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HMRC Letter re VAT on Toasted Subway sandwiches

Hi

A client has received a letter from HMRC accusing them of not charging VAT on all of their toasted sandwiches. They came to this conclusion comparing average VAT rates vs my clients VAT submissions.

HMRC has asked the client to recalculate what the VAT should have been should he have charged the VAT correctly. The client hasn't said to me what the process is re the actual treatment of the VAT is in the business. I constantly warn my Subway clients that HMRC has been focusing on this.

What advice do you have for me and the client - do we go to HMRC with our tails between our legs or seek legal advice?

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22nd Oct 2012 09:29

Subway letter

I have seen several of these. I take the view that HMRC are out of order threatening an assessment merely on the basis of a comparison of the effective VAT percentage with other taxpayers. There have not identified an error on a Return, so they cannot issue an assessment (s73(1)).

Since Subway have just lost the Upper Tier Appeal, and the next step is unknown (ie: whether Subway will appeal further), I would try to hold off HMRC for another 6-7 weeks.

But I would opt for a robust legal response, not a 'tails between our legs' approach.

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By tommyt
10th Jan 2013 23:41

What is the NORM?

leshoward wrote:

There have not identified an error on a Return, so they cannot issue an assessment (s73(1)).

 

Can this argument be used as a response to the initial notice sent by HMRC to Franchisees?

What would you consider to be the norm? I cannot see how you can even put a figure to it as every location is different. There are some locations in Cities where there is minimal seating, hence less eat-in sales. 

 

 

 

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22nd Oct 2012 13:30

I have to agree with Les

Assessments based on average comparison are fantasy land but it is clear that there are Subways out there who have not declared their VAT correctly (and still don't). We know this as we have been acting for Subways for many years and are well versed in the VAT tribunal case.

Where there have been recent rounds of vat assessments we were able to predict those few franchisees that would get them based on the sales vat that was being declared. What is your client's output vat that is being declared as a percentage of gross sales? You will be able to tell straight away if your client is not declaring accurately (and how far from the norm they are). Whilst stores obviously deviate in their selling of vatable food you can spot an incorrect Subway vat return a mile off!

Could you clarify exactly what you mean by: The client hasn't said to me what the process is re the actual treatment of the VAT is in the business.

We know of a firm that is acting on behalf of several franchisees on this very matter. They are vat experts (rather than legal) but know the job inside out. I can forward you details if interested.

 

 

 

 

 

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22nd Oct 2012 17:39

Quote

 

The HMRC says in its letter, "It would seem that you VAT returns are showing 49.23 to 62.42% standard rated sales. This does not seem accurate.

They then go on to ask that my client objectively review the amount or receive an assessment based on 87%.

If you could forward me the details of the VAT experts that would be great.

many thanks.

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22nd Oct 2012 20:33

VAT experts

A number of VAT experts are mentioned on AccountingWeb. You could send a private message to Alwaysreading or The Vat people, or even myself!

 

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23rd Oct 2012 11:53

I dropped you a pm with details

and can tell you that 87% is fairy land!

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11th Jan 2013 18:55

HMRC assessment and response

You can use a number of arguments to challenge HMRC's decision/assessment. In my opinion, the key is to submit an Appeal, and have it held over behind the main Sub One Appeal, which is now due to be heard at the Court of Appeal.

I have already seen a number of assessments based on figures over 80%. Rather than try to argue details, I go straight to Appeal.

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By tommyt
11th Jan 2013 22:24

HMRC assessment and response

leshoward wrote:

You can use a number of arguments to challenge HMRC's decision/assessment. In my opinion, the key is to submit an Appeal, and have it held over behind the main Sub One Appeal, which is now due to be heard at the Court of Appeal.

I have already seen a number of assessments based on figures over 80%. Rather than try to argue details, I go straight to Appeal.

I think that is very sound advice. Regardless of the theories, sales inspections and estimations being thrown around by HMRC a lot of headache will be saved if the Appeal goes in favour of Sub One & Co.

Do you happen to know when the Appeal is due to be heard?

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12th Jan 2013 16:25

Sub One Appeal

Sub One received permission to appeal shortly before Christmas. I am told the delay to the hearing is up to 2 year.

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By tommyt
14th Jan 2013 15:29

Sub One Appeal

I am guessing it will take some strong legal leverage to hold back the appeal for that sort of a period.

In the instance that Sub One win the appeal at the ECJ, am I correct in saying there will be a mountain of compensation claims from businesses that have gone under as a result of assessments have being actioned against them? If so this could be a real kick up the backside for HMRC & the tax payer.

 

 

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14th Jan 2013 16:19

Claims

indeed, there are numerous claims submitted by Subway franchisees. I have done millions of pounds worth, on a tiny fraction of the franchisee base. Of course, if the case goes against the taxpayer, then many franchisees will be out of business.

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