Langrick & Anor v Customs and Excise [2003] UKVAT V18205 (25 June 2003)

	VALUE ADDED TAX — overpayment — optician — second or supplementary claim — purely a question of fact — appeal dismissed

MANCHESTER TRIBUNAL CENTRE

 
 	
	G LANGRICK AND D G COE	Appellants

	- and -

	THE COMMISSIONERS OF CUSTOMS AND EXCISE	Respondents

				Tribunal:	Mr R L Barlow (Chairman)

Sitting in public in Birmingham on 20 May 2003  

Alan Rashleigh of Alan Rashleigh and Company for the Appellants

James Puzey counsel instructed by the Solicitor for the Customs and Excise for the Respondents

	© CROWN COPYRIGHT 2003

DECISION

1.	The appellants practise in partnership as opticians in Oakham, Rutland, and have done so at all times material to this appeal.

2.	The appeal is against a decision of the Commissioners dated 8 December 1997 by which the appellants were informed that what was described as a ‘second voluntary disclosure’ would be refused.  In essence the appellants were thereby told that a claim they had made for an overpayment of VAT was refused.  That claim was made under section 80(1) of the Value Added Tax Act 1994 which provides as follows:

“(1) Where a person has (whether before or after the commencement of this Act) paid an amount to the Commissioners by way of VAT which was not VAT due to them, they shall be liable to repay the amount to him”.

3.	The appellants had claimed a repayment on 2 August 1996 and that was paid to them in full, though agreement as to part of that claim had been delayed until it was clarified that the three year limit placed on some such claims with effect from 18 July 1996 would not apply.

4.	The claim with which this appeal is concerned was made on 4 August 1997 and it is contained in schedules attached to a letter from Newby Castleman, chartered accountants.  The schedules show an overpayment of £20,017.36 for the periods from 02/89 to 11/95, after taking account of payments already made on VAT returns.  That figure did not take account of the repayment already made following the 2 August 1996 claim but a note to the schedule made it clear that what was being claimed was the balance between the sum thereby being claimed and the original claim which had been paid.  Accordingly a sum of £7,208.36 is actually in dispute.

5.	Both the original claim and the amended claim now under consideration arose because of the judgment of the High Court in Customs and Excise –v- Leightons Ltd and others [1995] STC 458.  That case had decided that when an optician supplies spectacles the dispensing services are a separate exempt supply and not purely ancillary to the taxable supply of the spectacles.  

6.	Many opticians, including the appellants, had been paying too much tax because they had not treated the dispensing services as exempt.  However the amount by which they had overpaid was not readily ascertainable in most cases because the opticians had not separately identified the price of dispensing services on such documents as were issued to their patients.    

7.	As so many potential claims were similar and as the Commissioners recognised that it would be a difficult task to quantify the correct sums due, the Commissioners issued a series of business briefs setting out methods that they would accept as appropriate methods of calculating what was due.  These were referred to in the hearing as methods agreed with the opticians’ professional bodies but, although the briefs do refer to negotiations, it seems doubtful that they represent actual agreements in all cases.  

8.	I hold that even if the methods were agreed with the professional bodies there is no question of individual opticians being bound by them.  Section 80 of the VAT Act provides the basis for a repayment and an agreement to which the appellants are not party cannot on any view restrict their right to claim under that section.

9.	At an earlier stage in the dispute it had been suggested that a second repayment claim cannot be submitted for the same period as an earlier claim but it was decided in Hayward Gill Associates Ltd –v- Customs and Excise Commissioners (unreported 15635) that that is incorrect and Mr Puzey did not seek to argue to the contrary.

10.	The question whether there has been an overpayment may involve questions of law or fact or both.  In this case the law was clarified by the Leightons case and neither party raised any point of law about the transactions that gave rise to the second claim.  The principal issue is therefore one of pure fact, namely did the appellants pay too much tax to the Commissioners during the period of the claim.  Customs and Excise have not suggested that the original repayment was too great.  No unjust enrichment is alleged.  The Commissioners have not suggested that the tribunal has no power to examine the quantum of the claim.  The issue is therefore the purely factual one as to by how much, if anything, the overpayment by the appellants exceeded the amount already re-paid to them. 

11.	The burden of proof lies upon the appellants and the standard of proof is the normal civil standard.

12.	The respondents have asserted that the tribunal should adopt the same approach as a differently constituted tribunal had done in a case called Michael Green (unreported 14844) in which the tribunal had set out the method by which it intended to approach a similar issue to the one before me.  In particular Mr Puzey invited me to require the appellants to prove that the amount payable, if any, was fair and reasonable and that it would be appropriate to take into account in determining that issue the methods of calculation put forward in the business briefs and any earlier calculations put forward by the appellants and the reasons for the change to those earlier calculations.  In addition, Mr Puzey invited me to follow the approach of another tribunal in C L Dyer (unreported 16053), which Mr Puzey said had decided that the appellant must show the calculations being put forward on a revised or subsequent claim produce a more fair and reasonable result than the first claim.

13.	Those cases are ones in which the tribunal set out the approach it had adopted on the facts of the cases presented to it but I do not think that either establishes any principle to be followed in later cases.  Certainly the tribunal must attempt to produce a fair and reasonable result, it would be absurd to attempt anything else, but I do not agree that the methods set out in the business brief necessarily provide the starting point for consideration of the purely factual issue before the tribunal.  What the tribunal must do is to reach a conclusion as best it can on the evidence presented and bearing in mind where the burden of proof lies.  It is also relevant to have regard to the fact that the transactions in question are all ones conducted by the appellants and that their knowledge of the manner in which they conducted their business should put them in a reasonably good position to produce the necessary evidence.

14.	In order to understand the appellants’ case in respect of the revised claim it is necessary to explain the basis of the original claim.  

15.	The original claim was based purely on the ‘fixed mark up’ method, being one of the methods set out in business brief 19/95.  By that method small businesses were allowed to mark up standard rated purchases of frames and lenses by 40% and pay VAT on the basis that that was the value of their standard rated sales in respect of spectacles.  The appellants’ accountant stated in his letter dated 4 August 1997 that they had applied the 40% to all sales in the original calculation, not just to spectacles, but that in respect of accessories the true mark up was lower and should have been 25%.  The revised calculation then applied the 25% mark up to all purchases, apparently including spectacles. 

16.	Mr Rashleigh submitted that the application of the 25% mark up to all purchases was justified on the basis that the 40% mark up agreed with the trade bodies as applying to spectacles gave a starting point for the VAT on those items.  Clearly, a mark up of 25% on accessories and 40% on spectacles could not give an overall average of 25% but Mr Rashleigh contended that spectacle cases and cleaning cloths were given away with spectacles and that they were marked up at 0% which meant that the 25% average for all goods was the correct figure because the 0% items made up for the difference between whatever the mark up on spectacles might be and the 25% contended for.

17.	The appellants submitted only very limited information about the actual mark ups on sales and this related to sales of accessories.  They gave information about ten lines which they said were the ten most popular accessories but all those lines were cleaning solutions and each had a very similar mark up averaging 24.93% which the appellants rounded to 25%.  In evidence Mr Coe, the only witness who gave oral evidence for the appellants, stated that other lines which were not prescribed spectacles, such as sunglasses, had higher mark ups than cleaning fluids but that very limited sales of these other lines were achieved and that the cleaning fluids were 80% of accessory sales.  He later added that 80% was ‘very much an estimate’.  He also explained the difficulties he had encountered in obtaining price lists from suppliers which were necessary to establish the correct mark ups because sales were made at recommended prices.

18.	Mr Rashleigh asked Mr Coe about spectacle cases and he said that if someone bought a really nice pair of spectacles they would be given an expensive case but otherwise only a few of the expensive cases were sold.    

19.	I accept that Mr Coe was speaking mainly from memory and from a distance in time at that.  I also accept that his evidence was entirely truthful.  None the less I have to conclude that that evidence falls well short of evidence that would prove, even on a balance of probability, that an overall mark up of 25% was what was achieved in the business at the relevant times.  Unless some other evidence shows that to be the case the appeal will therefore fail.

20.	In fact, Mr Rashleigh put forward alternative calculations on the ‘full cost apportionment’ basis which showed that 50.44% of sales must have been taxable.  The method of calculation was based on the annual accounts.  First the professional costs were calculated by taking the salaries of dispensing staff, the net profits (equating to the partners’ earnings), subscriptions and motor expenses and comparing those professional costs with the figure for professional costs plus cost of sales in the accounts to arrive at the percentage of exempt sales at 49.56%, leaving the balance as taxable sales.  Mr Rashleigh compared that percentage with the percentage arrived at by the application of the ‘cost plus’ method to purchases in 1995 marked up at 24.93% for 80% of purchases and 40% for the rest to arrive at a weighted mark up of 28%.  That calculation suggested that tax had been over declared and that the taxable percentage would be close to the 50.44% arrived at by the full cost apportionment figure put forward.   

21.	However, as the purchases figure for the cost plus calculation, just described, agrees with the schedule on which the original claim was based and as that schedule is stated, by the accountants who produced it, to have included spectacles in the purchases, the result is that Mr Rashleigh’s calculation of an overall 28% mark up, based on selling prices of accessories, has been applied to spectacles.  There is no evidence to support a 28% mark up on spectacles and so that alternative calculation does not advance the appellants’ case.

22.	I would add that the contention that cases and cloths provided with spectacles were marked up at 0% has not been proved.  As a matter of law those items were supplied with the spectacles as part of the same supply, being ancillary to that main supply and a better means of enjoying it.  It would be more realistic to treat the spectacles, cases and cloths together so far as calculation of a mark up is concerned.  It may well be that the result is the same whether the mark up is calculated as if on the spectacles alone or on all three items taken together.  The cost of the goods to the appellants will be the same whether the sale price is attributed to one or all of them and the overall mark up will be the same whether it is notionally applied to the spectacles(with cases and cloths treated as nil mark up), or all three.  If spectacles are sold at a 40% mark up from the suppliers’ prices then clearly the mark up is less than 40% if the cases and cloths are supplied with the spectacles without any addition to the amount charged to the patient. 

23.	 However, no evidence was given as to the actual mark up on spectacles except that Mr Coe said he did not think 40% was wildly inaccurate.  No evidence was given at all as to the cost of cases and cloths.  It follows that unless the cost of cases and cloths was such as to reduce the mark up on spectacle sales (including cases and cloths) to an overall figure of 25%, the appellants are asking the tribunal simply to apply the mark up for accessories to all sales.  In the absence of evidence that cases and cloths did reduce the spectacles’ mark up to 25% the appellants are really asking the tribunal to apply the accessories mark up across the full range of sales.  Even that argument goes too far as the appellants’ evidence leads to the conclusion that the mark up on accessories is higher than 25%, though perhaps not by a great deal, because of occasional sales of sunglasses and cases.

24.	In light of the above findings the appeal is dismissed.  Mr Puzey did not ask for costs and there will be no order for costs.

Mr R L Barlow
Chairman.
Release date: