Split of standard and zero-rated food sales was made to best judgment

The taxpayer operated two Subway franchises in separate locations and had declared 58% of the sales on its past VAT returns as being standard rated and 42% as zero rated. The zero-rated sales mainly related to cold takeaway food excluding confectionary items and bottled drinks. All food and drink sales on the premises of the outlets was standard rated along with hot takeaway food.

An HMRC officer with experience of Subway outlets decided that 58% ‘seemed low’. He carried out eight test purchases on two separate days and on one occasion purchased a hot 12-inch tuna sub for £5.70 where output tax was recorded as 43p instead of 95p. A similar problem was encountered with the purchase of a 12-inch chicken strips sub.

The officer followed up his work by analysing Z-readings provided by the director for August 2018 which indicated that 78% of sales were...