Specsavers Opticians loses VAT appeal case

Optical retailers are pondering the impact of optics’ latest struggle with the taxman this week after Specsavers lost its appeal against Customs’ decision to change the way it calculates the group’s VAT bill.

Mr Justice Etherton dismissed Specsavers’ appeal at the High Court on Tuesday (May 9) in a decision that could cost the Guernsey-based multiple millions of pounds.

In the late 1990s Customs agreed a ‘special method’ of partial exemption of VAT with Specsavers, but in 2004 a tribunal upheld a decision by Customs commissioners to rescind that special method and impose the ‘standard method’   see box for definitions.

Specsavers argued the standard method did not give a fair and reasonable recovery of input tax, the tax claimed back on goods purchased.

When the case was heard last month (News, March 31) Jonathan Peacock QC for Specsavers argued that the special method was more accurate than the standard one and that the decision to rescind was neither fair nor reasonable.

He said the tribunal should have resolved some matters of evidence for themselves, rather than simply relying on the reasonableness of the commissioners’ assumptions.

The judge however disagreed. ‘I am satisfied that the tribunal made no error of law in concluding, on the evidence before it, that, in the case of the appellants, the standard method achieves a fair and reasonable attribution of input tax,’ he said.

‘The Commissioners had considerable evidence, oral and written, of the actual use of the Specsavers Optical Group stores and made a site visit to the store at Eastbourne. The tribunal was therefore in a position to form a view about the way in which those stores were actually used.’

HM Revenue & Customs told Optician: ‘This decision confirms that HMRC were correct to withdraw approval for the Specsavers partial exemption special methods. HMRC are committed to tackling unfair partial exemption methods that do not reflect the use of costs in making taxable supplies.’

Accounting firm Alexander Edward Lee’s Andy Kontakkis said HMRC now had the necessary precedent to not only review other practices’ methods based on floor area but also impose the standard method where they see fit.