In Abbeyford Caravan Company (Scotland) Ltd v HMRC [2024] TC09324, the First Tier Tribunal (FTT) found that a company could use a new and more accurate method of apportioning output VAT between sales of caravans and sales of their removable contents.
The supply of a caravan is liable to VAT at either the reduced rate or zero rate, with the standard rate being charged on the removable contents. This leads to the question of Apportionment.
- Abbeyford Caravan Company (Scotland) Ltd (ACCSL) originally submitted their VAT returns using an apportionment of the two elements adopted by the manufacturer.
- ACCSL realised this may not truly reflect the real apportionment between the caravan and its contents. Using an expert, ACCSL undertook a detailed valuation exercise resulting in a much lower percentage of the cost being allocated to the standard-rated removable contents.
- HMRC accepted the 'new method' as more accurate.
- Error Correction Notices were submitted by ACCSL covering four years.
- HMRC accepted the new method for future VAT returns but rejected past claims on the basis that no error had occurred.
- ACCSL appealed to the First Tier Tribunal (FTT).
ACCSL argued that:
- HMRC’s internal manuals allowed for a retrospective change in methods provided the new method gave a more fair and accurate attribution of the value.
- HMRC's guidance states a business must be able to prove the new method is not only fairer and more accurate but also must produce ‘substantially’ more accurate results. ACCSL argued that the rebate of £150,458.45 was substantial.
- If a taxpayer declares VAT following a less accurate method, instead of the newer more accurate method, the figure produced by the old method is an error.
HMRC argued that:
- The old method, being standard procedure, was not incorrect and ACCSL could not retrospectively change methods.
- The guidance clearly states that another method may be used by a business if they did not think the old method was fair and accurate. It was ACCSL's decision to use the old method, assumed to be right at the time, therefore no error occurred.
- The repayment only represented 5.8% of total output VAT which they deemed not substantial. Referring to Regulation 107C, a difference is substantial if it exceeds £50,000 or 50% of the amount of any input VAT in any accounting period or longer period, but not less than £25,000.
Both parties referred to the Supreme Court decision in The Advocate General v K E Entertainments [2018] CSIH 78 in which bingo sales could be apportioned using different methods.
The FTT found that:
- HMRC accepted that the new method was correct and following the K E Entertainments case, found that there can only be one method of calculating the output tax to achieve fairness and equality.
- The difference in output VAT over the four-year period was substantial and there was no requirement to resort to the VAT legislation to reach this decision. It was noted that ACCSL did meet the legislative requirements each year, regardless.
The appeal was allowed.
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Abbeyford Caravan Company (Scotland) Ltd v HMRC [2024] TC09324
