[2009] UKFTT 332 (TC)

 

                    TC00273

 

                                                                                                    Appeal number:   TC/2009/10988 

 

 

       Appeal against Closure Notice, Amendment and Discovery Assessment

 

 

 

                    FIRST-TIER TRIBUNAL

 

TAX

 

                                                                          

                                                                           Mr Colin Walton                                                                

                                                                                                                                                                        Appellant

 

-and-

 

 

The Commissioners for

Her Majesty’s Revenue and Customs

                                                                                                                                                                        Respondents

                                                                       

 

Tribunal:	Jennifer Blewitt	(Chair)
	Beverley Tanner	(Member)

 

 

 

Sitting in public in Manchester on 3^rd September 2009

 

Mr Smith for the Appellant

 

Ms Whitley instructed by the General Counsel and Solicitor to HM Revenue and Customs for the Respondents

 

 

 

 

 

 

 

©CROWN COPYRIGHT 2009

 

 

 

 

 

 

                                                           DECISION NOTICE

 

 

The Appellant, Mr Walton, appealed against the Closure Notice and amendment issued by HMRC under section 28A (1) and (2) Taxes Management Act 1970 (hereafter referred to as “TMA 1970”) for the periods 2005/2006 and 2006/2007. The Appellant also appealed against the discovery assessments issued by HMRC under section 29 TMA 1970 for the periods 2002/2003, 2003/2004 and 2004/2005.

 

The Tribunal heard oral evidence from Mr Walton (“the Appellant”) and oral submissions by his representative Mr Smith and oral evidence from Mr Collins for the Respondents, HMRC, with oral submissions from Ms Whitley representing HMRC. The Tribunal also considered the content of four bundles produced by HMRC and additional documents

 

 

produced during the appeal hearing by the Appellant, namely Mr Walton’s statement dated 19^th August 2009, a statement by Mrs Jean Walton, a letter from Peter H. Smith Limited dated 20^th August 2009 and Nationwide Flexaccount statements dated 30^th May 2005 and 29^th June 2005 in the name of Mrs Jean Walton.

 

In summary, the Appellant trades as a wholesale florist from his address at Harrogate Crescent, Burnley. HMRC contend that the Appellant’s return for the period 2005/2006 was incorrect due to the fact that the business records made available during the enquiry did not support the sales figure shown in the Appellant’s accounts and the business profit was understated. HMRC further contend that the returns for the periods 2002/2003, 2003/2004, 2004/2005 and 2006/2007 were similarly incorrect based on the facts found during the 2005/2006 enquiry.

 

The Appellant appealed on the grounds that the proposed amendments are fictitious and wholly unrealistic bearing in mind that the business was failing due to competition and falling demand. Furthermore the Appellant contends that HMRC failed to take account of wastage in arriving at their conclusions and monies from other sources available to the Appellant.

 

The Tribunal was referred to the authorities of Norman v Goulder (26 TC293) and T. Haythornthwaite & Sons Ltd & Kelly (11 TC657) and the legislation applicable under section 50 (6) TMA 1970 and accepted that the onus of proof lies with the Appellant to demonstrate that the assessments are incorrect.

 

The Tribunal accepted the evidence contained in the witness statement dated 10^th August 2009 of Mr Collins for HMRC and found him to be a credible witness who had demonstrated patience and diligence during the course of the enquiry. The Tribunal shared the concerns that were raised by Mr Collins in concluding his enquiry, as summarised below:

 

Incomplete Cash Book 

 

HMRC contends that the cash book produced by Mr Walton during the course of the enquiry detailing weekly sales is incomplete. The basis of this contention is that the £6,395 balance on the cash account had to be added to sales to make the accounts balance. HMRC noted that the balance of £6,395 in the cash account is dependant on the Appellant’s own record of cash drawings from the business being accurate and were personal drawings greater then the balancing figure would increase correspondingly.

 

The Appellant contends that his cash book is accurate however provided no explanation to the Tribunal to account for the £6,395. Furthermore the Tribunal noted that the Appellant’s evidence is that he never worked on Wednesdays, however the cash book (provided by the Appellant himself) and summarised by HMRC at Folio 4, L5 and L6  of Bundle 3 clearly shows purchases and sales recorded as having taken place on Wednesdays. The Appellant’s evidence to the Tribunal is that this must be a mistake. The Tribunal reject the Appellant’s claim and found the entry to be evidence of the inaccuracy of the Appellant’s records.

 

Low Household Income and Expenditure Statement

 

The Appellant’s household Income and Expenditure statement for the year ended 31^st December 2005 shows an income of £10,130 and expenditure of £11,513. The Appellant’s evidence to the Tribunal is that he lives a modest lifestyle and that his daughter had returned to live with the appellant and his wife due to marital difficulties. The Appellant

 

 

said that his daughter had contributed to the household budget. The Appellant went on to say that his daughter paid his wife, Mrs Walton repayment monies owed in addition to household contributions, and he was therefore not aware of the amounts paid. The Appellant stated that money was received into the household from a number of sources, including £60 per week from Mrs Walton’s mother which came from a pension, money from Mrs Walton’s father, sales of records including a full set of Beatles records and the Appellant’s own toys. The Appellant did not provide any evidence to support this contention and was unable to give any details as to the amount of money made from the sales of assets, stating that his wife dealt with the household finances.

 

The Tribunal did not accept the evidence of the Appellant and found the claims made to be vague and wholly unsupported. The Appellant accepted in cross examination that he had originally told the Respondent that his daughter had returned home once within 3 months of being married in 2003, but later changed his account to state that she had returned for some time, possibly in the enquiry year of 2005. The Tribunal found it implausible that the Appellant’s own assets would be sold by his wife without his having any knowledge of monies received for the sales. The Tribunal found the Appellant’s evidence an unconvincing attempt to explain the discrepancy in household income and expenditure. The Tribunal accepts that the Appellant and Mrs Walton may lead a modest lifestyle, the Tribunal did not accept the figures provided by the Appellant and exhibited at J21 of Bundle 2 and finds it wholly unrealistic that, for example, the Appellant’s wife did not spend any money on clothes, cosmetics or hairdressers, particularly bearing in mind that the Appellant contends his wife to be a lady with substantial savings.

 

The Appellant contended that his wife had substantial savings which were kept at home which were used to assist with household expenses. The Tribunal did not accept this evidence on the basis that there was no evidence to support the existence or the source of such savings, nor did the Tribunal accept that Mrs Walton, who clearly invested in accounts designed to maximise investments such as ISA’s, would keep money hidden at home.

 

Source of deposits into Bank Accounts and ISA’s

 

The Income and Expenditure statement for the year ended 31^st December 2005 did not include investments of £3,200 made by the Appellant or his wife into Nationwide ISA’s. HMRC also detailed within the skeleton argument at Appendix K, Bundle 3 the number of investments made between 2002 and 2006 for which the source was unknown.

 

The Tribunal were provided with Nationwide Flexaccount statements showing Mrs Walton’s earnings and found that there were insufficient funds available to for investments totalling £7,160 into the joint Nationwide Flex Account and £3,650 into the Nationwide Cash Builder account,  to have originated from Mrs Walton’s earnings, particularly bearing in mind the evidence which came to light during the hearing that Mrs Walton was paying additional mortgage payments of £100 per month, beyond those declared. In the absence of any evidence from the Appellant to show the source of the payments, the Tribunal’s conclusion is that they derived from undeclared sales in the business.

 

Gross Profit Rate (“GPR”)

 

The Appellant met with the Mr Collins on 11^th March 2008 and provided information that he wrote up sales invoices at the point of sale and the entries were recorded in the cash book. The Appellant could not explain why the GPR fluctuated between 32% and -16%. The Appellant confirmed that he only recorded in the cash book payments he received that

 

 

day. On 4^th September 2007 the Appellant informed Mr Collins that he had one supplier, Peter H. Smith Ltd in Preston, and that he purchased flowers to order with little wastage. The Appellant subsequently contacted Mr Collins at HMRC on the advice of his accountant and explained that he had had an accident and had been confused by the questioning. The Appellant explained that his current situation is that he has little wastage but that there had been wastage in 2005/2006. The Appellant went on to describe an arrangement with a Dutch flower seller “Klaus” whom he met in York to swap carnations for other flowers.

 

The Tribunal accepts that the Appellant had sustained injury in an accident, but on the Appellant’s own evidence to the Tribunal, he had not been confused by the questions Mr Collins had asked. The Tribunal also found that the Appellant’s account of his meetings with Klaus, specifically as to when and where they met, changed on a number of occasions. The Tribunal rejected the Appellant’s evidence that the contemporaneous notes of meetings between Mr Collins and the Appellant were inaccurate and concluded that the Appellant had deliberately changed his account in an attempt to explain away the discrepancies highlighted by HMRC. The Tribunal found, on the issue of wastage, that given the Appellant’s account that he swapped carnations for other flowers with Klaus, there should have been little or no wastage and therefore the Tribunal rejected the Appellant’s contention that the gross profit rate was affected by this issue. In rejecting the Appellant’s contention the Tribunal also bore in mind the fact that the Appellant, on his own evidence, kept no records of the wastage he purported to have, which the Tribunal found wholly implausible if, as submitted by the Appellant, it had such a significant effect on his business.  

 

The Tribunal found that Mr Collins for HMRC was fair in his recalculation using GPR 25%, taking into account the GPR of 28.59% for the Appellant’s year ended 31^st December 2001 and using a comparison of specific items with its actual sale price to ascertain an average GPR of 25.18%. The Tribunal therefore accepted this evidence, there being no specific evidence produced by the Appellant to challenge it.

 

The Tribunal found the Appellant a vague and unconvincing witness who regularly changed his account to Mr Collins during the course of the enquiry as to the nature and system of his business. The Tribunal found that no credible explanation was given by the Appellant to account for the discrepancies in his business records as highlighted by the Respondent and no evidence was produced by the Appellant upon which the Tribunal could conclude that the amendments made were incorrect. The Tribunal accepted Mr Collins’s evidence detailed in the note of meeting on 18^th August 2009 that the Appellant believed it was up to Mr Collins for HMRC to ask the right questions and found this to be indicative of the Appellant’s uncooperative and evasive attitude throughout the enquiry.

 

The Tribunal concluded that the Appellant failed to keep adequate or accurate records to substantiate his business income. The Tribunal finds that the self assessment return for the period 2005/2006 was understated and the amendments to the Self-Assessments 2005/2006 and 2006/2007 and discovery assessments for 2002/2003, 2003/2004 and 2004/2005 against which the Appellant appeals are fair and reasonable and should remain extant.

 

 

                     The appeal is dismissed

 

 

 

 

 

 

 

 

The [Appellant has] [Respondents have] a right to apply for permission to appeal against this decision pursuant to Rule 39 of The Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009.   The parties are referred to “Guidance to accompany a Decision from the First-tier Tribunal (Tax Chamber)” which accompanies and forms part of this decision notice.

 

                            

                                                     Signed

 

 

                                                                 Tribunal Judge: Jennifer Blewitt

 

                                                                 Release Date: 18 December 2009