The ECJ has recently ruled in favour of HMRC in the Wetherspoon “roundings” case.
The case concerned whether or not retailers could “round down” to the nearest penny the amount of VAT it paid on each item. HMRC believed that Wetherspoons should follow the practice set out in VAT Notice 700 (see sections 17.5 and 17.6) which only allows rounding down in certain circumstances.
Wetherspoons believed that the rules set out in Notice 700, which are stricter than in many other EC countries, were counter to the concept of fiscal neutrality. This means that businesses across the EC should be subject to the same or similar rules so that businesses cannot benefit by doing business in one country over another.
The ECJ ruled in favour of HMRC.
The ruling is important for any retailer who uses “rounding” on an item by item basis as it means that HMRC can follow their existing policy. Any retailer who has followed the practice adopted by Wetherspoons will have underdeclared their VAT. They will be required to calculate the underdeclared VAT and make a voluntary disclosure to HMRC.
HMRC have not yet commented in detail on the ruling, but this is an important victory for the department and I’m sure that they will respond in the near future!