First-tier Tribunal (Tax)

[2009] UKFTT 83 (TC)

TC00051

Appeal number: LON/2006/0507

Value Added Tax – Best judgment – Restaurants (takeaway and eat in) – Whether agreement on zero/standard rated supplies pursuant to Reg.67(1) VAT Regs – Yes – Whether two days invigilation sufficient to make best judgment assessment – Yes – Appeal partly allowed

FIRST-TIER TRIBUNAL

TAX

MITHRAS (WINE BARS) LTD Appellant

and –

THE COMMISSIONERS FOR HER MAJESTY'S REVENUE & CUSTOMS Respondents

Tribunal: DR K KHAN (Judge)

MRS R S JOHNSON

Sitting in public in London on 17-24 February 2009

Mr T Brown, Counsel, for the Appellant

Mrs P Crinnion, Advocate, for the Respondents

CROWN COPYRIGHT 2009

DECISION

Introduction

1. The disputed decision of the Commissioners of HM Revenue and Customs ("the Commissioners") are three assessments.
2. The first assessment dated 31 March 2006 (reference 60328/9/00247) ("March Assessment")), as amended, is for the period 03/03 and is for £21,144.00 tax and £5,011.18 interest giving a total of £26,155.18 (as per amended Notice of Assessment issued on 19 July 2006).
3. The second assessment dated 30 June 2006 (reference 60628/9/005310) ("June Assessment")) this relates to the period 06/03 and was for the sum of £23,755 tax and no interest (as per amended Notice of Assessment 9 November 2006).
4. The third assessment dated 25 June 2006 (reference 60721/9/00616) ("July Assessment") covered the period 09/03 to 12/05 inclusive). The assessment was for £308,608 of tax with no interest (as per amended Notice of Assessment 31 October 2006).
5. The assessment is in the name of Mithras (Wine Bars) Ltd ("Mithras") which comprises a number of restaurants and takeaways at various addresses in the City of London.
6. The assessments were for Chapters Delis 1-6 (03/03 to 12/05) and Bar Capitale 1 and 2 (03/03 to 12/05).

Background

7. Mithras was registered for VAT under number 245049665, with effect from 28 March 1977. The Appellant was registered as a limited company incorporated on 28 March 1977 (reference 01305358). Its Principal Place of Business is Room 123, Warnford Court, 28 Throgmorton Street, London EC2N 2AT.
8. The directors of the company are Romano Sidoli, Alisandra Marshall, Marco Sidoli, Luigi Sidoli, Maria Francis, Anita Sidoli.
9. The Commissioners' visit to the Appellant can be divided into two periods. Between 9 March 1977 and 8 April 2003, the Commissioners visited the Appellant's premises to verify that their VAT returns and particulars were correct. During some visits the business organisation and structure were discussed while at other visits the records, mark-ups and profits percentages and audit trails were checked. At other times, there was a checking of a random selection of purchase invoices in the day book, cash reconciliation was undertaken and point of sale schemes were verified. The meeting on 8 April 2003 with officer Jan Baltruschat confirmed the business organisation and structure and record keeping and also confirmed that the Appellant was using and applying the catering scheme calculation and he audited the records for the periods 03/02, 06/02 and 12/01.
10. In the period 28 November 2005 to 14 March 2006 there were various visits and meetings between the Commissioners and the Appellant. The first visit was booked on 28 November 2005 by Officer Dean Walton, who conducted a VAT inspection on 10 January 2006 accompanied by Officer Sharon Kenny. A thorough review of the business organisation and structure and record keeping was established. The number and type of restaurants/bars, pizzerias and delicatessen/sandwich bars was also established. Officer Walton was particularly concerned about the liability of sales being applied to each of the premises. At the time of the visit, the liabilities were verified as follows

"WINE BARS/RESTAURANTS

(1) Mithras Wine bar, 18 Walbrook, EC4

Seated accommodation on two floors

Opening Hours – 0800-2200 Monday-Friday 100% standard- rated

(2) Swithins Wine Bar/Restaurant, 21-23 St Swithins Lane, EC4

Basement restaurant over two main rooms

Opening hours – 0800-2200 Monday-Friday 100% standard- rated

PIZZERIAS

(3) Bar Capitale 1, 14 Walbrook, EC4

Opening hours – 0730/0800-2100 Monday-Friday

47 seats outside & 65 seats inside

£12/13/head eat-in

Take-away food – selection of sandwiches/Thai & hot Italian daily specials

% Standard-rated split not tested but declared by trader as being 50% 2 tills

DGT calculated by 'Z' reads – meal bills retained too

(4) Bar Capitale 2, Poultry, EC2 (Basement of Mansion House)

Opening hours – 0730/0800-2100 Monday-Friday

45-50 seats inside & a number of seats outside

Take-away food – selection of sandwiches/Thai & hot Italian daily specials

% Standard-rated split not tested but declared by trader as being 50% 2 tills

CHAPTER DELICATESSANS

(1) Chapters 1 – Sold Jan/Feb 2006

166-170 Bishopsgate, EC2

Opening hours 0600-1630

Average meal cost £4-£5

Std-rated proportion (not tested) – declared as being 30%

Selection of cold sandwiches, drinks confectionery & hot daily specials

8 Seats outside, none in – no waitress service

(2) Chapters 2

50 Bishopsgate, EC2

Opening hours 0600-1630

Average meal cost £4-£5

Std-rated proportion (not tested) – declared as being 30%

Selection of cold sandwiches, drinks confectionery & hot daily specials

(3) Chapters 3 – sold November/December 2005

(4) Chapters 4

70 Cannon Street, EC4

Opening hours 0600-1630

58 seats throughout premises

Std-rated proportion (not tested) – declared as being 48% (fallen from 75%)

Selection of cold sandwiches, drinks confectionery & hot daily specials

2 tills (to be confirmed)

(5) Chapters 5 – Opened March 2002

Poultry, EC2

Opening hours 0600-1630

8 seats outside & 4 seats inside

Std-rated proportion (not tested) – declared as being 40%

Selection of cold sandwiches, drinks confectionery & hot daily specials

1 till

(6) Chapters 6

106 Leadenhall Street, EC3

Opening hours 0600-1630

32 seats & 5 stools inside

3 tills

Std-rated proportion (not tested) – declared as being 48% (fallen from 75%)

Selection of cold sandwiches, drinks confectionery & hot daily specials"

11. The second visit by Officer Walton accompanied by Officer Kenny was undertaken on 12 January 2006 where the business record was inspected and audited. A selection of till "Z" reads in respect of Bar Capitale (Pizzeria) premises and Chapters (Delicatessen) premises between the periods 18 February 2004 to 25 November 2005 were inspected to determine the standard rate to zero-rate split. A further appointment was fixed for 2 February 2006. The purpose of this visit was to inspect and audit the business records in more detail in respect of Bar Capitale. Officer Walton considered that the Appellant was not sufficiently testing the standard rated to zero-rates percentages and was not satisfied with the credibility of the output tax declarations either in value or the basis used in calculating the declarations. The Commissioners agreed with the Appellant to undertake an invigilation exercise.
12. On 21 February 2006, the officers led an invigilation exercise. The exercise was conducted at Chapters 2 and 4 Delicatessen simultaneously. The exercise was undertaken as follows:

Chapters 4 Delicatessen, 70 Cannon Street. The float was checked in respect of Till A and was recorded as £100 float plus £20 from the day before (opening cash). The invigilation sheets for this premise and till run from 06:28 hours to 15:30 hours.

Chapters 4 Delicatessen, 70 Cannon Street. The invigilation sheets for this premise and Till B run from 12:08 hours (open at 12:00 noon) to 15:30 hours.

Chapters 2 Delicatessen, 50 Bishopsgate. The invigilation sheets for this premise and Till A run from 06:45 hours 15:05 hours.

Chapters 2 Delicatessen, 50 Bishopsgate. The invigilation sheets for this premise and Till B run from 06:45 hours to 16:16 hours.

The cashing up sheets for Chapters 4 tills A & B and Chapters 2 tills A & B were retained.

Z reads in respect of chapters 4 tills A & B were uplifted from the appellant's business premises and a receipt given.

The weather on the day was recorded on the invigilation sheets as very cold, windy and wet.

Officer Walton accompanied by Officer Alison Smith arrived at Chapters 2, 50 Bishopsgate, EC2 at 07:00 hours on 21 February 2006 and introduced themselves to the manager. Officer Walton checked the float and confirmed with the manager that the display of hot breakfast goods was heated via a top light. Officer Walton also noted the types of zero-rated items sold. AT 07:20 Sue Antoniazzi (bookkeeper) arrived at Chapters 2 and had a brief discussion with Officer Walton. Between 07:30 and 08:00 Officer Walton noted a selection of three trays of sandwiches/salads was delivered to the premises.

13. Officer Walton wrote to the Appellant on 1 March 2006 requesting a meeting to discuss a suitable method for determining the liability of its supplies in the future and the liability of supplies made in the last three years. The meeting was held on 14 March 2006 and was attended by Officers Walton and Kenny and for the Appellant Mr Marco Sidoli (director), Miss Sue Antoniazzi (bookkeeper) and Mr Roger Woolf (accountant). The meeting discussed the invigilation exercise of 21 February 2006, standard rated/zero-rated percentage split for sales at both Bar Capitale and Chapters Delicatessens and the historic percentages applied by the Appellant when compared with percentages calculated after the invigilation exercise and analysis of till "Z" readings. The parties agreed that the accountant would make proposals on percentage splits by 21 March 2006. The bookkeeper indicated that self-invigilation exercises had been conducted on 22 February 2006. The Commissioners indicated that they had not seen these self-invigilation figures.
14. The Commissioners collated various figures into a spreadsheet for the business. These included the figures from invigilation exercises, manual invigilation exercise sheets, analysis of till "Z" reads standard/zero rated splits as well as the Appellant's working sheets used to prepare the VAT returns for both Chapters and Bar Capitale and their daily gross taking figures. The spreadsheets compared the Appellant's calculated zero-rated to standard rated splits. On 17 March 2006 HMRC provided the Appellant's accountant (Mr Roger Woolf) with a detailed analysis of the VAT rates splits and takings in respect of both Chapters Delis and Bar Capitale.
15. On 28 March 2006 the Commissioners received copies of manual income and expenditure figures for the Appellant, which were their working papers for VAT period 12/05 but no change in the basis for determining the standard rate to zero rate split in sales. The Commissioners made the March Assessment and on 27 April 2006 the Appellant appealed the decision and assessment.
16. On 22 May 2006, HMRC officer Karen Marsh wrote to the Appellant requesting alternative calculations of standard rated to zero-rated sales for consideration. On 23 May 2006 the Appellant wrote saying that they were unable to accede to this request to provide an alternative calculation.
17. On 31 May 2006 a meeting was held between the Commissioners and the Appellant. The meeting was attended by Mr Vaughn Chown (VAT representative from Vantis Tax Ltd advising the Appellant), Mr Luigi Sidoli (Director of Mithras) Tim Moynihan (legal representative of Mithras) and HMRC Officer Kevin O'Connell. The main purpose of the meeting was to review the takings record and subsequent standard rated to zero-rates splits that had been measured following the installation of new tills. At the meeting, the Appellant indicated that there were "glitches" in the installation and programming of the new tills and the figures were not available. There was a general discussion on the invigilation exercises of 21 February 2006. The meeting concluded that the Appellant would review the VAT returns made for the periods 03/03 to 09/05 inclusive and provide their comments on the liability.
18. On 19 June 2006, the Appellant wrote to the Commissioners providing evidence regarding the zero-rated to standard rated splits of sales from incorporation of the new tills by way of till "Z" read analysis taken between 9 May 2006 to 16 June 2006 in respect of Bar Capitale 1 and 2 and Deli 4.
19. On 27 June 2006 HMRC Officer Walton wrote to the Appellant in reply to their letter of 19 June 2006 and requested a meeting on 5 July 2006 to observe and record the operations of the newly installed tills and to obtain from the tills details of the liability coding of individual items pre-programmed in the till and any other information which would help to determine the ongoing VAT liability of the Appellant. The Officer made further comments on the Appellant's alternative calculations submitted with their letter of 19 June 2006 as follows:

"(a) Records to support calculations in letter of 19 June 2006

As explained on the telephone I need to understand how the percentages were derived from the supporting records. In addition to your client's working papers, for each of the premises covered by the calculation I would like to see the following supporting documentation:

(i) 'Z' reads & any associated management reports

(ii) Audit rolls

(iii) Meal bills issued (if appropriate)

From a brief look at the calculations provided by your client, my understanding is that your client has applied the percentages derived for the period 11/05/06 through to 16/06/06 equally over the previous three years. This appears to be inconsistent with the approach described in your letter.

Finally in relation to this point, I am surprised that your client has placed reliance on the till records drawn from a time when there were acknowledged to be 'glitches'. I have received no comment on this point made in my follow-up notes from the meeting of 31/05/06.

It had been expected that the main purpose of the meeting today was to review the takings records and subsequent standard-rated/zero-rated splits that had been measured following the installation of new tills. We were disappointed that no such information was readily available owing to glitches in the installation and programming of the new tills.

Could your client therefore explain what has occurred since the meeting to allow me to place reliance on these records at this stage?"

(b) Regarding the comments by the Representative that HMRC had based their computations on till rolls for the period 03/02 and not 03/03, and the assessment should be vacated, and the records had not been returned to the appellant, the officer stated:-

Loss of records reviewed by HMRC officers

I wrote in November 2005 requesting that the supporting records for the previous three years be made available for the booked visit in January 2006. At the visit I was presented with a series of cardboard boxes, one for each available month, clearly labelled with the premises and month covered as supporting documents for your client's VAT returns. As previously described, I reviewed some of the available records selecting days from each period where possible to verify the declarations made by your client. After the final visit to the administration office, I took your client's VAT Working papers and issued an official receipt for these documents. These documents were returned a few days later and a receipt obtained for them. A copy of that receipt is enclosed. At no point did either myself or my colleague, Sharon Kenny, remove any of the 'Z' reads or audit rolls as presented to us. In fact, as the records were so disorganised (each box contained 50-60 'Z' reads and pieces of audit roll in no order whatsoever) distinctly recall replacing the reviewed 'Z' reads into separate envelopes labelled with the month they related to so that, if the need arose, your client would easily be able to review my workings against his own records. It is disappointing that these records have now been mislaid. However, you will recall that a number of the 'Z' reads that we reviewed were correlated with the takings books stored in the main administration office which reassures me that the 'Z' reads related to the dates stated in my note book, that of my colleague and subsequent calculations issued to you and your client.

I can confirm however that I have some till reports dated 21 February 2006 obtained from one of the premises that was the subject of our officer invigilation exercise in February 2006."

20. On 30 June 2006 the June Assessment was issued.
21. On 5 July 2006 Officers Walton and O'Connell visited the Appellant (with their lawyer and accountant) and discussed the following:

(i) The operation of tills and how used to determine

the VAT liability.

(ii) A brief review of audit rolls in respect of Chapters Deli 4.

(iii) An extension of time in respect of a potential hardship hearing.

(iv) Additional information required.

(v) A way forward in determining the VAT liability for the periods 09/03 and later.

22. On 6 July 2006, Officer Walton requested additional information in support of the Appellant's alternative calculation by 19 July 2006. On 19 July 2006 the Appellant wrote to Officer Walton with revised calculations of the standard rate to zero-rate percentage splits from the incorporation of the new tills with till "Z" read analysis taken between 9 May 2006 to 12 July 2006 in respect of Bar Capitale 1 and 2 and Deli 4. These revised calculations increased the standard rated split when compared to the Appellant's previous computation on 19 June 2006.
23. On 20 July 2006 the Appellant wrote to Officer Walton with regard to the operation of tills, review of audit rolls and "Z" reads at Chapters Deli 4 and comments on a way forward. On 21 July 2006, Officer Walton wrote to the Appellant in respect of the assessment raised for the periods 09/03 to 12/05, inclusive for the sum of £378,252. This indicated that the assessment had been raised as a result of analysis of the Appellant's records, mainly till "Z" readings, between May 2006 and July 2006 to establish and quantify the split between standard rated and zero-rated sales at Bar Capitale 1 and 2 and Chapters Delis 1, 2, 3, 4, 5 and 6. On 25 July there was issued July Assessment. On 10 July 2006 the June and July Assessments were appealed.
24. On 8 August 2006, Officer Walton wrote to the Appellant concerning the following matters:

(1) that he had reviewed the Appellant's letter of 20 July 2006 and considered its contents had no significant bearing either on the size or basis of the assessment and

(2) that the records used to establish the underdeclaration would be made available to the Appellant.

25. On 24 August 2006 the Appellant submitted revised grounds of appeal requesting that the assessment for the VAT period 09/03 to 12/05 in the sum of £318,262.00 VAT and £41,594.68 interest be consolidated with the appeal.
26. On 23 October 2006 Officer Karen Marsh wrote to the Appellant regarding the reduction of all three assessments. Assessments were reduced following analysis of till rolls submitted by the Appellant on 19 July 2006.
27. Finally on 20 November 2006, the Appellant wrote to HMRC regarding the amended assessments and pre-calculated standard rated to zero rated percentage split in sales which were described in the Commissioners' letter dated 23 October 2006. They confirmed that they did not wish to pursue the matter of the liability of ciabatta, sausage rolls and bacon rolls as part of the grounds of appeal and confirmed their wish to pursue with the substantive appeal. No issues of estoppel, previously raised, were stated to be grounds of appeal.

The law

Power to Assess

28. Under s.73 VATA 1994

"73(1) Where a person has failed to make any returns required under this act (or under any provision repealed by this Act) or to keep any documents and afford the facilities necessary to verify such returns or where it appears to the Commissioners that such returns are incomplete or incorrect, they may assess the amount of VAT due from him to the best of their judgment and notify it to him."

Retail schemes

Value Added Tax Regulations 1995, Regulations 67 and 68

"67-(1) The Commissioners may permit the value which is to be taken at the value, in any prescribed accounting period or part thereof, of supplies by a retailer which are taxable at other than the zero rate to be determined by a method agreed with that retailer or by any method described in a notice published by the Commissioners for that purpose; and they may publish any notice accordingly.

(2) The Commissioners may vary the terms of any method by –

(a) publishing a fresh notice,

(b) publishing a notice which amends an existing notice, or

(c) adapting any method by agreement with any retailer

68. The Commissioners may refuse to permit the value of taxable supplies to be determined in accordance with a scheme if it appears to them –

(a) that the use of any particular scheme does not produce a fair and reasonable valuation during any period,

(b) that it is necessary to do so for the protection of the revenue, or

(c) that the retailer could reasonably be expected to account for VAT in accordance with regulations made under paragraph 2(1) of Schedule 11 to the Act.

Best Judgment

29. This has been covered in the decisions in the cases of Van Boeckel v Commissioners (1981) and Rahman 1 (1998) and Rahman 2 (2003).

Duty to keep Records

30. Under Schedule 11 VATA 1994

"6(1) Every taxable person shall keep records as the Commissioners may by regulations require, and

6(3) The Commissioners may require any records kept in pursuance of this paragraph to be preserved for such period not exceeding 6 years as they may require."

Cases referred to

GUS Merchandise Corp Ltd v Customs & Excise Commissioners (No.2) [1993] STC 738

GUS Merchandise Corp Ltd v Customs & Excise Commissioners (No.2) [1995] STC 279 (CA)

Tesco plc v Customs & Excise Commissioners [1994] VATTR 425 (VTD 12740)

The Boots Company Plc v HM Revenue and Customs [2008] VAT Tribunal Case No. 20644

J&N Buttigieg t/a The cottage Café 2000 VAT Tribunal Case No. 16758

Rahman (No. 17) [1998] STC 826

Rahman (No.2) [2003] STC 150

Aziz UR Rahman 2003 VAT Manchester Tribunal Case No. 18159

Gio Bar Ltd 2008 VAT Tribunal Case No.20573

Van Boeckel v customs and Excise Commissioners [1981] STC 290

Commissioners of customs & Excise v Pegasus Birds Ltd [2004] STC 1509

HMRC Notices

HMRC Retail Schemes, Notice 727 (March 2002) ("Notice 727")

HMRC Catering and Take-Away Food, Notice 709/1 (February 2007) ("Notice 707/1")

The Appellant's case

31. The Appellant has three core submissions.

1. That there was a binding agreement between the Commissioners and the Appellant for the use of a 70%-30% split of zero to standard rated supplies for Delis 1, 2 and 3. The agreement arises either pursuant to the Catering Adaption Scheme ("CAS") which was varied or that the Appellant could not operate the CAS as a matter of law because its turnover exceeded the limit, and therefore it was an agreement under the first part of Regulation 67(1) VAT Regulations 1995/2518 ("VAT Regulation")

2. The Appellant's percentage calculations, which form part of its VAT returns for the periods in question for Delis 4, 5 and 6 and Bar Capitale's 1 and 2 were correct since the percentage split for Delis 1-3 were correct pursuant to the first submission. The relevant percentages therefore were 70%-30% zero to standard rated supplies with the exception of Deli 5 which was rounded off to 40%.

3. The last submission is stated in the alternative. If the Tribunal finds against the Appellant under submissions 1 and/or 2 that the quantum of the VAT assessments is incorrect because the percentage calculated on the basis of two days invigilation and on Mr Walton's evidence of four days records should be disregarded then the only reliable figures are those which have been presented by the Appellant which are based on over 30 days trading figures using the new/re-programmed till introduced in 2006.

32. The Appellant as an overall point has asked the Tribunal to bear in mind the similarities between outlets. Delis 1, 2 and 3 are likely to be similar percentages with the highest zero-rated sales since they are essentially take-away businesses. Delis 4 and 6 are likely to be those with the lowest zero-rated sales, since they are largely eat in premises. Deli 5 provides a mix of eating and takeaway while Bar Capitale 1 and 2 are likely to be similar which is a mix of eating and takeaway.
33. This is not a case involving an allegation of suppression of sales.
34. The Appellant has refuted standard rated to zero-rated percentages presented by the Commissioners as follows:

Bar Capitale 1 83 : 17

Bar Capitale 2 84 : 16

Deli 1 31 : 69

Deli 2 31 : 69

Deli 3 31 : 69

Deli 4 68 : 32

Deli 5 68 : 32

Deli 6 68 : 32

The Commissioners' case

35. The Commissioners say that the assessment is conducted to the best of their judgment and is therefore correct and the appeal should be dismissed.
36. The Commissioners based their argument on a number of points. They say that the Commissioners have never formally agreed the split of 30/70 standard/zero rated sales at Delis 1-3 and further that the Appellant can provide no evidence of self-invigilation at each of the Delis and Bar Capitale 1 and 2. The form 465A where an entry had been made by a visiting officer indicating a split of 30/70 was purely a note made of the Appellant's split as noted by the officer. There was no agreement by the Commissioners to that split.
37. The Commissioners say that a thorough analysis and review of the Appellant's business and trading was undertaken. The core business activity was established by looking at the Appellant's website. The trading activity at each business premise was established and the manner in which each premise recorded sales through the full audit trail to the VAT declaration was examined. The accounting records were produced for examination as well as the Appellant's own record of daily takings. The daily takings figure was verified from till Z readings and supporting audit rolls. The examination of the audit rolls was used to confirm whether the correct liability had been established at the point of sale and whether the percentage split between standard and zero-rated sales was correctly recorded. Specific dates were selected.
38. With Bar Capitale 1 and 2 some audit rolls were available which enabled the Commissioners to verify the correct liability. The Commissioners were able to establish the full food order trail from point of sale to VAT working papers though some could not be verified due to missing till rolls and disorganised records. A similar situation was found with regard to Delis 1 to 6. An invigilation exercise was undertaken for a single day. The invigilation exercise noted the time of sale, items sold and whether the value was standard or zero-rated. A separate sheet was used to record each till sale and full details were recorded of the cashing up procedures for each till. These figures were used by the Commissioners who compared them to the percentage declared by the Appellant and found that the 30% standard rates at Delis 1 to 3 was not substantiated.
39. The Commissioners felt that the point of sale method for establishing liability i.e. the exact liability established at the point of sale and Z readings was the only way to establish the true split between zero and standard rated sales.
40. The Commissioners found that the annual turnover for the Appellant's premises exceeded the threshold limit requirement stated for using the CAS and therefore this was not an appropriate method for establishing the split between standard rated and zero rated sales in this case.
41. The Commissioners have also said that the Appellant has failed to comply with the conditions in Public Notice 709/1 whereby satisfactory evidence must be retained to support a fair and reasonable apportionment.
42. The Commissioners did not believe there was any evidence to support the Appellant's argument that there were great seasonal variations between hot and cold food served at the various outlets.
43. The Commissioners used the average standard rated percentage split over the periods 03/03 to 12/05 and included the Appellant's till analysis for the period 19 May 2006 to 12 July 2006. The Commissioners say that a fair and reasonable method to determine the zero/standard rate split is to use the average of the invigilation exercise (one day each at two premises) results of 21 February 2006, the till and Z read analysis for the period 19 May 2006 to 12 July 2006 and other days in the period 03/03 to 09/05 together with figures provided by the Appellant to arrive at the average standard rated to zero-rated split.
44. The Commissioners say that the Appellant's argument that the till Z reads for the period May and June 2006 should be used to calculate the average standard rated to zero rated split of sales and then extrapolate this figure backwards to all in date VAT periods to calculate the VAT underdeclaration is not valid. The Commissioners maintain that their revised system is more accurate.
45. The Commissioners believe therefore that best judgment was applied.
46. Let us look now at the evidence and law.
47. We shall look at this appeal following the submissions of the Appellant. There are three submissions. The first submission is that there is a binding agreement between HMRC and the Appellant for the Appellant to use a 30/70 split of zero and standard rated supplies for Delis 1, 2 and 3. If this is upheld, then the Appellant's second submission is that the agreement would apply to Delis 4 and 6 and Bar Capitale 1 and 2. The third submission, is stated in the alternative, that if the Tribunal finds against the Appellant on submissions 1 and/or 2 that the quantum of the VAT assessed is incorrect because the percentages calculated by the Commissioners on the basis of two days invigilation and four days record should be disregarded. The only reliable figures are those provided by the Appellant which are based on over 30 days trading using the new/reprogrammed tills.
48. Let us look at the first submission, which is whether there is an agreement between the parties on the supply split. The Appellant says that this agreement exists either because the Commissioners varied the CAS or the Appellant could not operate the CAS as a matter of law because its turnover exceeded the limit and therefore it was an agreement under the first part of Regulation 67(1) VAT Regulations 1995 ("VAT Regulations") as one not relating to a Notice.
49. The Appellant says that there was a binding agreement between themselves and the Commissioners for the 30/70 standard to zero-rated split. Let us look at this argument.
50. Businesses which deal directly with the public are not always required to issue detailed invoices for their sales. The Commissioners can allow "retailers" to operate special arrangements known as retail schemes in determining the amount of output tax they would have to account for on sales. The retail schemes are therefore designed to simplify for retailers the calculation of their VAT liability and the need to calculate VAT on each individual sale. They are authorised by paragraph 2(6) of Schedule 11 to the Value Added Tax Act 1994 ("VATA"), as follows:

(6) Regulations under this paragraph may make special provision for such taxable supplies by retailers of any goods or of any description of goods or of services or any description of services as may be determined by or under the regulations and, in particular –

(a) for permitting the value which is to be taken as the value of the supplies in any prescribed accounting period or part thereof to be determined, subject to any limitations or restrictions by such method or one of such methods as may have been described in any notice published by the Commissioners in pursuance of the regulations and not withdrawn by a further notice or as may be agreed with the Commissioners; and

(b) for determining the proportion of the value of the supplies which is to be attributed to any description of supplies:; and

(c) for adjusting that value and proportion for periods comprising two or more prescribed accounting periods or parts thereof.

51. The Regulations referred to in paragraph 2(6) are Regulation 66-75 of the VAT Regulations. The relevant regulation, Regulation 67 and 68 provides:

67-(1) The Commissioners may permit the value which is to be taken as the value, in any prescribed accounting period or part thereof, of supplies by a retailer which are taxable at other than the zero rate to be determined by a method agreed with that retailer or by any method described in a notice published by the Commissioners for that purpose; and they may publish any notice accordingly.

(2) The Commissioners may vary the terms of any method by –

(a) publishing a fresh notice,

(b) publishing a notice which amends an existing notice, or

(c) adapting any method by agreement with any retailer.

68. The Commissioners may refuse to permit the value of taxable supplies to be determined in accordance with a scheme if it appears to them –

(a) that the use of any particular scheme does not produce a fair and reasonable valuation during any period;

(b) that it is necessary to do so for the protection of the revenue, or

(c) that the retailer could reasonably be expected to account for VAT in accordance with regulations made under paragraph 2(1) of Schedule 11 to the Act.

52. Pursuant to these provisions, the Commissioners published Notice 727 which therefore has the force of law. This Notice 727 is an introduction to the retail schemes and provides guidance as to how to choose a retail scheme. The version of Notice 727 in use before 1997, which is relevant for our purposes, described a number of schemes from Scheme A to Scheme J. Paragraph 41 of Notice 727 refers to catering supplies and stated that a trader could use either Scheme A or F of the schemes described in the Leaflet Number 709/2, Catering and Take-Away Food. A copy of the later version of this Notice 709/1 (February 2007)) was made available to the Tribunal.
53. The form VAT 465A, summary of trading activities and records, completed by HMRC officer Bridgman in March 1997, stated that the Appellant operated a Retail Scheme F for its Delis with a 30-70% standard to zero-rated split. This would be for Delis 1, 2 and 3, which were operating at the time. Retail Scheme F operated for traders and separated takings at different rates of value added tax at the time of sale. The wine bars were listed as having a Retail Scheme A, which was available to the trader if they only made standard rated supplies. The VAT Form 465A is dated 23 March 1977 and required, as a condition, that the till readings be retained for six years and till rolls, restaurant bills and bar tabs be retained for one year, as part of the business records.
54. VAT 465C (Report on visit to trader) prepared by Mr Bridgman described the Appellants records as "consistent and credible". There was a recommendation at the end of the report that the Appellant be visited within a year to carry out till checks and to test credibility of the business. .
55. The businesses which were listed on VAT 465C (listed as an Appendix to 465A) are:

1. Mithras Wine Bar 18 Walbrook, EC4

2. Swithins, 21-23 St Swithins Lane, EC4

3. Chapters Wine Bar, Basement 166 Bishopsgate EC2

4. Chapters Deli (1) Ground Floor 166 Bishopsgate EC2 and

Chapters Deli (2) 50 Bishopsgate EC2

56. VAT 465E, (Annual Accounts Analysis Table) stated that the turnover was £1.9m in 1993 and £2.086m in 1994.
57. A visit was booked for 17 April 2003 with Maria Francis, a director of the Appellant, who also prepared the VAT return. The visiting officer was Mr J Baltruschat. The Appellant was required to have prepared and ready relevant records, accounts and other documents dating back three years. The purpose of the visit was to "assist you in meeting the VAT requirements in rendering accurate VAT returns and to answer any VAT queries or problems that you may have". (Letter of 14/03/03 from the Commissioners to the Appellant).
58. The note transcripts of Officer Baltruschat show that he had seen Andrew Brian, the accountant and Maria Francis, the bookkeeper. The notebook also stated that the officer applied the catering scheme calculations.
59. Notice 727 had introduced three classes of standard schemes for retailers to use. These were:

(a) The point of sale scheme which requires retailers to identify the VAT liability of goods and services at the time the sales are made. It is available to retailers with turnover up to £100m per annum.

(b) The apportionment schemes (there are two) which uses purchase information to apportion sales between supplies at different rates of VAT. The two schemes, a simple scheme which is available to retailers where the VAT exclusive turnover of less than £1m per annum and a more complex scheme for larger retailers for turnover between £1m and £100m per annum, which requires the use of anticipated retail selling prices.

(c) The direct calculation scheme which anticipates selling prices of certain goods to establish the proportion of sales upon which VAT is due. There are two direct calculations schemes, both of which use the same basic calculation. The first is restricted to retailers with VAT exclusive turnover of less than £1m. The second, which is available to larger retailers with turnover between £1m and £100m, requires an annual adjustment to reflect actual sales in the year and any movement and stock.

60. Retailers could normally choose one of the published schemes for which they were eligible.
61. Of the three schemes, the point of sale scheme was not being operated by the Appellant and the other two, apportionment schemes and direct calculation schemes, were not available to businesses operating in the catering industry. None of the Appellant's schemes fell within Notice 727.
62. One then goes to Regulation 67(1) of the VAT Regulations where the Commissioners may permit a bespoke retail scheme agreement with the taxable person. A bespoke scheme may still be based on one of the published schemes that could be tailored to suit the individual business. This is permitted under section 67(1) of the VAT Regulations. The Commissioners are therefore given power to devise methods by which the value of supplies can be calculated and they may publish notices to that effect. The method for determining the value of supplies made by retailers must therefore be by a method which is described in a notice or agreed with the Commissioners. The parties may agree a method which would operate as an alternative to one of the methods in the published notices. This is the main thrust of Regulation 67. If a special method was agreed with the Appellant then it would take precedence over any of the methods in Notice 727 or in Leaflet 709/2/91 (the Tribunal was provided with Notice 709/1 (February 2007) which is an updated version).
63. The question therefore which the Tribunal has to address is whether a special method was agreed with the Appellant. In other words, the Tribunal has to decide whether the Commissioners agreed with the Appellant that the value of the Appellant's standard rated supplies could in future be determined by using a 30/70 split between standard rated and zero-rated when applied to total supplies.
64. We have seen that there is a clear statement in the VAT 465A form listed under "Liability and other Rulings given" that there was a 30-70 ruling which related to the Delis (1-3).
65. Let us now move to the letter of officer Baltruschat. A meeting had been arranged with officer Baltruschat and Maria Francis (bookkeeper) and Andrew Brian (accountant) where in the transcripts to the officer's notes of the meeting it is stated that the catering scheme calculations would apply. The supplies were for those bought at the zero-rate which often becomes standard rated when supplied in the course of catering. In such a case the point of sale scheme is used to establish VAT liability. The CAS can be used by small businesses with a retail turnover not exceeding £1m. In this matter, the daily gross takings ("DGT") is established together with the percentage of standard rated supplies of total supplies. From the percentage of standard rated supplies applied to the DGT there is calculated the VAT using the 7 over 47 fraction. In this way the calculation of standard rated supplies is made on the basis of actual sales for a representative period. The taxable person should retain details of the sample, including the date and time at which it took place and carry out a new calculation in each tax period.
66. From the notes of the meeting on 8 April 2003 with officer Baltruschat which were taken by Andrew Brian, the accountant, the following was recorded:

"The Officer did mention that strictly, the percentage should be reviewed every VAT period, but conceded that this was certainly not practical. Instead, an investigation every couple of years will apparently suffice. We mention the ongoing discussions between Maria (Francis) and ourselves in relation to adjusting the percentages used to calculate output VAT, and he seemed more than happy that any reasonable assessment of output would be fine. He made it clear that whatever investigation was undertaken, it must be accurately documented, and the records kept justifying the amount.

After this, he looked through Maria's hard copy calculations of output tax, and was satisfied that the "stated" percentages were being consistently applied and resulting in correct calculations. This was borne out by the trends from his report, and it was obvious to him that there was consistency in the declarations for each unit.

…

At the conclusion of the investigation, Mr Baltruschat seemed more than happy that VAT is being correctly accounted for.

67. It seems that the Commissioners were adopting a method by agreement with the retailer. The officer, Mr Baltruschat seemed satisfied that the method was soundly based and gave his approval to it. He was aware of the current level of turnover in the business having been provided with the requisite information for his visit on 17 April 2003. He had specifically requested information on sales and was given summary turnover figures indicating the turnover to be in excess of £1m. Further the VAT 465E showed a summary of the turnover figures to be in excess of £1m.
68. The agreement on apportionment is noted on the Form VAT 465A. This is done so that officers making later visits will be able to check that the agreed method has been properly applied and represents a fair and reasonable reflection of the relevant supplies. One would have expected, that the officer would have written to the Appellant outlining the terms and conditions of use of the method. There is nothing indicating that the relevant VAT leaflets and notices were provided to the Appellant.
69. A letter was sent by the Commissioners to Mr Gould, accountant, explaining that the Appellant's business activity is currently being calculated using the catering adaptation scheme and stating that one of the requirements of the scheme is that "the split must be tested" quarterly and the substantiating documents must be retained – this requirement is laid down in Public Notice 727 "Retail Schemes". The letter went on to say that sheets used by Customs and Excise when testing a split were enclosed and that when "carrying out this exercise it is essential that the person recording the sales is fully aware of the VAT liability on the sales. In summary, all items consumed on the premises are Vatable regardless of whether they are hot or cold". The letter, dated 9 January 2001 and sent by officer C Jones to Mr Gould contained the wrong VAT number (713820653 when the Appellant's VAT number was 245049665) and so the requirement to "test quarterly" was never undertaken by the Appellant and indeed the letter was not passed to the bookkeeper, Maria Francis or indeed appeared on the document file of Mr Jack Gould, the company's accountant. This was confirmed by his witness statement and by Maria Francis's oral evidence.
70. It is fair to say that there was a binding agreement between the Commissioners and the Appellant. The Appellant could not operate the CAS because its turnover exceeded the limit, therefore there was an agreement under regulation 67(1) VAT Regulations as one not relating to notice.
71. The Respondents say that there was no agreement relating to a supply split between the parties. They have supported this argument with the facts that the turnover limits for applying a retail scheme had been exceeded, appropriate records were not retained and the Appellant had failed to comply with the condition set out in Public Notice 709/1 para 3.3 whereby satisfactory evidence must be retained to support fair and reasonable apportionment. They say further that the VAT 465A can only be treated as an agreement relating to Delis 1, 2 and 3 and not Delis 4,5 and 6. Delis 1, 2 and 3 were very similar in conducting mainly takeaway business and were in operation at the time. Delis 4 and 6 contained significant seating about the premises as well as waitress service. Deli 4 was opened in 1998 and Deli 6 was opened in 2000. Deli 5 which was opened in March 2002 contained a mixture of seating and takeaway.
72. The Tribunal believes that the VATA allows an agreement of a method of apportionment between the Commissioners to operate as an alternative to one of the methods referred to in the published notices. Where a method is agreed between the parties this replaces any other method described in the notices. While we agree that proper records should have been kept, the absence of these records does not, in this case, invalidate the agreement reached with the Appellant on the supply split rates. In any event, there were sufficient records of daily gross takings for the parties to calculate a fair and just liability to be applied in this case.
73. The Tribunal believes there was an agreement between the parties which constitutes a binding contract. If one looks at the evidence as a whole which includes the completion of the various VAT forms, the understanding of the Appellant, the representations made in writing by the HMRC officers, details of the meeting taken by the accountant as well as the officer's handwritten notes, there is a binding agreement between the parties to operate a retail scheme pursuant to regulation 67(1) of the VAT Regulations. Given that the Appellant could not operate the CAS as a matter of law (exceed turnover), then the HMRC officer, given the information on turnover presented, would have known this and therefore one can conclude that the 30/70 split between standard rated and zero rated supplies was in effect with regard to Delis 1, 2 and 3. Accordingly, the Appellant's returns were correct and the Commissioners did not have power to raise the assessments under section 73(1) VATA with regard to these businesses.

Was the assessment made to best judgment?

74. The second issue in this appeal is whether the assessments were made to the best judgment of the Commissioners; and, specifically whether it was reasonable to base the assessment on the basis of two days invigilation and on Mr Walton's examination of four days records. The Appellant says that the only reliable figures for an assessment would be based on over 30 days trading using the figures obtained from new reprogrammed tills installed in Bar Capitale 1 and 2 and Delis 2, 4 and 5 in 2006.
75. In considering the meaning of the phrase "to the best of their judgment", the Tribunal has referred to the decisions of Van Boeckel v Customs and Excise Commissioners [1981] STC 290 and M H Rahman (t/a Khayam Restaurant) v Customs and Excise Commissioners [1998] STC 826. The following principles emerged from those and other relevant decisions. First, there must be some material before the Commissioners on which they can base their judgment. Secondly, the Commissioners are not required to do the work of the taxpayer in order to form a conclusion as to the amount of tax due. Thirdly, the Commissioners are required to exercise their powers in such a way that they make a value judgment on the material which is before them. Fourthly, the Tribunal should not treat an assessment as invalid merely because it disagrees as to how the judgment should have been exercised; a much stronger finding is required, for example, that the assessment had been reached "dishonestly, capriciously or vindictively" or was a "spurious estimate or guess in which all elements of judgment were missing" or was "wholly unreasonable". Fifthly, if the assessment is shown to have been wholly unreasonable or not bona fide there would be sufficient grounds for setting it aside but that kind of case is likely to be extremely rare. Finally, it must be assumed that the Commissioners have made an honest and genuine attempt to reach a fair assessment. The Tribunal should be concentrated on seeing whether the amount of the assessment should be sustained in the light of the material then available. The function of the Tribunal is supervisory. It is not a function of the Tribunal to engage in the process of looking afresh at all the evidence before it.
76. We are now concerned with the assessments as they relate to Bar Capital 1 and 2 and Delis 4, 5 and 6.
77. Let us look at how the officer in charge conducted the investigation in arriving at the assessment. The first attempt at gathering information was through the Appellant's own website which established the number of outlets, sitting accommodation, type of menu and opening hours. A meeting was arranged on 23 November with the Appellant's bookkeeper, ("Sue Antoniazzi"). Copies of the Appellant's VAT working papers for the period 1 July 2005 to 30 September 2005 were obtained and reviewed. This explained how the business calculated their VAT liability. The working papers (approximately 30 pages) on review by the officer in charge Mr D M Walton ("Mr Walton") established an initial view that there was a "significant revenue risk" that the split between standard rated and zero-rated supplies did not accurately reflect the VAT liability.
78. On 10 January 2006, Mrs Antoniazzi explained the accounting system in place and the calculation of their VAT liability and took Mr Walton and a colleague on an inspection of the various premises. The point arising from this visit and recorded in Mr Walton's notebook, shows a detailed breakdown of the various businesses, location, seating, menus and other relevant information. It was explained that Deli 3 had closed on 2 December 2005 and therefore was not visited. Mr Walton explained the need for a self-invigilation to be done and the Appellant agreed to do so. The working paper shows that while there were mix standard rated and zero-rated supplies being made at each of the premises, the correct proportion split between the two had not been clearly identified by a proper method. This was explained to the company's accountant, Mr Roger Woolf of Feltons Associates.
79. The Commissioners' understanding of the Appellant's accounting system is that at the end of each day's trading the takings from each till were determined by reading the "Z" read. The Z read is a particular feature of the till that summarises all the transactions on the till against the previous Z read, it is a snapshot of the finances going through and held in the till. There will also be information regarding the operation of the till which management will use. The audit roll (which records each individual transaction as it occurs) was removed from the till and kept with the Z read. The cash takings were obtained with the readings and a note of the takings recorded in a diary for each of the premises. There was a breakdown between food and drink. The takings for each VAT period was derived from the diary totals, a preset percentage was applied to determine standard rated supplies for each of the premises. If the results of each of the businesses were added together then this gave a VAT declaration for the business as a whole.
80. In looking at the Bar Capitale restaurant which provided eat-in and takeaway services, the Commissioners examined the till rolls for individual sales. The tills had pre-programmed buttons to reflect the various items for sale and the price at which they were being sold. The Z reads accompanying the till rolls showed by department (i.e. classification of food which also indicated whether its eaten in or out) all the items that had been rung into the till since the previous Z read. It was confirmed that the Z reads provided did relate to the particular day's sales as recorded in the tills record. The next step was to review the departmental analysis as a means of checking the proportion of standard rated and zero-rated sales. Mr Walton concluded that there was an underdeclaration for the period 06/04 of standard rated sales. A similar exercise for the period 09/05 was done. It was concluded that there was an underdeclaration with regard to zero rated sales. Mr Walton said that in reviewing the Z read he found items marked as zero-rated to be wrong and by adding these errors back to the total sales he was able to arrive at an amount liable to VAT in the range of 88.7%.
81. Mr Walton attempted to do a similar exercise across all premises which were making mixed supplies. However he gave evidence that this was not possible since not all records were available and the records that were available were difficult to review. The till rolls presented for the various premises were not in any order and it was very hard to establish which till rolls related to which premises and for what period.
82. The Bar Capitale restaurants are restaurants offering a full waitress service for a substantial number of covers. It would normally be expected that a small proportion of the meals eaten would be zero-rated takeaway food. The various premises in the Appellant's group would have different proportions of zero-rated and standard rated supplies given that some provided a restaurant service at the table and others provided takeaway services and some provided mixed takeaway and eat-in services.
83. The Appellant says that Mr Walton had made a fundamental error in using figures for the wrong establishment to base his calculations for VAT liability. This is based on the facts that the figures used by Mr Walton for Bar Capitale 1 for the period 22 May 2006 to 30 June 2006 showed sale figures which were different from those provided by the Appellant. Further, there were two pricing structures for Bar Capitale. One till was used for takeaways only in the morning and for lunch time with zero-rated VAT and the other till was used for people sitting down in the morning or to eat lunch and that till had prices pre-programmed for consumption on the premises and they showed standard rated VAT. It was therefore not necessary to use the VAT button, which was used where a person bought a takeaway meal but decided to eat on the premises. The Appellant says that Mr Walton had examined the till reports used for takeaways only and had not expected as many of the cold food items which were zero-rated. The Appellant says this may explain why Mr Walton felt that the buttons, changing food items from zero to standard rated – had only been used once on the three till rolls in his possession and had not properly recorded VAT on sales.
84. In order to confirm the receipts and figures for the Delis, Mr Walton decided to conduct an unannounced invigilation at two of the premises. There were three types of Delis. Delis 4 and 6 had seating while Delis 1 and 2 and 3 were mainly takeaway and Deli 5 had a mix of sitting and takeaway. It was decided to invigilate Delis 2 and 4 which provided a range from within the three categories. The invigilation was done on 21 February 2006 with a team of officers who conducted two hour shifts under a rota system at the various tills. Officers recorded sales at the two tills – till A and till B and at the end of the day the officers observed the "cashing up". This involves taking a Z read from the till and counting the cash in the till. These are recorded and cashing up sheets written up for the two tills respectively. The Commissioners, working on the sheets, prepared at the invigilation, estimated that the standard rated sales at Deli 4 was 83%.
85. The Commissioners, from the invigilation and other information available prepared an estimate of the potential underdeclaration of the output tax across the business as a whole in a spreadsheet schedule. The standard rated percentage for Bar Capitale 1 and 2 was 87.5% and for Delis 4, 5 and 6 were 83%, 76% and 83% respectively.
86. The Appellant says that the figures should be subject to seasonal variation which were not taken into account. The Appellant says that it would be more acceptable to determine VAT liability using figures prepared and listed by the new re-programmed tills and till reports. Seasonal variation would only show up on a reading of trading figures over a full year and the till reports would determine the fluctuations in trade. The Commissioners rejected this suggestion as being too long to determine the percentage splits.
87. Another point which the Commissioners needed to consider was that the report noted that the invigilation day was "cold and windy" and there was a legitimate question as to whether these proportions could properly be applied to other periods. Mrs Antoniazzi said that as regards the Delis, more hot food was sold during winter than summer and could impact the VAT liability. The Commissioners asserted that this was untested. There is no evidence of seasonal variation and the proportion of standard rated supplies had reduced over the three years without any explanation. Chapter 5 had applied a split of 40% standard rated and for Chapters 4 and 6 the percentage of standard rated food had fallen from 75% and 68% respectively to 48%.
88. The Commissioners also made the point regarding the Bar Capitale restaurants that there were no significant changes in the menu over the previous three to four years. They did not accept that the proportion of standard rated sales is Bar Capitale 1 had been lowered due to fewer sales of hot food and more sales of salad and sandwiches since it had never been substantiated. It is also claimed by the Appellant that the proportion of hot and cold food sales varied during the year but this was again not substantiated. With regard to Bar Capitale 2, the Appellant said that the premises sold less takeaway food as it was in direct competition with Deli 5. The Appellants were not able to offer an explanation why a proportion of 48% standard rated had been applied with regard to Delis 4 and 6. All spreadsheets and other information prepared by the Commissioners were made available to the Appellants for their comments. On 19 June 2006, Mr Vaughan Chown, Vantis plc, tax representative of the Appellant, wrote to the Commissioners providing an alternative means of determining the proportion of standard rated sales. The Commissioners requested further information including till rolls to support the representations made.
89. It was recognised that the information which had been gathered relating to till rolls had been recorded from newly installed tills which determine ongoing VAT liability. It recorded the VAT liability and individual items pre-programmed into the till but there were "glitches" in the operation of the new tills.
90. It was explained to the Commissioners that in using the new tills, zero-rated items required a special VAT button to be pressed to add 17.5% VAT on food eaten on the premises. The Commissioners noted that the till rolls did not have any evidence of these buttons being used. They asked for comments and what "glitches" had appeared with regard to the use of the new tills.
91. The Appellant insisted on the schedules they prepared being used as the basis for assessment but the Commissioners, in the absence of any supporting documentation such as Z reads and till rolls were unable to agree to this request.
92. On 19 July 2007, audit rolls and Z reads supporting new schedules for proportions of standard rated supplies at Bar Capitale and Deli 4 were provided by the Appellants. These were reviewed by the Commissioners who found they were unable to change their assessments. They found that the VAT button had been used only once in a whole day's trading, the menus demonstrated Bar Capitale 1 and 2 were largely restaurants and there was no evidence of seasonable fluctuations. Further, there were various "glitches" with the new tills which made the information presented from the tills unreliable.
93. The Appellant queried whether all of the entries (over 12,000) made by the officers at the invigilation on 21 February 2006 at Delis 2 and 4 were correct in value and whether they correctly classified the standard and zero rates supply. There were numerous blank descriptions on the recorded sheets and not all transactions were tracked in the officer's notes. Further two of the officers did not attend to give evidence at the Tribunal and a question arises as to whether two days invigilation out of 4,320 days trading (assuming 20 days per month for six sites over three years) is adequate to make an assessment. They draw reference to the decision of J & N Buttigieg (Cottage Café) (2000) where the Tribunal chairman stated:

"At para 75 we wish to point out that we consider it barely adequate to have relied on a single day's invigilation to arrive at takings for an extended period, and feel that it would have been better to carry out a further day's invigilation at another stage to ensure that all relevant information was, and was seen to be, taken into account".

94. While the Appellant's arguments are considered, it should be pointed out that several other pieces of information were also considered in arriving at the assessments. The Respondents had visits with the bookkeepers and reviewed their working papers, reviewed their accounting systems, toured and inspected the premises, met with the proprietors, accountants and other professional advisers, had access to summaries, schedules of figures, till rolls, Z reads and submitted these to interrogation with the internal software programmes at the Commissioners. There was also invigilation and the figures arrived at invigilation were commented on by the Appellants. The Appellant's own figures and information were considered. This is a broad range of information which was considered and while it is correct to say that one day's invigilation was undertaken, it would not reflect the total picture of the undertaking and review work by the Commissioners.
95. Although the Appellant has argued that one day is not a representative period no additional tangible reliable evidence was submitted to evidence their own claim. The Appellant has provided contradictory information regarding seasonal variations and historical percentage splits. There were discussions between the parties but no conclusions drawn from these talks. There was supposed to have been evidence of self-invigilation undertaken by the Appellant on 22 February 2006, however this information was never provided. It is reasonable to assume that there was no independent self-invigilation exercise conducted by the Appellant. The records of daily gross takings (DGT) which were presented to the Commissioners were not organised and complete. There were supposed to be boxes of till rolls classified on a monthly basis but rather the information presented was not organised and classified on a monthly basis and it was difficult to establish which rolls related to which business. The Z reads and DGT figures used for Bar Capitale 1 and 2 were more organised and were transferred directly from the Appellant's records into officer Walton's notebooks and were used in the assessments.
96. Given that the records were not complete, it was not possible for the Commissioners to interrogate the percentage splits in sales using a day's figures within each VAT period nor was it possible to take a month in the middle of each VAT period to test and get a representative percentage of split between standard and zero rated sales. The Commissioners therefore sought to calculate the average percentage split of standard rated to zero rated sales for Bar Capitale 1 and 2 for the VAT periods 03/03 and 06/03, the only available Z reads for Bar Capitale 1 covering the periods 03/03 to 09/05 amounted to four reads in total. The four calculated standard rated percentages from Z reads were then added together and divided by four to get the average. Further figures presented by the Appellant for May to July 2006 were factored in to arrive at the average standard rated split.
97. As regards the installation of new tills, there is no clear evidence that these were introduced until approximately November 2006. Further there were "glitches" in the system which made some of the information produced by these tills unreliable. There were also concerns about the use of the VAT button where takeaway food was eaten in.
98. The Commissioners say that the most fair and reasonable method is to use the average of the invigilation exercise results of 21 February 2006 and the till analysis for the period 19 May 2006 to 12 July 2006 to arrive at the averages for Delis 1 to 6. The Appellant's view is that the till Z reads for the period May and June 2006 should be used to calculate the average standard rated to zero rated split sales and these should be extrapolated backwards to all dates for VAT periods.
99. It should be remembered that these are warmer months and if these figures are extrapolated backwards they may be unrepresentative.
100. What conclusions can we then draw? First is that a value judgment was made on the materials before officer Walton and his team. A calculation was done which appeared to be fair. The assessment was not dishonest, capricious or vindictive and were not unreasonable. Indeed, officer Karen Marsh after having new information submitted to her reduced the initial assessment. It is fair to say therefore that there was an honest and genuine attempt to reach a fair assessment.
101. There is a fair argument that an invigilation for one day may not be representative. However, the Appellant provided insufficient evidence to rebut or show that the figures and splits arrived at by the Commissioners were inaccurate. The Tribunal has not found the evidence presented by the Appellant to be convincing or persuasive in this regard. Further, the evidence which was gathered by the Commissioners to make the assessments came from a variety of different sources. There were, inter alia, meetings, exchanges of information, interviews with bookkeeper and accountant, a tour of the premises and the invigilation. It would have been preferable to carry out further invigilation exercises but in the circumstances what was done was fair. The Tribunal cannot find reasons for calling into question the assessment.

Conclusion

102. Our decision for on the issues for determination are:

1. That the Commissioners did agree that the Appellant could use the split of 30/70 standard to zero-rated to calculate the value of standard rated supplies. Accordingly, the Appellant returns were correct and so Customs and Excise do not have power to raise the assessments under section 73(1) with regards to Delis 1, 2 and 3. This means that the appeal must succeed on these points.

2. With regard to Delis 4, 5 and 6 and Bar Capitale 1 and 2, the assessments were made to best judgment and are accordingly correct.

103. The appeal is therefore partly allowed. The Appellants are at liberty to make an application as to costs where the appeal has been partly successful.

DR K KHAN

TRIBUNAL JUDGE

RELEASED:1 May 2009