Taxation logo taxation mission text

Since 1927 the leading authority on tax law, practice and administration

Victory for taxman in Wetherspoon VAT case

06 March 2009
Categories: News , Wetherspoon , VAT
UK can demand rounding up of fractions, rules ECJ

HMRC have marked a victory in the European Court of Justice (ECJ), which ruled in favour of the department in its legal battle with pub chain JD Wetherspoon.

The case concerned what method businesses should use in rounding fractional amounts for VAT purposes.

In 2004, Wetherspoon began to systematically round down to the nearest penny the amount of value added tax included in its prices, meaning the company reduced the amount of VAT it paid to the Revenue – which challenged the treatment. (More details can be found in Fraction frustration by Mark Ackrill.)

Wetherspoon appealed to the VAT tribunal and the matter was referred to the ECJ, which said that HMRC are free to require retailers to round up VAT fractions.

The court ruled that it is for member states to decide on the rules and methods of rounding amounts of tax, while remaining observant of the principles underpinning the common system of VAT - in particular, the principles of fiscal neutrality and proportionality.

The ECJ found that there is no specific obligation under EC law for members to permit rounding-down at item level, and the judges rejected the argument that the UK infringes fiscal neutrality through its practice of having more restrictive rounding rules for retailers.

HMRC welcomed the judgment, saying it ‘fully supports the UK’s approach to rounding of VAT amounts consisting of fractions of a penny’.

The department added: ‘The judgment also confirms HMRC are right to resist attempts by retailers to use sophisticated till technology to calculate and round down the VAT on each item sold, thus keeping some of the VAT collected from customers instead of paying it to [us].’

George Bull, head of tax at Baker Tilly, remarked that the case ‘could have cost the Treasury millions of pounds if Wetherspoon had been successful’.

He went on: ‘Retailers had been awaiting this judgment with baited breath, as a decision in their favour could have left them millions of pounds better off. Expectations had already been lowered, as the Advocate General had previously opined in HMRC's favour. This latest judgment finally dashes retailers’ hopes’.

Categories: News , Wetherspoon , VAT
back to top icon