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The taxpayers were retail opticians who made taxable and exempt supplies. They applied for the approval of a special method for the deduction of input tax under VAT Regulations SI 995 No 2518, Reg 102 based on an analysis of floor space. HMRC refused the application and this decision was upheld by the VAT tribunal. The tribunal had agreed with HMRC that its jurisdiction was simply limited to quashing HMRC's decision if it determined that it was unreasonable, whereas the taxpayer had contended that the tribunal had 'full' jurisdiction and could substitute its own decision for HMRC's if appropriate.
Before the Court of Session, both parties agreed that the tribunal did have full jurisdiction and the court agreed that this was the effect of VATA 1984, s 83(e). The purpose of VATA 1984, s 26(3) was to secure a fair and reasonable attribution of input tax to taxable supplies. Although the tribunal could not put forward its own special method, it could make suggestions as to how a method could be modified so that it would be approved. The taxpayer's appeal was allowed and the case remitted to the tribunal for it to make a decision on that basis.
DCM (Optical Holdings) Ltd v HMRC, Court of Session, 6 July 2007
