Best judgment

Ratio of zero-rated and standard-rated sales

The partnership traded as a café/takeaway pizza business. In November 2012 two HMRC officers visited the premises unannounced. They queried the split between standard and zero-rated sales on past VAT returns. These showed that 75% of sales were zero rated as cold takeaway food.

The taxpayers accepted that they had incorrectly zero rated hot takeaway food and also standard-rated items such as bottles of water. HMRC carried out two days of observation in June 2013 which established that only about 26% of sales should have been zero rated and that the daily takings of £514 and £408 were much higher than the daily average of £200 declared by the taxpayers.

HMRC raised an assessment for £28 436 using its powers of ‘best judgment’ given by VATA 1994 s 73(1). This was based on a zero-rated percentage of 30% and an explanation from...