A London restaurateur claims to have won his 18-month battle with the Inland Revenue, following an investigation into his business's tronc scheme which nearly brought it to its knees.
An ecstatic Nick de Bastarrechea, who has run the family-owned Hardy's restaurant in Marylebone for 20 years, accused the Revenue of acting illegally and in ignorance of a ruling made in the 1970s.
He claimed: "I have beaten them. They are hiding away in their offices with their tails between their legs."
Hardy's faced tax demands of more than £41,000 (up to £80,000 including penalties and interest) when Revenue inspectors concluded that de Bastarrechea had been "interfering" with the tronc scheme.
He was accused of failing to subsidise the 3% commission deducted by card issuers on each transaction. The penalty was then backdated to Hardy's last inspection in 1998.
De Bastarrechea decided, against advice, to fight the case and extensive research led him to the Sheldon Doctrine (see panel). This was a Parliamentary answer which stated that when tax inspectors had given a written ruling on tax with full possession of the facts, they could only penalise firms from the day a problem was pointed out.
De Bastarrechea argued that his tronc scheme had been running for 15 years and had passed all previous IR inspections. Therefore, they could charge him only from the day the error was highlighted - in December last year.
The Revenue has now dropped all its claims against Hardy's.
The Revenue confirmed its ignorance of the Sheldon Doctrine. "We can only presume that this may refer to some statement in Parliament made by a former Treasury minister - Robert Sheldon - but it is not something of which we are aware," a spokesman said.
Steve Wright, a partner at accountancy firm Vantis, agreed that restaurateurs could use the Sheldon Doctrine in the right circumstances.
De Bastarrechea has now introduced a new Revenue-endorsed scheme for tips that does away with the tronc. Instead, card customers are offered a cashback option, which customers can use to tip waiters if they wish.
The sheldon doctrine
"Where an officer, with the full facts before him, has given a clear and unequivocal ruling on VAT in writing, or it is established that an officer knowing the full facts has misled a trader to his detriment, the Commissioners will only raise an assessment based on the correct ruling from the date the error was brought to the attention of the registered person concerned." Hansard, 21 July 1978, col 426; C&E Notice 48
Source: Caterer & Hotelkeeper magazine, 30 September 2004