Banbury Visionplus Ltd v HM Revenue & Customs

An appeal concerning the replacement of a VAT partial exemption special method by the standard method is a full appellate review where the legislation does not reserve the relevant objective decision exclusively to the Commissioners. The tribunal must decide whether the replacement method secures, or better secures, a fair and reasonable attribution of input tax. A taxpayer should not be moved to a method that is less capable of achieving that statutory objective. Value-based output ratios may provide a reasonable proxy for the use of residual inputs. Profitability is not determinative where the statutory question concerns the use of inputs. The tribunal may rely on evidence of actual business use and reasonable assumptions where there is no cogent evidence to the contrary.

The appellant and three related Specsavers companies appealed from a decision of the VAT and Duties Tribunal, which had dismissed their appeals against HMRC’s termination of partial exemption special methods under regulation 102 of the Value Added Tax Regulations 1995. The Tribunal held that its jurisdiction was limited to reviewing the Commissioners’ reasonableness and, alternatively, that the standard method under regulation 101 was correct.

Before the High Court, the appellant challenged both the Tribunal’s jurisdiction and its conclusion that the standard method secured a fair and reasonable attribution of residual input tax under section 26(3) of the Value Added Tax Act 1994. The central issues were whether the Tribunal had full appellate jurisdiction and whether the standard method was at least as fair and reasonable as the existing special method.

1. Jurisdiction. The appeals were full appeals. Section 83(e) of the Value Added Tax Act 1994 conferred a general appellate jurisdiction. The question whether a method secured a fair and reasonable attribution under section 26(3) was objectively reviewable by the Tribunal. John Dee Ltd v Customs and Excise Commissioners (1995) STC 941 concerned a different statutory condition, which expressly entrusted the relevant assessment to the Commissioners. It did not require a limited jurisdiction in the present context.
2. Statutory objective. The discretion under regulation 102 had to be exercised to secure the statutory objective. It would be inconsistent with that objective to replace an existing method with one less capable of achieving a fair and reasonable attribution. The comparison therefore included whether the proposed method better achieved the objective than the method being terminated.
3. Standard method. The Tribunal made no error of law in finding that the standard method achieved a fair and reasonable attribution. The evidence supported a reasonable starting hypothesis that residual overheads were used in broadly similar proportions to the direct costs of the taxable and exempt supplies. The Tribunal was entitled to rely on evidence of the actual use of the stores and associated overheads. The absence of evidence demonstrating disproportionate use of residual inputs justified the conclusion reached.
4. Profitability and output ratios. Relative profitability was not the critical issue. The relevant question was the use of inputs in producing outputs. The similarity between the output-tax apportionment and the standard method was not conclusive, but was a relevant consideration on the evidence.
5. Override provisions. The Tribunal was also entitled to conclude that HMRC had properly declined to use regulations 102A and 102B. The override was an interim measure intended for exceptional circumstances and would have involved substantial compliance and audit difficulties. The appeals were dismissed.

1. VAT and Duties Tribunal: dismissed the taxpayers’ appeals and held that its jurisdiction was limited; it alternatively found the standard method correct.
2. High Court (Chancery Division): dismissed the appeals and held that the Tribunal had full appellate jurisdiction, but had made no error of law in upholding HMRC’s decision.