First-tier Tribunal (Tax)

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Kassabieh v Revenue & Customs [2009] UKFTT 86 (TC) (05 May 2009)
VAT - ASSESSMENTS
Best judgment

[2009] UKFTT 86 (TC)

TC00054

Appeal number LON/2005/1284

VALUE ADDED TAX - Take-away business - Invigilation and test purchases carried out - Assessments on basis suppression shown on day of test purchases alone - Whether best judgment - Appeal allowed in part

FIRST-TIER TRIBUNAL TAX

BRENDA MARGARET KASSABIEH

Appellant

- and

THE COMMISSIONERS FOR HER MAJESTY'S REVENUE & CUSTOMS Respondents

Tribunal:

MISS J C GORT (Judge) MR G MILES

Sitting in public in Bristol on 18 March 2009

Mr M Kassabieh, the Appellant's husband, appeared on her behalf

Mr J Holl, advocate, of the solicitor's office, for the Respondents

@ CROWN COPYRIGHT 2009

This is an appeal against three assessments to value added tax in respect of the period 01/02, 07/02 and from the periods 10/02 to 04/04. The first assessment was in the sum of £2,031, calculated on 20 January 2005, in respect of the period 01/02. This assessment was subsequently reduced by a notice of amendment of assessment dated 1 August 2005 to the sum of £560. There had initially been an assessment to a penalty for misdeclaration in respect of this period which was notified to the Appellant on 13 April 2005 in the sum of £304, but this was subsequently withdrawn by a letter dated 12 August 2005 and no further penalty liability was notified. The second assessment was in the sum of £456 for the period 07/02, and was calculated on 1 August 2005. The final assessment in the sum of £3,255 was calculated on 31 October 2005 and notified to the Appellant on 1 November 2005.

The grounds of appeal state:

"That the assessments raised are incorrect as they are assumptions on two days that happen (sic) from the 1/1012003 to 25/612004. We have explained as best as possible these problems. I enclose copies of my letters dated 9 March 2005 and 14 July 2005. We will refer to the contents of these letters below."

The background

The Appellant carried on business running a tandoori restaurant trading as "Meenar Tandoori" from premises in Bristol. The business was registered for VAT with effect from 16 November 1998, being the transfer of a going concern. The business was deregistered with effect from 1 June 2006.

Whilst Mrs Kassabieh was the registered owner of the business, she was not involved in the day-to-day running, beyond signing the value added tax returns. Her husband, Mr Mohammed Kassabieh, was responsible for the running of the business.

The officer ofHMRC who had conduct of the enquiry into the business, Mr M D Revett, an officer from the tax evasion team of HMRC, made an unannounced visit to the premises with a colleague on 31 July 2003. On that occasion he met Mr Kassabieh and recorded inter alia that the type of business was a takeaway restaurant which did home delivery. Free beer and wine was given with some takeaways or it was for sale on the premises. A seating area at the back of the restaurant was not open but there was a small seating area at the front. The restaurant was opened between 5.00pm and 11.00pm on Sundays, it was closed on Mondays. The rest of the week it was opened between 5.00pm and 11.30pm except for Friday and Saturday when it was opened until1.00am. Mr Kassabieh gave the average weekly takings as between £1,300 and £1,600 per week, the average take for a Friday and Saturday is between £260 and £300 on each day. There was one full-time employee and one parttime. The business did not use a till, but there was a till present which was used merely as a cashbox. Cashing up was done each night by counting the float, counting the number of meal slips which were issued and adding up the cash marked on the slips. One slip was quite frequently used to record two different customers. The VAT records were completed by an accountant.

Three different officers carried out test purchases on 1 October 2003 between the hours of 16.30 and 20.30. None of the officers who carried out the test purchases had been required by the Appellant to give oral evidence to the Tribunal; their witness statements were read. They had recorded inter alia that one customer who came in paid in cash for a pack of four cans of Blackthorn cider, which was not noted in the book into which the order of the officer in question had been noted, the money going straight into the till. The same officer, a Mr Boobyer, in addition to his meal, had paid for a bottle of lager with a £2 coin, this was put straight into the till and was not noted down. His own order had been noted into an A5-size blue triplicate notebook. No such notebook was ever produced to HMRC when further investigations were carried out.

Following the test purchases, which had all been noted down by the respective officers, the returns were examined for the relevant period, namely 10/03. The records were obtained from the accountants, but none of the test purchases were found. The records from February 2003 to April 2004 were obtained and a breakdown of the weekly take was compiled by HMRC. From this it was concluded that the turnover was relatively static, in the sense that the takings for each day were comparatively similar. It was noted that the sales for Friday and Saturday were on average under 50%, whereas the officers expected, on the basis of their past experience of such businesses, that the take on those days would be over 50%. On the day of the test purchases, only ten purchases had been recorded. The average daily take for a Friday over the period examined was £202.05. It was decided to carry out an invigilation exercise and Mr Revett and a colleague arrived at 16.3Opm on Friday 28 June 2004. The invigilation was carried out by six officers in relays of two leaving at 01.00. Mr Kassabieh was at the premises throughout that period. The number of customers throughout that period was counted, and the takings in the till were added up. There was a slight discrepancy of £18.25 between the cash counted and the meal slip total. This was never satisfactorily explained. At the end of the evening the total takings according to the meal slips were £504.45, after a reconciliation the total amount of cash was £495. This amount was considerably greater than the average calculated from the documents taken from the accountant. Mr Kassabieh told the officers that this particular evening was exceptional and a Friday take was normally in the region of £280-£300. The restaurant closed at 23.50 hours that evening, not 1.00am as was usual. Two other Saturdays were also found where the takings were similarly high.

Following the invigilation, Mr Revett worked out a suppression rate of 52% for that particular evening, basing his calculations on the average take for a Friday as shown from the records. He applied the figure of 52% to all previous periods back to 10/02.

Copson Grandfield Ltd, Chartered Accountants, acted on behalf of the Appellant and a meeting was arranged at the accountants' premises on 2 September 2004 to discuss HMRC's findings with Mr Kassabieh and the accountant, Mr Grandfield. There is no record of that meeting but in a subsequent letter Mr Revett refers to a comment made by Mr Kassabieh that there may have been problems with his staff when he was not on the premises. Mr Grandfield had requested a schedule detailing the purchases made by the officers on 1 October 2003 and this was supplied to him subsequently. That schedule is in the documents seen by the Tribunal. There was considerable correspondence between HMRC and Mr Grandfield, but as there was no agreement between the parties, on 18 January 2005 Mr Revett issued a protective assessment for the period 01/02 in the sum of £2,031 on the basis of a suppression rate of 52% because the time limit for issuing an assessment was due to expire. The assessment was subsequently issued on 25 January 2005. By a letter dated 9 March 2005 Mr Grandfield purported to appeal against the assessment. He disagreed with the suppression rate of 52%, stating that 25 June 2004 was an unusual night because on 24 June 2004 England had lost the football match to Portugal in the quarter final of the European championship and trade had previously been slow. In that letter he stated:

"As you say in your summary (this is not before the Tribunal) ordinarily an evening's invigilation is not sufficient on its own. Your test of 1 October 2003 does not confirm a suppression has occurred as on the night of 25 June 2004 the till was £22 short and my client was with your colleague most of time. As he explained he is not always at the premises when they are open.
Also if the takings have been suppressed why had they not increased by 52% since your visit, this has not happened.

Lastly, my client has had unusual day's takings before.

7 May 2002 £898.60

7 June 2002 £516.65

Had you visited the premises another one or two times and your findings were the same then I would agree there is a problem but on one visit there is no evidence."

The above letter was treated by HMRC as a request for a reconsideration and this was subsequently carried out by Mr Bingham, who initially asked a series of questions of Mr Grandfield by a letter of 23 March 2005. There had in the meantime on 13 April 2005 been a Notice of Assessment to a Misdeclaration Penalty issued by the Commissioners in the sum of £304. Mr Bingham enquired as to why on 1 October 2003 all three of the purchases made by the officers who had visited the premises on that date failed to be included .in the meal slips uplifted by Mr Revett. Secondly with respect to 30 September 2003 to 2 October 2003, from the meal slips uplifted, which he believed were the basis for the Appellant's takings records, it appeared that there were eleven sales on 30 September, and ten each on 1 and 2 October. Of those 31 sales, a total of 15 appeared to have been telephone orders, as the meal slips showed an address and/or telephone number. He asked whether it was really the case that there were only sixteen "walk-in" customers over those three days. Thirdly, he asked Mr Grandfield if he had any comments regarding the point that had been made. in respect of the takings on 7 May 2002, 7 June 2002 and 25 June 2004. Mr Bingham was not convinced by Mr Grandfield's suggestion that the European Championships had a bearing on the night of 25 June. He pointed out that Friday June 7th was an exceptional week, it being the week of the Golden Jubilee, and there was a double bank holiday. Mr Bingham also asked for the Appellant's daily takings records for 2003 and 2004 along with confirmation of, the basis for the figures. Whilst Mr Grandfield did reply to this letter, there was nothing of substance in his reply. He merely informed HMRC that the Appellant's takings had declined since the visit, and the shop was currently on the market. No records were supplied at the time; however they were subsequently produced.

On 14 July 2005 Mr Grandfield wrote to Mr Bingham saying in part as follows:

"I am happy for the appeal to be dealt with as a local reconsideration.

1. I understand what you are saying, but an owner cannot be at his/her business twenty-four hours a day and you have to rely on the honesty of your staff. Two part-time staff were sacked before your visit in June 2004 and one since because my client could not trust them.

2. 30 September 2003 to 2 October 2003 these dates are a Tuesday, Wednesday and Thursday and I enclose a schedule of takings for three months, in which there is no material difference on these dates for three months, apart from the 10th, 11th and 18th October 2003.

3. Enclosed are copies of sales from 1 November 2003 to 31 January 2005.

There are several questions you need to ask yourself

(a) If my client was suppressing sales by 52% then why since your visit have they not increased? (b) Why is my client selling his business because the sales were 52% high he would not need to sell."

By a letter dated 27 July 2005 Mr Bingham informed Mr Grandfield that, as a consequence of his review and Mr Grandfield's comments, he did not believe it correct that the suppression rate of 52% calculated by Mr Revett as a result of the takings recorded on 25 June 2004 should be used as a basis for an assessment. Instead it was proposed to base the assessment on a suppression rate of 23 %, on the basis of the records for October 2003, the day of the test purchases. The actual suppression rate on this basis was 23.08% up, but it was rounded down for the purposes of calculating the amount to be assessed. The new amount for the pemGd 01/02 was £560 and the Misdeclaration Penalty was withdrawn. Mr Revett subsequently raised an assessment in the sum of £426.53 for the period 07';02 and,the Appellant was notified that a further assessment would follow. This subsequent assessment for the periods 10/02 to period 04/04 in the sum of £3,255 was issued on 27 October 2005, being also at a suppression rate of 23%. It appears .from the correspondence that the likelihood of such an assessment being issued was raised at the meeting on 30 September 2004. On 22 August 2005 Mr Grandfield submitted a completed notice of appeal and pointed out various matters which he considered relevant, in particular the fact that the Appellant's turnover had increased gradually between the years 2003 and 2005. He pointed out various matters relating to the details given by the officers present on 1 October 2003, asking why the officers' observations of the duplicate book varied, and why they had not asked for a receipt or mention to reserve them. The length of time over which the enquiries were taken was queried and it was put that it had not been well conducted and the workings were all based on assumptions. These matters were all answered at length by a higher officer of HMRC. They were not accepted as undermining the assessment.

By a letter dated 22 August 2005 sent to the Tribunal Mr Grandfield raised various questions. He asked why the officer's observations in the duplicate book varied, and why they had not asked for a receipt or copy and they did not mention who had served them. He also queried why there was such a gap between the purchases on 1 October and the subsequent visit in June the following year, and then a gap until September before the findings were discussed. He pointed out that since 25 June 2004 the client's takings had increased in line with other years, and suggested that had he been suppressing takings, then a change would have occurred straightaway. He pointed out that all the officer's workings were based on assumptions. By a further letter dated 27 March 2006 addressed to a Mr AIderton at HMRC appeals and reconsiderations team, Mr Grandfield asked for a reconsideration of the various time limits for the issuing of the VAT assessments. All the points raised in relation to the timing of the issuing of the assessments were answered fully by Mr Alderton in a letter dated 13 April 2006 and we do not propose to set out Mr Grandfield's argument here as he took no issue with Mr Alderton's reply, and the matter of the timing of assessment was not raised before us.

The Tribunal heard evidence both from Mr Revett and Mr Bingham on behalf of HMRC and also from Mr Kassabieh on behalf of the Appellant. An agreed bundle of documents was provided.

It was significant that in the course of cross-examination Mr Bingham, when asked about the initial assessment on the basis of a rate of suppression of 52% said that he had decided that this was not an assessment that HMRC wished to uphold on best judgment. Subsequently in the course of the hearing the assessment for the period 01/02 was withdrawn in its entirety and the appeal continued on the basis of the assessments for the period 07/02 and 10/02 to 04/04.

Mr Kassabieh's evidence was to the effect that he had had four staff in the shop but shortly before the first visit by HMRC he had had to dismiss two members because he was "not happy" with them. He implied that they had been stealing. He accepted that some time receipts were missing, his explanation being that the staff sometimes put them into the bin. He himself was responsible for the cashing up every night and if money was missing, he would make it up himself. It was he said more frequently the case that drinks went missing. He had found that bottles of wine had been missing on certain occasions, and staffhad denied taking them.

He described the night of the invigilation as being exceptionally busy, and never having had such a rush in the past. He accepted that taking the lower average weekly take of £1;300 which he had. given t9 the officers, his annual turnover would be £67,000. Mr Grandfield had submitted figures for the annual turnover as being £52,137 up to 31 January 2003, £54,910 up to 31 January 2004 and £57,784 up to 31 January 2005. At the time the officers came Mr Kassabieh informed us that he had been very busy as he had been running another business where he had to be in the morning. He had no explanation as to why the sales to the officers were not found in the records. Nor was he able to explain why, for all the previous Fridays the average was £235, whereas on the day of the invigilation there was £495 cash taken. He denied having a challenger type notebook, as described by the officers, but suggested that maybe the staff had run out of the normal slips.

The case for HMRC was that the Appellant had not satisfied the burden of proof that was on her. The figures provided by Mr Kassabieh on the initial visit, namely that the average weekly turnover was between £1,300 to £1,600 should be accepted, but this was out of line with the returns. Secondly the test purchases themselves had not been challenged, and Mr Kassabieh had been present on the day of the invigilation. Best judgment had been used on the indicators available.

Reasons for decision

Whilst we consider that it was quite proper for HMRC to withdraw the assessment for the period 01/02, nonetheless as there is an appeal before us with regard to that assessment it is proper for us to allow that appeal. With regard to the two subsequent assessments that were issued, on the evening of 1 October 2003 the Appellant had declared 10 sales, none of which was made to the officers. Therefore, 3 sales out of 13 were not declared, giving rise to a suppression rate of 23%. The subsequent invigilation suggested a greater level of suppression, but we consider it quite right that, given the possibility of that evening being exceptional, and the absence of further test purchases or invigilation exercises being carried out, that the lower suppression rate should be applied.

We do not accept the contentions made on behalf of the Appellant, namely that two days of checks did not provide enough information on which to base assessment covering more than two years, nor that the information from the test purchases carried out was riddled with enough inconsistencies to cast doubt on the whole evidence, nor that the conclusions drawn from the invigilation exercise did nbt allow for the specific circumstances of that day, nor that other information relating to the business suggested that no suppression had taken place. Mr Kassabieh's own evidence regarding the dismissal of two members of staff related to their being suspected of taking bottles of wine, not cash or till slips. There had been reference made to another member of staff being dismissed subsequent to the June 2004 visit, but Mr Kassabieh's oral evidence did not confirm this. No names of staff were provided and evidence regarding their existence was generally unsatisfactory. The alleged inconsistencies contended for on behalf of the Appellant in the meal purchase schedule were not such as to invalidate the officers' observations. We do not consider it reasonable to accept that the invigilation day was exceptional due to England's termination of their involvement in the European Championship the previous day. The suggestion that only very low offers were received for the business whetl it was put up for sale was an indication that the business was not flourishing we consider to be quite the opposite of reality. If the books had shown a turnover in line with the minimal £67,000 per annum suggested by Mr Kassabieh, as opposed to the book figures of around £53,000 per annum, more interest might have been shown in the business.

In all the circumstances we are satisfied that in issuing the two assessments with which they are concerned the Commissioners did use best judgment and the Appellant has failed to discharge the burden upon her to show that this was not the case. The appeal with regard to periods 07/02 and 10/02-04/04 is dismissed.

There is no order for costs.

MISS J C GORT TRIBNAL JUDGE
RELEASED: 5 May 2009