Freely Available British and Irish Public Legal Information
[Home] [Databases] [World Law] [Multidatabase Search] [Help] [Feedback]
First-tier Tribunal (Tax)
You are here: BAILII >> Databases >> First-tier Tribunal (Tax) >> Sandouk (t/a Didi's Pizza) v Revenue & Customs [2010] UKFTT 194 (TC) (28 April 2010)
URL: http://www.bailii.org/uk/cases/UKFTT/TC/2010/TC00496.html
Cite as: [2010] UKFTT 194 (TC)
[New search] [Printable RTF version] [Help]
Bashar Sandouk t/a Didi's Pizza v Revenue & Customs [2010] UKFTT 194 (TC) (28 April 2010)
VAT - ASSESSMENTS
Best judgment
[2010] UKFTT 194
TC00496
S73 VATA 1994 – Assessment to best judgment – reasonableness of assessment based on receipts – proportion of no-sales – appeal dismissed
MANCHESTER TRIBUNAL CENTRE MAN/07/987
BASHAR SANDOUK T/A DIDI’S PIZZA Appellant
- and -
THE COMMISSIONERS FOR
HER MAJESTY’S REVENUE AND CUSTOMS Respondents
Tribunal: John N. Dent (Judge)
Stuart Martin (Member)
Sitting in public in Manchester on 24th March 2010
Mr. T. Nawaz, Chartered Accountant, for the Appellant
Mr. Shields of Counsel, instructed by the Solicitors’ Office of HMRC for the Respondents
© CROWN COPYRIGHT 2010
DECISION
The Appeal
1. The disputed decisions of the Respondents are:
(a) a Value Added Tax Notice of Assessment dated 27 November 2006 in the sum of £42,622 amended by an Amended Notice of Assessment dated 20 July 2007 in the sum of £36,557 in respect of tax underdeclared for periods 01September 2003 to 31 August 2006 in accordance with Section 73 of the Value Added Tax Act 1994 ;
(b) a Value Added Tax Misdeclaration Penalty Assessment in the sum of £5,834.00 dated 20 December 2006 amended by an Amended Assessment in the sum of £4,978.00 dated 26 July 2007 in accordance with sections 623 and 76 of the Value Added Tax Act 1994.
Facts
2. Bashar Sandouk Trading as Didi’s Pizzas (“The Appellant”) carries on business as a pizza takeaway from premises at 1008 Manchester Road Linthwaite Huddersfield HD7 5QQ and was registered under VAT registration number 734 3222 60, as a sole proprietor, for the purposes of value added tax with effect from 28 June 1999.
3. The Respondents obtained a menu from the business on 24 November 2005
4. The Respondents visited the Appellant unannounced on 20 January 2006 and the trading activities and cash total were established. The Appellant was not present and the Respondents spoke to the Appellant’s manager Mr Jaiwadz who told the Respondents that all the sales on that day had been rung through the till, and that no money had been taken out of the till. He said nothing to the officers about any money for rent having been put into the till, and thought the float was about £50. The cash was totalled and came to £727.00. He told the officers that no-one at the shop had the ability to carry out an X reading or a Z reading.
5. Mr Jaiwadz explained to the officers that when a delivery order is taken on the phone it is written on a pre-numbered delivery receipt pad. The duplicate orders are left on the pad. The top copy is taken by the delivery driver with enough change for q £20 note. On the driver’s return the order is rung through the till. The receipt from the till is attached to the top copy of the order and these are then put on a spike. He said that takeaway orders are rung through the till but the receipts are not kept.
6. The officers uplifted the meal bills from the spike and two order pads.
7. Mr Sandouk visited the premises on the following day, and notwithstanding that he was aware of the visit of the Respondents the previous day, and that meal bills and order pads had been removed, he carried out a Z reading and then destroyed it.
8. The Appellant was seen at his accountant’s office on 28 February 2006 when he explained that he does not keep till receipts or a record of individual sales but only records cash at the end of the day. He kept a weekly cash sheet which he sent to his accountants along with expense invoices each quarter. He said that he has three flats for which he is paid rent of £230 on a Friday, and this would have been included in the till on the night of the officers’ visit.
9. The Appellant was instructed that by law he must keep a record of all sales as and when they are made and that usually a till roll was used to meet this requirement. The Appellant confirmed to the Officer that he would do so in future.
10. The Appellant told the officers that orders by phone totalled approximately 80-90% of takings in winter and 30-40% in summer
11. The Appellant stated that some of the meal bills would have been wasted as customers had not picked them up or paid for them. Wastage was stated to be £30 - £40 on Friday and Saturday. Examination of the cash sheets revealed that the average declaration for a Friday night was £230.
12. The Appellant agreed to make till rolls available to the Respondents and arranged for them to be picked up from his accountant’s office. The Respondents attended at the accountant’s office on 30 March 2006 and uplifted bags stated to contain Z readings for each day and till readings for each sale. The Respondents visited the Appellant's premises unannounced on 29 June 2006 to obtain a Z reading. A Z reading could not be obtained but a bag containing Z readings and till rolls for the previous two days was uplifted.
13. The Respondents visited the Appellant on 10 July 2006. The Appellant told the Respondents that only he takes Z readings and that he had taken the Z readings to the accountant’s that morning.
14. The Respondents wrote to the Appellant on 20 July 2006 enclosing four schedules. The letter questioned the Z readings submitted and detailed potential under declarations of VAT for the previous 3 years. The enclosed schedules detailed the following:
(a) Schedule 1 calculated the % of each night’s takings over a week.
(b) Schedules 2 and 3 calculated the takings for the two nights 20/01/2006 and 29/06/2006.
(c) Schedule 4 outlined the VAT under declared over the previous 3 years.
15. The Appellant was asked to provide comments by 18 August 2006 or an
assessment would be raised.
16. The Appellant replied to the Respondents on 22 August 2006 and requested a meeting to discuss the Respondents’ letter of 20 July 2006
17. The Respondents met with the Appellant on 02 October 2006 at the premises of the Appellant’s accountant.
18. Discussions regarding other methods of establishing the correct level of takings took place between the parties. Invigilation with periods of officer invigilation was at first refused by the Appellant and the accountant and then time was requested by the Appellant to consider the matter further. Further discussions took place, but when no further contact was received by the Respondents by 30 October 2006 the assessment was raised.
19. The Respondents made and notified assessments to the Appellant on 27 November 2006 in the sum of £42,622.00 for the period 01 September 2003 to 31 August 2006.
20. As a result of the assessments made on 27 November 2006 certain periods breached the objective tests for misdeclaration penalty in accordance with section 63 and 76 of the VAT Act 1994.
21. The calculation of the assessment was on the following basis:
a. The Respondents estimated the true daily sales figure for a Friday as being £677.22, being the amount of cash and cheques in the till after deducting a float of £50, as stated by the manager.
b. The Respondents established the number of transactions for that night from the sequential numbering of the till slips which were available
c. Average transaction values were assessed from the information available, making adjustments to take account of a price increase. In making the adjustments, the Respondents acted generously towards the Appellant
d. Weekly sales were projected using ratios derived from the Appellant’s pattern of declarations for each day of the week
e. A projection of underdeclared VAT was arrived at
22. On 12 February 2007 the Appellant wrote to the Respondents to appeal the assessments.
23. On 26 June 2007 Mr Simmons, a Higher Officer of the Respondents reviewed the case. He considered that an adjustment of part of the calculation of arrears was appropriate. Instead of using 1/13 of the 02/06 sales declaration, he compared the average declared week for January 2006, thus increasing the average and reducing the underdeclaration. After making the recalculation the assessment and penalty were reduced to the figures set out above.
24. The Respondents wrote to the Appellant on 04 July 2007, detailing the reconsidered matters and conclusions reached and enclosing a revised schedule 4 to inform him that the assessment would be reduced to the sum of £36,557,00.
25. A notice of amendment of assessment in the sum of £36.557.00 was issued on 20 July 2007 for the period 01 September 2003 to 31 August 2006.
26. The Respondents wrote to the Appellant on 26 July 2007 to amend the sum assessed in respect of misdeclaration penalty to £4978.00.
27. The Appellant appealed to the VAT Tribunal on 20 August 2007
Respondent’s Case
28. The Respondents contention is that:
a) Using all the information available the Respondents established the true sales figure for 20 January 2006 as being £677.20
b) No evidence to support an assertion that rental income was included in the till has been provided nor has any explanation been given as to why the takings identified were more than double the previously declared average for a Friday night.
c) The till receipts for 20 January 2006 were uplifted and subsequent analysis by the Respondents identified that a significant quantity of till slips were missing.
d) There is sufficient evidence to conclude that the Appellant's sales have been underdeclared for VAT purposes.
e) The assessment has been correctly made and notified in accordance with section 73 of the VAT Act 1994.
f) No argument or evidence has been submitted by the Appellant to establish a reasonable excuse in respect of the assessed misdeclaration penalty.
g) The assessment of VAT and the misdeclaration penalty have been amended following the requested reconsideration of the assessment by the Appellant. The Respondents have recalculated the assessments to allow for an adjustment of the calculation of the uplift factor which is in the Appellant’s favour
The Appellant’s Case
29. The Appellant’s case is centred on the fact that the Appellant was reliant upon his staff for the day to day conduct of the business, as he was spending time looking after his widowed mother at the time the enquiries were taking place.
30. There are three types of order taken in the premises:
(a) Orders for food to be delivered. These orders are taken and the cost calculated on the till, with an estimated £20 being entered as being paid, to enable change to be calculated.. The till receipt is places with the numbered meal pad order, and given to the kitchen. The driver, when the meal is ready will enter “No Sale” on the till and remove the change. Upon return the driver will place the money in the till, again entering “No Sale”. Sometimes moneys are collected under the till and entered together. Thus there can be up to two “No Sale” entries for a delivery order
(b) Orders for food to be collected. The same process as above, but only one “No Sale when the order is collected.
(c) Takeaway orders for food and other small items by visitors who wait. The items are paid for and entered into the till.
31. On 20 January 2006 the Respondents found 49 meal slips which are continuously numbered in the order book, and these are matched to 49 till tickets. Any other “genuine” till tickets would have been on the premises. The Appellant believes that the Respondents have taken away other slips for 20 January 2006, that there is a cover up by the Respondents, and that they are not producing the evidence.
32. There would have been many more “No Sale” entries on the till receipts for the date of the inspection, bearing in mind the system adopted as set out above
33. The Respondents should have taken into account the fact that the rent of £230 paid on the evening of 20 January 2006 was in the till, thus reducing the takings used as the basis of the assessment by that amount.
34. The Appellant keeps a shop float of £500 at the rear of the premises, and if change is needed the till float is topped up. There would be an additional float of £50 in the till, and that would account for the difference between the total cash found and amount shown on the till receipts uplifted.
35. There are no voided orders amongst the slips uplifted.
36. There is no corroboration from the supply side, in that the Respondents have not done any calculation to show that the amount of flour, tomato paste etc. Is out of proportion to the takings.
The Law
37. The Respondents drew the attention of the Tribunal to Customs and Excise Comrs v Pegasus Birds Ltd [2003] EWHC 2552 (Ch). Patten J. said at paragraph 25 “In my view, the use of the words 'best of their judgment' does not envisage the burden being placed on the commissioners of carrying out exhaustive investigations. What the use of the words 'best of their judgment' envisage, in my view, is that the commissioners will fairly consider all material placed before them and, on that material, come to a decision which is one which is reasonable and not arbitrary as to the amount of tax which is due.” The burden is on the taxpayer to show that the assessment is incorrect. Mr Shields submitted, and we accepted, that it is clear from paragraphs 25 and 26 of Pegasus Birds that the Respondents were not required to carry out exhaustive investigations.
Conclusions
38. The question for this Tribunal is whether the Respondents, in assessing to best judgement, have acted unreasonably in either failing to take something into account, or taking something into account that they should not have.
39. It has to be borne in mind that the onus of proof is on the Appellant in this matter. The Tribunal were not impressed with the Appellant as a witness. Even bearing in mind that he had never had to appear in a Court or Tribunal previously, the Tribunal found his evidence inconsistent and unreliable. He had been asked for proof of rent payment by the Respondents in 2006, and had failed to provide it. He was questioned on the first day of the hearing about the rent books, and had an opportunity to bring them in the following day, but failed to do so.
40. There is no evidence, other than an assertion of its possibility, that rent was paid on 20 January 2006; if it was paid, that it was paid at this shop; or if it was paid at this shop, that it was put into the till.
41. Even if the rent was paid that evening, it made no sense that it was put into the till, bearing in mind that the Appellant had told his manager that, for security, not too much money should be kept in the till. The Appellant has not shown that rent was paid that evening.
42. The Appellant asks us to accept that there was £50 put into the till that evening from the shop float. There is no evidence for that, only an assertion and speculation. The cash recorded on the cash sheet provided does not accord with the cash found, even allowing for the rent.
43. The officer looked at the till receipts. The evidence provided is indicative of a substantial underdeclaration. Till receipts are missing, and there is no acceptable explanation of why that has come about.
44. The explanation by the Appellant is unconvincing, and it differed significantly from what his staff told the officers at the time:
(a) The Appellant’s manager told the officers that he did not know how to take an X reading of the till, and that the till is not cashed up at night. The Appellant told us that the manager did a reconciliation on a daily basis and that the staff could take Z readings. The Appellant told us that he checked the cash regularly against the Z readings and then destroyed the record.
(b) The £500 shop float was not mentioned by the staff on the evening of 20 January 2006. Mention of it was first made in Mr Nawaz’s fax of 01.07.2008
(c) The explanation of the method of trade is unique. It does not make sense that where someone telephones to place an order for collection a till receipt should be generated.
(d) The explanation of numerous unrecorded “No Sales” is unconvincing. The Respondents provided evidence of “No Sales” from their visit to the Appellant’s premises in June 2006. Unfortunately Officer Roebuck was unable to give evidence live, but we have no reason to believe that the documentation which he produced was incorrect. The Respondents used the greater number of “No Sales” found in June in their calculation, and we found this to be reasonable.
45. The totality of the Appellant’s case, at its best, is that Mr Sandouk had no idea what money he should have found in the till, or what sales gave rise to it. He was aware of the visit by the officers on 20 January 2006, and that they had checked the cash in the till. Yet, when he went in the following day, he destroyed the Z reading.
46. The Appellant suggests that there should be an allowance for zero rated items. He has no idea what percentage of his sales is zero rated. We accepted the submission by Mr Shields that the net zero rated items were very small. We took the view that the Respondents, in making their calculation, set out at P140 of the papers, had been generous to the Appellant in their valuation of missing transactions and wastage. Thus this could not disturb the conclusion that the Respondents had used their best judgment.
47. Mr Sandouk has asserted that it is likely that there was rent in the till on 20 January 2006, but has failed to provide any evidence in support of that assertion. He has, through his representative, accused the Respondents of a “cover up” and suppression of evidence. Agai, through his representative, he alleges that the Respondents are “crooks”. This is a grave allegation, and there is, upon the admission of the Appellant, no factual basis on which he could say that the Respondents had taken the slips in question. The Tribunal found that the Respondents had acted entirely properly, and the suggestion that they had not done so did not enhance the Appellant’s case.
48. Having found, therefore, as a matter of fact, that the Appellant had underdeclared the amount of VAT payable to the Respondents and that Respondents acted reasonably in relation to the calculation which they made, it naturally follows that the Respondent’s approach is found by the Tribunal to have been made to best judgment and is upheld. The Appeal, therefore, is dismissed.
49. No order as to costs.
TRIBUNAL JUDGE
Release Date: 28 April 2010