one as a “protective assessment” and referred to another as a “quasi assessment”). It was subsequently accepted that these were decisions and not assessments. The claims to repayment established by the returns had not been finally adjudicated by HMRC and thus no assessments would have been possible. The decision in R (on the application of UK Tradecorp Ltd) v C & E Commrs VAT[2005] BVC 128) was authority for the proposition that until a claim was admitted, there was no right to a credit and no engagement of VATA 1994, s. 73. The decisions had in fact been correctly appealed under VATA 1994, s. 85. This was not a situation involving the reopening of returns without limit of time, as the appellant had argued and the “clock” under VATA 1994, s. 73 did not start to tick when a return was submitted. There had been no assessments and no time bar. The appeals were dismissed.
This decision is largely important for procedural reasons. It did not help the appellant at any stage that it had misled HMRC, not honoured the terms of the settlement and failed to provide evidence or the right type of evidence. There is no need to raise an assessment if no tax is due (Benridge Care Homes Ltd (t/a Benridge Rest Home) v R & C Commrs VAT[2012] BVC 1,708). The time limits enshrined in statute only come into play when there is a repayment or VAT credit or a VAT return is found to be incomplete or incorrect, giving rise to a debt due by the taxpayer.
[1] The respondents have previously been known as HM Customs and Excise and are referred to throughout herein as “HMRC”.
[2] The appellant (“DCM”) consists of 151 stores in four countries. It is principally an optical business, specialising in the sale of dispensed spectacles and the provision of refractive eye surgery.
[3] DCM (formerly known as David Moulsdale Holdings Limited until 7 November 2001) is registered in a Value Added Tax (“VAT”) group with ten corporate bodies accounting for VAT under a single registration number. DCM acts as the representative member.
[4] DCM is a partially exempt business for VAT purposes. The taxable income relates to the supply of frames, lenses, accessories, EC despatches of laser equipment, cosmetic dental kits and Careplan. The exempt supply is that of dispensing services, eye tests and laser surgery. As a result of making both taxable and exempt supplies, any input tax incurred by DCM is recovered by reference to a partial exemption method.
[5] Fortunately there was no dispute about the basic VAT principles and we do not require to rehearse the statutory provisions at length in this decision. It is settled law12 that an optician makes two distinct supplies. Of course the customer pays for both at the same time so section 19(4) Value Added Tax Act 1994 (“VATA”) comes into play. That requires VAT to be properly attributed (or apportioned to each supply).
[6] HMRC's VAT Information Sheet 08/99 consolidates guidance on the “Apportionment of charges for supplies of spectacles and dispensing by opticians”. 08/99 sets out the two methods of apportionment open to opticians, namely Full Cost Apportionment (“FCA”) and Separately Disclosed Charges (“SDC”). If the requirements for SDC are not met then FCA is the only other alternative. We annex at Appendix 1, Annex B from 08/99 which describes SDC and sets out what HMRC view as their relaxation of the strict statutory position. It is not legally binding but Mr Richardson agreed that it does bind HMRC.
[8] This hearing is in respect of six appeals, all arising from output tax related issues connected to the operation by DCM of its chain of opticians' stores throughout the UK. The input tax related issues have been the subject of past appeals and are now settled. There was one previous output tax appeal which settled.
[9] These appeals have a long history and have been subject to extensive case management.
[10] The six appeals were not consolidated but were heard together as there are a number of common themes in the appeals. The issue for the Tribunal was to make decisions in principle and not to address the precise quantum.
[11] On 15 August 2016, HMRC had lodged three strike-out applications in respect of portions of Appeals 3, 4 and 5. Those were opposed by DCM. By agreement, at the outset of the hearing, it was agreed that those applications be considered in the course of the hearing once evidence had been heard. On the fourth day of the hearing, it was agreed that the only extant strike out application that was opposed was that for Appeal 4. On hearing HMRC's argument on that application, Mr Legg sought leave to lodge an application for admission of a late appeal.
[12] We granted HMRC's applications and refused that for DCM. Our reasons for those decisions are to be found at the Footnote to this Decision.
[13] At 5.30pm on Friday 23 September 2016, DCM had produced to HMRC copies of what were described as 12 additional “receipts”, two of which...
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