DCM (Optical Holdings) Ltd v Revenue & Customs [2010] UKFTT 393 (TC) (28 September 2009)

DCM (Optical Holdings) Ltd v Revenue & Customs [2010] UKFTT 393 (TC) (28 September 2009)

The proposed PESM, as revised to exclude zoning, is fair and reasonable because it logically and precisely apportions residual input tax based on the actual use of premises for taxable and exempt supplies. The standard method is not fair and reasonable in this context due to the distortion caused by high professional salaries. Zoning is not an appropriate factor for apportionment of residual input tax except possibly for rent, and its removal does not undermine the fairness of the PESM.

Citation
[2010] UKFTT 393
Parties
Appellant: DCM (Optical Holdings) Ltd; Respondents: The Commissioners for Her Majesty’s Revenue and Customs (VAT)
Jurisdiction
United Kingdom
Judgment Date
28 September 2009
Procedural Posture
Appeal / Merits Hearing Following Remittal From Court of Session
Outcome
Provisional approval of the revised PESM (excluding zoning) as fair and reasonable; final decision deferred pending parties' submissions on severability of zoning.
Legal Topics
Partial Exemption Special Method, Residual Input Tax, Apportionment of Input Tax, VAT Exemption for Medical Services
Tax Law VAT Law Partial Exemption Special Method Residual Input Tax Apportionment of Input Tax VAT Exemption for Medical Services

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Parties

DCM (Optical Holdings) Ltd

Appellant

The Commissioners for Her Majesty’s Revenue and Customs (VAT)

Respondents

Procedural Posture

Appeal / Merits Hearing Following Remittal From Court of Session

Legal Issues

  1. 1 Whether the proposed Partial Exemption Special Method (PESM) based on floor area is 'fair and reasonable' under VAT Regulations 1995, Regulations 101 and 102
  2. 2 Whether the standard method produces a fair and reasonable apportionment of residual input tax
  3. 3 Whether zoning of floor area is an appropriate factor in the PESM

Ratio Decidendi

The proposed PESM, as revised to exclude zoning, is fair and reasonable because it logically and precisely apportions residual input tax based on the actual use of premises for taxable and exempt supplies. The standard method is not fair and reasonable in this context due to the distortion caused by high professional salaries. Zoning is not an appropriate factor for apportionment of residual input tax except possibly for rent, and its removal does not undermine the fairness of the PESM.

Court Disposition

Provisional approval of the revised PESM (excluding zoning) as fair and reasonable; final decision deferred pending parties' submissions on severability of zoning.

Orders

  • Parties invited to make submissions on whether zoning is severable from the PESM before final approval.
  • Costs reserved for final decision.