First-tier Tribunal (Tax)

[2010] UKFTT 375 (TC)

TC00657

            Appeal number: TC/2009/12051

VALUE ADDED TAX – Appeal against assessment made- Appellant claiming that HMRC did not take all relevant factors into account

FIRST-TIER TRIBUNAL

TAX

                                        RANDBEE LEISURE LTD                       Appellant

                                                                      - and -

                                 THE COMMISSIONERS FOR HER MAJESTY’S

                                                   REVENUE AND CUSTOMS               Respondents

                        TRIBUNAL: MRS.S.M.G.RADFORD (TRIBUNAL JUDGE)                                                                MRS.S.CHEESMAN                        

Sitting in public at 45 Bedford Square, London WC1 on 28 July 2010

 Mr.G.R.Janbakhsh for the Appellant

Mrs.G.Orimiloye, instructed by the General Counsel and Solicitor to HM Revenue and Customs, for the Respondents

© CROWN COPYRIGHT 2010

DECISION

1.       This is an appeal against an assessment of Value Added Tax (“VAT”) in amount of £13,508.19 plus interest which was made under Section 73(1) of the Value Added Tax Act 1994 for VAT periods 1 October 2003 to 31 March 2006.

2.       A reconsideration and further reconsideration of the decision to impose additional VAT was undertaken by HMRC at the Appellant’s request and the decision was upheld.

3.       Mrs Jacobs, Mr Erskine and Mr Triebwasser, officers of HMRC, gave evidence for HMRC. Mr Janbakhsh gave evidence for the Appellant.

Background and facts

4.       The Appellant is a limited liability company which carried on business as a wine bar from premises in Ipswich. Mr Janbakhsh was listed as the sole director of the company although he ran the wine bar with the help of his brother and his wife did the VAT returns.

5.       On 27 0ctober 2005 Mrs Jacobs, an officer of the local VAT office, accompanied by Mr Erskine carried out a VAT inspection at the wine bar. She met Mr Janbakhsh and obtained the price list verbally from him.

6.       A further visit was arranged for 6 December 2005 and on 28 October 2005 Mrs Jacobs dropped off a letter at the wine bar detailing the records required for inspection on 6 December 2005.

7.       Mrs Jacobs together with her senior officer, Mr Triebwasser, went back to the wine bar on 6 December 2005 to inspect the records and confirm details from the previous visit. Annual accounts for 2003 and 2004 were analysed and a difference between turnover and net sales was found for both years.

8.       On 31 August 2006 Mrs Jacobs wrote to the Appellant sending a schedule of her initial findings which showed a possible £19,708.85 of VAT output tax due. She met with Mr Janbakhsh on 6 and 12 October 2006 to discuss her findings.

9.       At the meeting on 12 October Mr Janbakhsh provided 2 price lists for both before and after September 2005. He explained that the prices he had given her the previous year had been the new prices. He had put the prices up in September 2005 because he intended to sell the bar and wanted to make it as attractive as possible to a potential seller. At the meeting in October 2005 he had just read her the current prices from the price list up on the bar.

10.    Mrs Jacobs provided a spreadsheet on 7 November 2006 confirming that she had reduced her original estimate to allow for stock not sold as a result of cleaning, drip trays and staff drinks. She stated that she was now in a position to raise an assessment for VAT due of £13,503 and on 7 December 2006 an assessment letter in this amount was issued to the Appellant.

11.    The Appellant contested this assessment and it was reviewed by Mr Triebwasser. He upheld the assessment on the basis that there was insufficient evidence to substantiate the lower price list provided by Mr Janbakhsh in the meeting on 6 October 2006. Furthermore he found it difficult to believe that those prices had remained static for the three years previous to September 2005 as he thought this would be uncommercial given the regular Budget and supplier increases.

12.    The Appellant’s representative had replied stating that Mr Janbakhsh had not been aware of the implications when he had provided a current price list at the time of the first visit and whilst it was true that it was not commercially viable to fix the prices for three years, nevertheless this was what had happened which had resulted in a net loss of £941 for accounting year ended 31 December 2004 and for 2005 a net loss of £9,399. Based on these figures the decision had been taken to sell the business which was accomplished in February 2006. Additionally the representative stated that the prices used should have been used on a sliding scale to reflect regular Budget and supplier increases over the period of the investigation.

13.    Mr Triebwasser responded again emphasising that the Appellant had not mentioned the price increases at the initial meeting and Mrs Jacobs had carried out a detailed mark up exercise based on prices shown on invoices compared with declared sales and used the results as the basis for the subsequent assessment.

14.    The case was then passed to HMRC’s appeals office for further independent reconsideration and they upheld the assessment. A further reconsideration was requested and HMRC replied that in the absence of further substantial information the assessment would be upheld.

15.    Mr Erskine and Mrs Jacobs confirmed the details of their visit and Mrs Jacobs described the allowances she had made for wastage and how she had calculated the mark ups using the sales invoices with which she had been provided. A chart was presented to the Tribunal in evidence which set out the allowances and mark ups in detail and Mrs Jacobs explained that they were in fact fairly generous. On questioning she confirmed that although she had checked the cash book it was not consistent and of no help with her calculations.

The Law

16.  Section 73 (1) and (6) Value Added Tax Act 1994

Failure to make returns etc

(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

(6)  An assessment under subsection (1), (2) or (3) above of an amount of VAT due for any prescribed accounting period must be made within the time limits provided for in section 77 and shall not be made after the later of the following—

(a) 2 years after the end of the prescribed accounting period; or

(b) one year after evidence of facts, sufficient in the opinion of the Commissioners to justify the making of the assessment, comes to their knowledge,

but (subject to that section) where further such evidence comes to the Commissioners' knowledge after the making of an assessment under subsection (1), (2) or (3) above, another assessment may be made under that subsection, in addition to any earlier assessment.

Appellant’s Submissions

16.    Mr Janbakhsh contended that at the time of the first meeting he was not aware of the significance of the price list. The officers asked for the prices and he read from the bar list the current prices at that time. Although Mr Erskine took notes of the meeting he was not given a copy of the notes or a chance to agree them.

17.    He had always disagreed with the prices and the wastages and the staff numbers were wrong. He had tried to have another meeting to point this out but all his attempts were rejected.

18.    He had no idea of the process used for the mark up and sought the records from HMRC at regular intervals. It took a year before he was shown the price list which HMRC had used and he was unable to get a note of what had been said at that meeting. He eventually was given the notes of the meeting but they did not record what he had said at that meeting concerning the prices.

19.    Mr Janbakhsh provided the Tribunal with a detailed statement of where he thought that HMRC had miscalculated certain items such as the number of staff employed, the staff drinks, the wastages, the alcohol prices, the till readings and the mark ups. Additionally the Tribunal was provided with a copy of the letter written by Mr Janbakhsh to the Tribunal on 16 December 2009 in which these are detailed.

20.    The price list used did not reflect the prices charged during the basis period and although additional information and explanations were provided to explain the reduced mark ups and prices these had been rejected.

21.    The Appellant believed that the price list in force over the period should have been used and not an inflated one which had been put into place to boost margins prior to a sale of the business.

22.    The mark ups had been kept as low as possible to ensure the bar’s regular customers did not desert them. Other bars had opened in the area and competition was fierce.

23.    The bank statements showed that the business was losing money.

HMRC’s  Submissions

24.    The assessment was made on HMRC’s best judgment and the quantum arrived at was correct in accordance with the evidence available.

25.    A mark up is used as a credibility tool and is used in the assessment process with businesses, such as the Appellant’s, with a high proportion of cash sales.

26.    HMRC had requested drinks prices from Mr Janbakhsh during the initial VAT visit and subsequently used the Appellant’s records for the mark up exercise.

27.    Allowance had been made for unsold stock such as wastage and free drinks and HMRC were unable to reconcile the till receipts with the later price list provided to them.

Findings

28.    The Tribunal found that Mr Janbakhsh was sincere and straightforward in his verbal evidence but unfortunately was not able to provide any actual evidence to support his contentions.

29.    Whilst he was able to attack the figures used by HMRC in their allowances for unsold stock he did produce any records to support his own calculations.

30.    He was not able to explain the difference between the turnover recorded in the annual accounts for years ended 31 December 2004 and 31 December 2005 and the net sales recorded in the VAT returns which indicated that his figures were not strictly accurate.

31.    The Tribunal found that whilst Mr Janbakhsh appeared sincere in his evidence he had not proved his case through lack of reasonable records and information.

32.    HMRC had made reasonable assumptions based on the information provided which relied on far more than just the price list dictated to them at their initial visit.

Decision

31.  The appeal is dismissed.

32.   This document contains full findings of fact and reasons for the decision. Any party dissatisfied with this decision has a right to apply for permission to appeal against it pursuant to Rule 39 of the Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009.   The application must be received by this Tribunal not later than 56 days after this decision is sent to that party.  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.

33.   

MRS.S.M.G.RADFORD

TRIBUNAL JUDGE

RELEASE DATE: 11 August 2010