Thambithurai Sanjeevraj t/a Cambridge Food & Wine v Revenue & Customs [2013] UKFTT 148 (TC) (14 February 2013)
[2013] UKFTT 148 (TC)
TC02546
Appeal number: TC/2012/03358
VAT – assessment - best
judgment – whether assessment reasonable– yes - appeal dismissed
FIRST-TIER TRIBUNAL
TAX CHAMBER
|
|
THAMBITHURAI
SANJEEVRAJ T/A
CAMBRIDGE
FOOD & WINE
|
Appellant
|
|
|
|
|
|
|
- and -
|
|
|
|
|
|
|
|
THE
COMMISSIONERS FOR HER MAJESTY’S
|
Respondents
|
|
|
REVENUE &
CUSTOMS
|
|
|
TRIBUNAL:
|
JUDGE KAMEEL KHAN
|
|
|
CAROLINE DE ALBUQUERQUE
|
Sitting in public at Bedford Square , London on 7 January 2013
The Appellant represented
himself with the help of his accountant Mr Jai Malhotra.
Mrs E Carroll, Higher Officer,
at HM Revenue and Customs, for the Respondents
© CROWN COPYRIGHT
2013
DECISION
Appeal
1.
This is an assessment raised by HM Revenue & Customs (“HMRC”) under
Section 73 (1) of the Value Added Tax Act 1994 (“VATA 1994”). On 9 December
2009 in relation to under declared output tax for the period 1 April 2003 to 31
December 2008 in the sum of £46,290.37 which includes interest at 3%.
2.
The Tribunal must decide whether the Appellant has satisfactory evidence
to demonstrate that the sales arising from his business made during the period
1 April 2003 to 31 December 2008 were not understated and secondly whether the
assessment was properly made under the provisions of Section 73(1) of the VATA
1994.
Facts
3.
The basic facts in this case are undisputed. There is one dispute
relating to the number of no sales. The Appellant’s say that the number of no
sales is 20 to 30 per hour, not per day as claimed by the Respondents. A “no”
sale occurs when the cash machine is opened but there is no sale.
4.
The Appellant was registered for VAT with effect from 20 January 2002.
The business was acquired as a going concern. The core business activities are
that of a supermarket/general store. The store sells groceries, alcohol,
tobacco, newspapers and general foods. It is open seven days a week until late
each day.
5.
The shop has two electronic tills and the till readings form the basis
of VAT quarterly returns. The till readings are provided to the Appellant’s
accountants who prepares the VAT return.
6.
The business operates HMRC’s point of sale “Retail Scheme” for
calculation of VAT. The scheme works by identifying the VAT liability for the
goods or services sold at the time the sale is made. A record of the daily
gross takings for each rate of VAT is maintained and the appropriate VAT
fraction applied accordingly in order to arrive at the tax due.
7.
HMRC officers paid three visits to the Appellant’s business premises.
These were on 7 November 2006, 1 August 2007 and 31 July 2008. On each
occasion, HMRC officers interrogated the main till in operation at the business
premises and obtained various printed till reports. The Appellant and the
Manager were also interviewed concerning the use of the till.
8.
The visits which were undertaken were as follows:
(1)
7 November 2006 – Officers James Gorin and M Buzby carried out an
unannounced VAT visit to the premises. In addition to reports on the two tills
in operation, a questionnaire was completed with Mr Raj Tahambi, the manger of
the Appellant’s business.
(2)
The second visit was on 1 August 2007 and was undertaken by officers N
Conquest and R Dhinsa Singh (“Officer Dhinsa”). These officers also
interrogated the two tills in operation and a questionnaire was completed with
the Appellant.
(3)
The third visit was undertaken by Officer Dhinsa and HMCRC Officer Jas
Bhangu who visited the Appellant’s premises unannounced. The officers
interrogated the two tills in operation and a questionnaire was completed with
the Appellant.
The interrogation of the data
from the till reports showed that there was a significant number of “no sale”
transactions. A no sale transaction occurs where the till drawer is opened
without having to ring a sale.
9.
On 14 August 2008 Officer Dhinsa wrote to the Appellant confirming that
an enquiry was being undertaken into an under declaration of VAT.
10.
On 9 September 2008 a meeting took place between the Appellant and the
Appellant’s representative at the time (Mr Karon), Officer Dhinsa and HMRC Officer
Chris Nowak. This meeting was called a PN 160 Meeting (Public Notice 160)
where the Appellant was invited to make full disclosure of any irregularities.
11.
In the letter which invited the Appellant to that meeting which was
dated 14 August 2008 a request was made by HMRC to the Appellant to state any
“health, disability or language issues” for which arrangements had to be made
at the meeting. There was no communication on these points by the Appellant.
It should be noted that throughout the proceedings at the Tribunal the
Appellant had an interpreter (Dr Anant H Ananthavarathan).
12.
On 7 July 2009, Officer Dhinsa wrote to the Appellant with the details
of the assessment he intended to raise. Details of the Appellant’s right to
appeal and the appeal procedure were provided.
13.
On 9 December 2009, an Assessment under Section 73 (1) VATA 1994 was
raised for VAT and interest.
14.
Mr Karon, the adviser to the Appellant, wrote to Officer Dhinsa on 10
August 2009, appealing against the Assessment.
15.
The Appellant’s new accountant, Mr Jai Malhotra, Accountant and Senior
Partner of Ashwin Associates wrote to HMRC on 5 March 2010 querying the amount
shown on Debt Demand Notice to the Appellant. HMRC responded to that letter on
18 March 2010, providing a breakdown of their client’s debt.
16.
Ashwin Associates wrote to HMRC on 5 May 2010 appealing the
Assessment.
17.
On 15 July 2010 HMRC received an Application by the Appellant to cancel
his VAT registration with effect from 1 April 2010 due the business having
ceased trading. The de-registration of the business took place on 1 April
2010.
18.
Ashwin Associates wrote to HMRC Officer Colin Sparkes on 22 August
2011. They noted that someone from HMRC was supposed to be contacting them
concerning the case and stated that they wished to appeal against the
Assessment. They believed their client had overpaid VAT due to the wrong
formula being used by the previous accountant. They wanted the Assessment
cancelled and to be allowed to resubmit VAT returns for the periods concerned.
19.
Ashwin Associates wrote to HMRC on 24 August 2011 regarding a Debt
Demand Notice stating that the Assessment had been appealed and enclosing a
copy of their letter of 22 August 2011. On 21 October 2011, HMRC Officer
Andrew Stowe replied to Ashwin Associates’ letter of 22 August 2011. He stated
that he had carried out a review of the Assessment but did not agree that it
should be cancelled. He confirmed the reason why the assessment had been
raised. He explained that the Assessment raised by HMRC did not rely on any
formula the previous accountant had used. The Assessment was raised because of
the large number of no sales that were being run through the electronic cash
register which could not be explained by the Appellant.
20.
He explained that 44,000 no sales had been run through the electronic
cash register during the period 5 January 2008 to 28 June 2008. The review
suggested that the under declaration of tax was deliberate. On 26 January
2012, Officer Dhinsa suggested to the Appellants that they should appeal to the
Tribunal since an internal review would be out of time. On 15 February 2012
Ashwin Associates notified the Tribunal of an appeal against the Notice of
Assessment.
The Appellant’s submissions
21.
The Appellant’s submissions are contained in a Notice of Appeal dated 15
February 2012. The Appellant claims that they had legitimate reasons to open
the till 44,000 times during the six month period which was the subject of the
Assessment. They say that the tills were opened for the following reasons:
(1)
To pay lottery winnings
(2)
To rectify mistakes
(3)
For customers requesting change.
(4)
Storing important documents for safekeeping
(5)
Cash dropped from till to safe
(6)
Cash back service to purchase goods and to pay staff wages.
These were corroborated by the
Appellant’s Accountant Mr Jai Malhotra, who appeared as a witness.
22.
The Appellant complained about the fact that they had not received a
reply from HMRC for “three to four years” regarding the Appeal and this was
unsatisfactory.
23.
The Appellant stated that the HMRC Officers had misunderstood the no
sales figures. The no sales figures related to 20 to 30 no sales per hour not
per day and to that extent their conclusions were incorrect.
The Respondents submissions
24.
The Respondents say that the till reports obtained on 31 July 2008 in
relation to a twenty-six week period from January to June 2008 showed that
there were 44,768 ‘no sale’ transactions out of a total of 131,783
transactions. The till drawer had been opened in excess of 44,000 times during
that period for which no sale had been rung through.
25.
The Appellants stated that they had used the no sale function 20 to the
30 times per day (later changed to 20 to 30 times per hour) and HMRC in doing
their calculations gave an allowance of 30 no sales per day to arrive at a
figure of the total no sales for the period in question.
26.
The Appellant’s had provided no evidence to show that the no sale
transactions related to such things as lottery winning payments, cash back
services, change for parking meters, paying suppliers, putting documents in the
till for safekeeping and petty cash.
27.
The evidence provided by the Appellant is minimal and unreliable. There
is a lack of supporting evidence to substantiate their position.
28.
The Appellant’s claimed that they have recorded all daily sales taking
figures into a green cash book. However Officer Dhinsa found that recordings
in the cash book did not correlate to the VAT returns rendered by the Appellant
and when questioned on this matter the Appellant’s replies were unconvincing.
The Respondents claim dishonesty by the Appellant.
29.
The Respondents say that the Assessment was reasonable and was
calculated in a reasonable manner with an allowance given to the Appellant for
no sales and to take account of information which was sent in by the
Appellant’s representative on 10 August 2009.
30.
The Respondents submit that the Assessment under Section 73(1) VATA 1994
as a best judgment assessment was correctly made. The Appellant’s business
records and VAT returns contained inaccurate figures. They submit that the
Appellant’s have provided no satisfactory explanation to satisfy the concerns
of the HMRC officers.
The Law
31.
The legislative provision under which the Respondents decision was made is
contained in Section 73(1) VATA 1994. It states:
“(i) Where a person has failed to make any returns
required under the 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”.
32.
The Respondents also refer to the following cases:
(1)
Customs & Excise Commissioners v Pegasus Birds Ltd [2004] STC 1509
(2)
Van Boeckel v Customs & Excise Commissioners [1981] STC 290
Witness Statements
Mr Jai Malhotra
33.
Mr Malhotra appears as a witness for the Appellant, he made the
following points:
(a)
He was appointed the Appellant’s Accountant on 20 January 2010.
(b) He
confirmed that the shop was in a dangerous area where money change could not be
refused to local residents. He said it was his belief that the cash register
would have been opened 20 to 30 times per hour in order to give change to local
residents who required such change for parking, washing machines or telephones.
(c)
He confirmed he had no involvement with the Appellant before 2010. He
had not been nor visited the shop before that date.
Mr Robinda
Dhinsa
34.
Mr Dhinsa is an Officer with HMRC based in Finchley, London. He job is
largely concerned with visiting retail businesses to confirm their business
activities and ensure they are paying the correct amount of tax.
35.
He made the following points:
(1)
During his two visits to the business premises lasting approximately one
hour each there were no local residents seeking change from the Appellant’s
shop.
(2)
The evidence from the till reports for the period January to June 2008
confirmed approximately 44,000 out of 131,000 transactions as being no sale
transactions.
(3)
At the PN 160 meeting the Appellant proffered no reasonable explanation
for the no sale transactions. He said that the shop had poor cash control and
staff members were stealing. This however did not explain why the VAT returns
were not accurate.
(4)
While the Appellant provided a figure of between 20 to 30 no sales per
hour, he also confirmed by signing a questionnaire on 31 July 2008 that there
was no monitoring of the sales or credit control in the shop and no records
were taken of sales and no sales.
(5)
The green coloured cash book which was presented by the Appellant
showing daily gross takings but contained figures which could not be
deciphered, did not relate to the VAT returns, or explain the daily takings.
It could not therefore be relied upon as an accurate document.
(6)
He confirmed that he had given an allowance of 20 to 30 no sales per day
to the Appellant in arriving at the final assessment figure. The till rolls
interrogated showed a pattern in using the cash machines which suggested
dishonesty.
Other evidence
36.
The Tribunal was presented with a documents bundle and an authorities
bundle. The documents bundle which contained copies of the two till rolls
evidence which showed the no sale transactions.
Conclusion
37.
Some preliminary points:
(a) The onus
is on the Appellant to show good reasons to open the till 44,000 times. They
would need to present evidence that the sales were not understated in the six
month period. The standard of proof is the civil standard of the balance of
probabilities.
(b) “Best of
their judgment” means that the Commissioners will fairly consider all materials
placed before them and on the material, come to a decision which is reasonable
and not arbitrary as to the amount of tax that is due. In essence, the taxpayer
has to show that the assessment is incorrect.
(c) The
question for this Tribunal is whether the Respondents, in assessing to the best
judgment, have acted unreasonably in either failing to take something into
account, or taking something into account which they should not have.
38.
As a general finding, the Tribunal found the evidence presented by the
Appellant and their witness was not convincing. It was inconsistent and
unreliable and not supported by any facts or figures. There is no real
evidence, other than assertions made by the Appellant, and those assertions
were unsubstantiated.
39.
The Appellant’s main assertion is that the till was opened on a no sales
basis 44,000 times to service the needs of the local community. The Appellant
was under an obligation to provide change when requested to do so since the
area was dangerous and a failure to provide change to customers or residents
could have resulted in physical attacks or damage to his shop. The Appellant
provided no evidence that the area was dangerous. It may be dangerous but
there is no evidence that there was an imminent threat to the employees and
premises. The Tribunal would have liked to have seen a community police
report, threats made, photographic evidence of attacks on the shop, reports to
the local police regarding threats and information which supports neighbourhood
being unsafe. Similarly with the regard to the assertions that no sale
transactions were conducted to pay lottery winnings, cash back to customers,
purchase of cash goods and payment of wages, these are all matters which can be
supported by physical evidence. The appellant confirmed in a signed
questionnaire that no records were kept of cash inflow and outflow. There is
no evidence to support the assertions made.
40.
The officers examined the till records. The evidence provided from the
till rolls is indicative of a substantial under declaration. The Appellant was
given an opportunity to meet with the HMRC officers and to provide a full and
frank disclosure of all irregularities. The Appellant gave unconvincing
explanations as to poor cash control and the possibility that staff members
were stealing from the cash register. The evidence was not corroborated and
therefore is not acceptable.
41.
The Appellant’s Accountant’s Mr Malhorta supported the contentions of
the Appellant that the area was dangerous and the Appellant was obliged to
provide change to customers under threat of violence. This may well be true,
but where is the evidence to support that contention? The Tribunal notes from
his oral evidence that Mr Malhorta was not involved with the shop before 2010
and so his knowledge of the relevant period would be limited.
42.
The totality of the Appellant’s case is based on conjecture and
assertions without any supporting evidence. It would have been helpful to the
Tribunal if the Appellant gave oral evidence or provided a witness statement.
He stated that the HMRC Report was wrong and there were 20 to 30 requests for
change on an hourly basis rather than on a daily basis. This would have
explained 44,000 no sale entries into the cash register but while interesting,
it is not convincing in the absence of evidence. The HMRC officers conducted a
detailed analysis of the till rolls. They made visits to the business premises
and during that time did not find any customers requesting change from the
Appellant. The cash book of the Appellant, which would have corroborated the
VAT figures, was an unreliable document containing figures which were unrelated
to the VAT returns. It was not a document which could be relied upon.
43.
The calculations done by the HMRC officers were reasonable and logical.
They gave an allowance of 20 to 30 no sales per day arriving at the final
assessment. The Tribunal was provided with comprehensive figures and details
of the till rolls. The evidence from the till rolls was clear and
unequivocal. In the absence of any records or evidence from the Appellant the
till rolls provides the only reliable evidence. By his own admission, the Appellant
said he had poor cash control and this may explain why the VAT returns were not
accurate. The better explanation is that the sales were not monitored or
recorded and there is therefore no record kept by the Appellant of the number
of no sales, reasons for opening the cash register or the proportion of no
sales entry which relates to change, lottery winnings, wages, etc.
44.
The evidence of Mr Dhinsa was convincing. He explained in quite great
detail how the assessment was made in conjunction with help from HMRC Appeals
team. The assessments were amended to take account of information sent in by
the Appellant. In his witness statement he said:
“No sales analysis provided showed for quarter ending
09/08, no sales were 13% and for period 12/08 no sales were 9.3%. Amendments
were made on 28/8/12, and reduced the assessment for period 09/08 from £3,532
to £1,767, and for period 12/08 the assessment was reduced from £3,861 to
£1,325. Period 03/09 was also reduced from £1 to £0, and this was because it
was initially entered in error. The new assessment total was therefore reduced
from £46,282 to £41,981”
This clearly shows that adjustments were made to the
figures based on the representations by the Appellant in finalising the
assessment.
45.
The Tribunal therefore finds that the Respondents acted entirely
properly and reasonably. The conclusion that there was an under declaration by
the Appellant is one that was reasonably arrived at and follows naturally from
the number of no sales entries into the cash register and the lack of a proper
sales book record. The Appellant has provided no reliable evidence which would
allow the Tribunal to conclude that the assessment was wrong or unreasonable. The
Tribunal finds that the assessment was made to best judgment. The Appeal is therefore
dismissed.
46.
Finally, the Tribunal should mention that it took a considerably long
time for HMRC to arrive at their assessment. The Appellant appeared to be kept
in the dark as to what was happening and his advisors had to write to HMRC to
get information which should have been provided at an earlier date. It is
understandable that the officer dealing with this, Officer Dhinsa was ill for a
six month period. This however does not excuse the three year delay in making
an assessment. The Appellant would be justified in making a complaint on this
ground should he wish to do so.
47.
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.
DR K KHAN
TRIBUNAL JUDGE
RELEASE DATE: 14 February 2013
