Written approval required

The taxpayers ran a seaside café that offered eat-in and takeaway meals. They submitted VAT returns on the basis the business’s standard-rated sales were 30% of turnover.

HMRC carried out several invigilation visits and concluded that the percentage should be 90%. The department issued an assessment under VATA 1994 s 73 for £28 963 covering a four-year period and giving Revenue officials the power to assess tax on the basis of “best judgment” if they believed a return was incomplete.

The taxpayers appealed on the basis HMRC had approved during a 2004 telephone conversation the use of an apportionment scheme based on the percentage of standard-rated purchases invoices.

The tax authority said approval to use an apportionment scheme had to be in writing – and the taxpayers did not meet the conditions to use such a scheme as outlined in VAT Notice 727. The café...