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Increased standard-rated sales calculation was to best judgment

08 December 2022
Issue: 4869 / Categories: Tax cases
Neoterick UK Ltd (TC8652)

The taxpayer traded as a Subway franchise and started trading in January 2014. Two HMRC officers made separate test purchases in August 2017 and noted that toasted subs (hot food) were incorrectly treated as zero rated on both occasions. HMRC made the purchases because the taxpayer’s VAT returns submitted since January 2014 indicated that standard-rated sales were between 55% and 78% of total sales whereas an HMRC officer who specialised in compliance work at Subway outlets said that the average across the UK was 87%.

HMRC followed up its initial concerns by carrying out 12 hours of invigilation at the trading premises spread over two separate days in October 2017. The percentage of standard-rated sales on these days were recorded as 88.97% and 93.3% respectively much higher than the percentage shown on the company’s previous VAT returns. It was also noted that the till rolls showed zero ‘eat...

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