In Subway (Staines Central) Limited v HMRC [2020] TC07943, the First Tier Tribunal (FTT) upheld HMRC’s assessment of under-declared output VAT and associated inaccuracy penalties.

  • Subway (Staines Central) Limited (the company) traded as a Subway franchisee.
  • The company’s VAT returns between May 2015 and February 2017 displayed 39% to 53% of standard-rated sales, which HMRC considered to be significantly lower than that normally seen in Subway restaurants.
  • HMRC undertook four covert purchases which identified staff members incorrectly zero-rated supplies which should have been standard rated having not asked the customer if they were Eating in or taking away.
  • HMRC conducted an invigilation exercise and concluded that 75.9% of sales should have been standard-rated and an assessment of £48,025 was raised.
  • The assessment was reduced to £37,568 on review by HMRC so as to be calculated on a VAT inclusive, rather than VAT exclusive, basis.
  • An Inaccuracy penalty of £6,198 was charged under Sch 24 FA 2007 at 16.5%:
    • HMRC considered the inaccuracy to be careless: the maximum penalty being 30% of potential lost revenue.
    • As a prompted disclosure, the minimum penalty chargeable was 15%.
    • Reductions totalling 90% were given for ‘helping’, ‘giving’ and ‘telling’.

The company appealed to the FTT, which upheld the assessment and penalties charged, finding:

  • The assessment issued by HMRC and the methodology underlying it was reasonable and it had been calculated to HMRC’s best of judgment based on the information available.
  • The penalty was validly charged and its amount correct.

Useful guides on this topic 

Food: catering and takeaway
If food is purchased from a supermarket, one rule may apply. If the same food is bought from a café a different rule could apply. There are also differences between hot food, cold food, food consumed on-premises, food off-premises.

Penalties: Errors in Returns and Documents
What penalties apply if you make an error or mistake? How are penalties calculated? How do you check penalties? What can you do if you receive a penalty?

How to appeal a tax penalty
What are the steps in making an appeal? What should your appeal cover? What does recent case law say on this topic?

External links

Subway (Staines Central) Limited v HMRC [2020] TC07943