Dominion World Limited v The Commissioners for HMRC
[2024] UKFTT 828 (TC)
Abbeyford Caravan Company (Scotland) Limited v The Commissioners for HMRC
17 October 2024
[2024] UKFTT 928 (TC)
First-tier Tribunal
A caravan company found a much better way to calculate VAT on their sales. The tax office initially refused to accept the correction, but a judge ruled in favor of the company because the new method was significantly more accurate, and the difference in taxes was large.
Key Facts
- •Abbeyford Caravan Company (Scotland) Ltd. used a cost ratio method to apportion VAT between caravans and removable contents.
- •They discovered this method significantly overstated the value of removable contents.
- •They developed a new method using a valuation exercise by Savills, showing removable contents represented 5.2% - 8.51% of the sale price.
- •They submitted an Error Correction Notice (ECN) claiming £150,458.45 overpaid output VAT for 2018-2022.
- •HMRC accepted the new method for future calculations but rejected the retrospective claim, arguing no error existed.
- •The Appellant argued that the new method was substantially more accurate and should be applied retrospectively.
- •HMRC's manual stated that retrospective application is permitted if a new method produces a substantially more accurate attribution of values.
Legal Principles
The basic principle of the VAT system is to tax only the final consumer. The taxable amount cannot exceed the consideration actually paid.
Elida Gibbs Ltd v CCE (C-317/94)
Where a supply is part of a larger consideration, the supply is deemed to be for the part of the consideration properly attributable to it.
Value Added Tax Act 1994 (VATA 1994), Section 19(4)
If a more accurate method exists to apportion a single price covering multiple supplies with different VAT rates, that method should be used to calculate output VAT. Differences between the less and more accurate figures constitute an error.
Case reasoning
In VAT apportionment, there should ideally be only one correct method to ensure fairness and equality between taxpayers. While some evaluative judgment is involved, consistency of approach is critical.
Advocate General v. K E Entertainments Ltd [2020] UKSC 28
Apportionment should be based on the market value of the outputs unless the actual cost method accurately reflects the actual structure of the package.
MyTravel plc v Customs and Excise Comrs (Case C-291/03)
A new apportionment method can be applied retrospectively if it produces a substantially more accurate attribution of values than the old method.
HMRC VAT Valuation Manual reference VATVAL04300
Outcomes
Appeal allowed.
The Tribunal found the Appellant's new method was more accurate and produced a substantially more accurate attribution of values. The difference between the old and new methods (£150,458.45) was substantial, even when compared to the total output VAT. The Tribunal relied on the Supreme Court decision in K E Entertainments Ltd to support the need for a single, correct method.
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