Vision Express (UK) Ltd v Revenue & Customs

For residual input tax, an apportionment method must fairly and reasonably represent the extent to which inputs are used in making taxable supplies. In an open-plan retail optician’s business, the economic use of store premises cannot necessarily be measured by allocating physical floor areas to taxable, exempt and mixed activities. The dispensing process may remain medical care even when the optician moves through the display area, provided the activity is directed to correcting the customer’s vision. Rental zoning is inappropriate where the business operates as an integrated whole and the rent cannot fairly be attributed more heavily to one aspect of the business. Once an override notice under regulation 102A is valid, the appeal against that notice is determined without deciding whether the Commissioners’ later assessment adopts the correct replacement methodology.

Vision Express (UK) Ltd appealed from the decision of the VAT and Duties Tribunal, which dismissed its appeals against an override notice under regulation 102A of the Value Added Tax Regulations 1995 and an assessment seeking recovery of input tax. Vision Express operated partially exempt retail optician shops, making both taxable supplies of spectacles and contact lenses and exempt supplies of medical care. It had agreed a partial exemption special method based substantially on store floor areas, rental zoning and preceding-year figures.

The Tribunal found that the method did not fairly and reasonably attribute residual input tax to taxable supplies. The High Court considered whether the Tribunal had erred in law concerning the medical-care exemption, the fairness and reasonableness of the apportionment method, the use of zoning and historic figures, and the validity of the assessment in principle.

1. Appeals dismissed. The Tribunal had made no error of law in dismissing the appeal against the override notice and the assessment in principle.
2. The statutory scheme required residual input tax to be attributed by a method that fairly and reasonably represented the extent to which the relevant goods and services were used in making taxable supplies. The Tribunal’s assessment of that question was a value judgment reached on extensive evidence. An appellate court should be slow to interfere with it, applying the principles stated in Procter & Gamble UK v Revenue and Customs Commissioners [2009] STC 1990.
3. The dispensing optician’s service was therapeutic and directed to correcting the customer’s vision. It did not cease to be medical care merely because the optician moved from the dispensing desk into the display area. The Tribunal was entitled to find that the stores were used for the integrated supply of dispensed spectacles and contact lenses, rather than being divisible into wholly taxable retail areas and wholly exempt medical-care areas.
4. A floor-area method, particularly one treating the display area as wholly taxable, could not fairly and reasonably attribute residual costs where most of the store was used for mixed purposes. The use of rental zoning was also inappropriate. The business required the whole store, and the rent could not fairly be said to weigh more heavily on the taxable than the exempt aspect of the business.
5. The use of figures removed by a year, without adjustment for changes in the business, was inconsistent in principle with attributing input tax by reference to the supplies for which the inputs were used. The Tribunal’s conclusion on that point disclosed no error of law.
6. The appeal against the override notice concerned only whether regulation 102A was satisfied. Once the special method was found not to produce a fair and reasonable result, the notice was valid. It was unnecessary at that stage to determine whether the Commissioners’ later assessment supplied a satisfactory replacement method. The Tribunal had made no final decision on the rival calculations and its informal views did not create an appealable determination. The appeal against the assessment in principle therefore also failed.

The judgment states that the appeal was brought from the VAT and Duties Tribunal’s decision dated 14 November 2008. The Tribunal had dismissed appeals against the regulation 102A override notice and the assessment in principle. The High Court dismissed both appeals.