United Kingdom Special Commissioners of Income Tax Decisions

SPC469

ASSESSMENT – whether loss of tax on account of negligence – yes – whether taxpayer has satisfied burden of disproving the assessment – adjourned to allow the Inspector to comment on the taxpayer's contentions – penalty issued for non-compliance with directions

THE SPECIAL COMMISSIONERS

MRS SHILPA DOSHI Appellant

- and -

MARK DAVID ANDREW

(HM INSPECTOR OF TAXES) Respondent

Special Commissioner: DR JOHN F. AVERY JONES CBE

Sitting in public in London on 14 to 17 March 2005

Dhiren Doshi, husband of the Appellant, for the Appellant

Barry Williams, Inland Revenue Appeals Unit London, for the Respondent

© CROWN COPYRIGHT 2005


 


INTERIM DECISION

1. This is an appeal by Mrs Shilpa Doshi against a discovery assessment for 1996-97 and a closure notice making an amendment to her self-assessment for 1997-98 in relation to her business carried on as a sole trader under the name of Doshi & Co Accountants. The Appellant was represented by her husband Mr Dhiren Doshi; and the Inspector was represented by Mr Barry Williams.
2. The issues in this appeal are whether for 1996-97 there was loss of tax attributable to negligence enabling the out-of-time assessment; and for both periods what were the Appellant's trading profits for tax purposes.
3. I had separate bundles of documents from each party. I heard evidence from the Appellant, the Respondent, Mr Doshi, Mr Sudarshan Alagaratnam, Mr Mohannad Rafiq Yacub, and (in response to a witness summons) Mr Kishor Shah.
4. I find the following facts:

(1) Mr Doshi started an accounting firm in 1995 with two qualified accountants. His idea was for a one-stop professional firm and so he founded Doshi & Co Chartered Accountants, Doshi Financial Services Limited, Doshi Chartered Surveyors, an association with a firm of solicitors, and Doshi Computer Services Limited.

(2) Doshi & Co Chartered Accountants ran until July 1996 when five of the principals (I do not know whether they were actually partners) left taking the clients and many of the accounting records. The Appellant firm, owned by Mrs Doshi, started on 1 August 1996 and ran to 31 December 1997. The Appellant provided a bookkeeping service. A VAT form relating to the transfer of a business while retaining the same VAT number dated 14 January 1997 states that the business was transferred from Mr to Mrs Doshi on 1 November 1996, a date that was used by Mr Alagaratnam for preparing management accounts for the Appellant, and which I find to be incorrect.

(3) From 1 September 1996 Doshi & Co Registered Auditors ("Registered Auditors") existed with three principals from the former Chartered Accountants firm, Mr SP Dubb, Mr K Doshi (who is not related to the Appellant) and Mr K Shah. Registered Auditors was registered with the Association of Chartered Certified Accountants and was able to give audit reports. Effectively the former chartered accountants firm was split into two with the Appellant providing bookkeeping services and Registered Auditors providing accountancy services. Eventually these three left taking the clients and many of the accounting records. Mr Doshi attempted to obtain the accounting records but failed. The Appellant is therefore in a difficulty about the loss of many of the records that would enable her to prove her case. The problem is compounded by another related company, Doshi Group Limited, having been wound up and the Official Receiver has destroyed the records.

(4) Mrs Doshi does not know anything about accounting. She leaves it to qualified accountants and Mr Doshi.

(5) The accounts of the Appellant for the period 1 August 1996 to 31 December 1997 accompanying the tax return show:

Income		538628
Expenditure
Wages		141566
Other (itemised)	247471	247471
Finance costs	24199	24199
Depreciation	44236	44236
Loss on disposal of motor vehicles	79898	79898
Profit		1258

There was also a claim for capital allowances summarised in paragraph 4(13) below.

(6) Despite being an accounting firm it is admitted that the accounting records have been poor and that accounts are wrong. Mr Doshi contends that the fee income is 95% correct but that the expenses are overstated because of expenditure incurred by other related firms not being recharged to them. The staff were employed by Doshi Group Limited from September 1996 and there is also an issue about what charge was made to the Appellant for their services.

(7) I saw a summary of the VAT returns plus a voluntary disclosure (all for VAT registration No.649 7920 84, the registration transferred to the Appellant on 1 November 1996 (except that the figures for the quarter ended October 1996 are for VAT registration No.662 8365 12 ("Doshi & Co"), with a nil return for the former number for that quarter)). The outputs (income) total £548,479.80 net of VAT, but Mr Doshi said that the voluntary disclosure of £62,545.34 omitted outputs has been incorrectly included as a net figure whereas it should be gross. Correcting this gives £539,165 which is close to the £538,628 figure in the tax return. The voluntary disclosure figure was calculated by Mr Yaqub and arose from his review of the quarter to October 1997. From the VAT working papers the outputs are the fees from clients on a cash basis, and do not include any other income from related entities. Mr Yaqub was told to include the fees from clients and to ignore any transfers between related entities. I also saw a note to Mr Doshi dated 3 December 1996 stating that "Shilpa Doshi to take over billings from 1/11/96 for VAT purposes. The Registered Auditors do not have a separate VAT number and therefore all VAT accounting must go through Shilpa Doshi."

(8) The VAT inputs (expenditure), which are categorised, total £840,140.05 net after adding a voluntary disclosure (which was not made by Mr Yaqub) increasing the figures by £91,008.06. I would expect that these figures were reliable as they were used to reclaim VAT but I notice that the input figures for the quarter ended October 1997 are identical with those for the two months ended December 1997 (except that the total VAT and gross figures are calculated as different amounts), which means that these figures cannot be relied upon. Mr Doshi accepts that many of these expenses should be shared with the related entities. Comparing the total with the expenses of £247,471 charged in the Appellant's accounts, means that £592,670 of the inputs must have been charged to other entities, or £451,103 if the recharge also takes the wages into account (although there are no outputs reflecting any such recharges). This, Mr Doshi points out, is of the same order of magnitude as the £461,942.71 invoiced to Doshi Group Limited which was found in that company's records but not in the Appellant's records (see paragraph 4(12)). Mr Doshi listed 25 invoices that were charged to the Appellant but were incurred either wholly or partly for other related entities.

(9) Mr Yaqub drew my attention to an invoice dated 30 January 1998 (ie after the Appellant's business had ceased) from Registered Auditors to the Appellant for "Consultancy & Accountancy Services" for £59,365 plus VAT. He found it strange that there were no other similar invoices.

(10) The documents include statements for the business bank accounts, which for convenience I shall identify by the last three digits of the account numbers. These are NatWest account No.926 ("Doshi & Co Accountants"); NatWest No.372 ("Doshi & Co Accountants Number 2 A/C (professional group)"); NatWest No.504 ("Doshi & Co" in the heading and "Mr SP Dubb, Mr K Doshi & Mr K Shah" at the bottom of each page); and Barclays No.291 ("Doshi & Co"). All these accounts continued despite the termination of the Appellant's business on 31 December 1997. Statements are missing for No.926 for 30 August to 6 November 1996 and 4 July to 22 October 1997; for No.372 for 1 August to 8 November 1996; for No.504 for 1 August 1996 to 3 February 1997 and 22 July to 29 October 1997; and for No.291 for 1 August to 30 October 1996 and also sheet 80. There are also statements for a Doshi Group Limited account except for 1 August to 3 October 1996, 14 March to 30 April 1997, and 10 July to 31 December 1997.

(11) In relation to the charge for wages, I saw three invoices from Doshi Group Limited dated 1 October 1996, 1 November 1996 and 1 December 1996 all for £15,000 and all for wages; none of these separately stated any VAT figure. I also saw a list headed "Salary. Cross Charge from Doshi Group Ltd" to which is added in manuscript "for the year to 31/10/97" which listed 13 names under the heading PA (which I was told was partner's assistant, which I interpret loosely as there were no partners in the Appellant firm) and 13 names under the heading Processing, all which were familiar names to Mr Alagaratnam and Mr Yacub. The total is £384,900.66 plus employer's National Insurance of £37,205.89. For comparison, if the £15,000 per month invoices had continued the total would have been £180,000. I also saw a nominal ledger for the Appellant for the year ended 31 December 1997 headed wages which has two debit items, one credit item and a debit for "expenses recharged" of £105,207.86 (suggesting that this had been charged by Doshi Group Limited), giving a closing balance of £141,565.73, which corresponds to the wages figure rounded to £141,566 in the profit and loss account accompanying the tax return. The summary of the VAT returns includes inputs (expenditure) on wages of £8,000 in the quarter ended 30 April 1997 and £2,000 in the quarter ended 31 July 1997, total £10,000, suggesting a further charge from Doshi Group Limited. An earlier version of the summary produced by Mr Alagaratnam shows an input for wages of £45,844.20 in the period ended January 1997 with a manuscript deduction of £45,000 (the same as the total of the three invoices), which does not appear in the later version. The figures in the document headed Cross Charge from Doshi Group Limited are not wholly and exclusively expended because Mr Alagaratnam and Mr Yacub agreed that some of the employees were also working for Registered Auditors and for Doshi Group Limited. Some of the other figures quoted above may represent an estimate of wages for work done for the Appellant but I have no method of determining whether any of these is correct.

(12) When Mr Andrew visited the Official Receiver in February 2000 he saw papers relating to Doshi Group Limited. His witness statement records:

"Details of invoices from Doshi & Co to Doshi Group Ltd for December 1996 and from April 1997 to March 1998 in respect of a labour charge. Copies of all of the invoices excluding December 1997 are in the bundle, but I do not know why the copy for December 1997 invoice is missing. I do however include a copy of a manuscript note made by me during my visit, showing the amount charged by the December 1997 invoice. The invoices total £461,942.71. I noted that the accounts in respect of Doshi Group Ltd were likely to be incorrect as they did not appear to include the expenditure of £16,000 shown on the invoices for December 1996 and April 1997."

I deduce that, apart from the two mentioned in the last sentence, such invoices were included in the accounts of Doshi Group Limited. I saw copies of the invoices except for the December 1996 one. They are for £1,000 (December 1996), £15,000, £21,500, £42,019.45, £26,500, £22,000, £9,000, £62,500, £57,561.54, £126,000, £8,772.85, £50,088.87, £20,000 (monthly from April 1997 to March 1998 respectively) and they all say "labour charge". They are not included in the Appellant's accounts. Since Doshi Group Limited employed the staff and the Appellant had no staff it is clear that the description of labour charge is incorrect. Another puzzling feature is that the invoices continue until March 1998 whereas the Appellant ceased trading in December 1997. Mr Doshi contended that it represented a recharge to Doshi Group Limited of expenses which had been invoiced to the Appellant. It is of the same order of magnitude as the difference between the inputs (expenditure) in the VAT returns (£840,140.05, see paragraph 4(8)) and the amount claimed as expenditure in the accounts (£247471, difference £592,670 or £451,103 if the recharge also takes the wages into account.). I also record that although a VAT number is stated no VAT is shown separately on any of the invoices.

(13) In relation to capital allowances, originally £84,391 was claimed in respect of 18 cars but during the hearing this was abandoned except as to two cars, a Mercedes (£10,000) and a Renault (£7,493). There was no evidence of use of either of these in the Appellant's business. As to plant and machinery, there are inputs claimed in the VAT returns totalling £14,596.43 for equipment and £45,255.09 for computers, which would result in a claim for allowances on £26,277. The tax return claims plant and machinery allowances on £64,000 which does not tie in with the fixed assets schedule in the accounts. The nominal ledger shows computer equipment of £30,455.98 (compared to £143,322 in the fixed assets schedule in the accounts), fixtures and fittings of £1,513.43 (compared to £7,122 in the accounts), and plant and machinery of £28,572 (the same as the fixed assets schedule in the accounts). I am unable to find what amount was expended by the Appellant on plant and machinery and what was used in the Appellant's business.

(14) The discovery assessment and closure notice was made by taking the total receipts in the four business bank accounts (£1,354,994.30 exclusive of VAT) and deducting the declared takings of £538,628, and disallowing the capital allowances claim. This gives a revised profit of £942,982 apportioned as to £451,466 to 1996-97 and £491,516 to 1997-98.

5. Mr Andrew, the Inspector, made a detailed proof of evidence running to 13 pages cross-referenced to his documents which ran to 927 pages. After describing the documents that he saw in relation to the accounts, his conclusion was:

That the figures in respect of expenditure could not be verified and therefore they could not be relied upon

That the Sales Ledgers held contained significant differences and could not be relied upon

That in any event the Sales Day Book had not been used to calculate the turnover figure

That the adjustments made in the Nominal Ledger were not documented and therefore could not be relied upon

That turnover appeared to be based on bankings, although due to missing statements not having been included, this figure could not be relied upon

That the turnover figure did not include the invoices issued by Doshi & Co to Doshi Group Ltd, and therefore could not be relied upon

That due to bankings in the various Doshi & Co accounts exceeding the declared turnover by in excess of £800,000 after taking into account VAT, there may be other invoices to other connected companies or businesses such as those to Doshi Group Ltd, and these may account for the difference. Alternatively, there may be further invoices to Doshi Group Ltd for the months of August to November 1996 and January to March 1997 which were not amongst the records of Doshi Group Ltd and which the payments from MB Wines Ltd were in respect of

That there was little evidence to support the Capital Allowances claim, and in the absence of such evidence, or even a computation, the claim could not be accepted

That dates used for commencement and cessation were ambiguous and could not be relied upon

That with in excess of £356,000 having gone out of the business through items either noted as 'Cash' or 'No details' there was ample scope for extraction of funds from the business

6. After analysis of bank statements Mr Andrew concludes that:

(1) Bankings into various Doshi & Co accounts exceeded declared turnover by more than £800,000.

(2) Payments out of the Appellant's business bank accounts to cash, Doshi Financial Services, Doshi & Co, Doshi Group and those with no details amounted to £631,163 of which £186,750 is noted as cash and £170,113.26 with no details.

(3) £271,150.25 was paid out in the last two months of the business, all being marked cash or no details except for £6,900 to Doshi & Co.

(4) Mr and Mrs Doshi had deposits into their private accounts of £344,297 but only £59,959 disclosed income.

7. During the hearing Mr Doshi gave his best estimate of the profit (leaving aside capital allowances for the moment) as follows:

Income	538628
Expenditure
wages	492457
other	24741
Registered Auditors	40000
Loss	18570

The income is as in the tax return; wages are the total of cross-charge from Doshi Group plus 2 months at same monthly rate (this assumes no wages for August to October 1996); the other expenses are 10% of the expenses in the accounts (on the basis that the rest is charged to other related entities); and the Registered Auditors item is for work done by that firm. (The loss stated above is different from the £21,525 calculated by Mr Doshi but he calculates the wages charge as £492,457 and then lower down adds a figure of £495,412.)

8. It is common ground that the burden of proving neglect is on the Inspector but if this is shown, the burden is on the Appellant to disprove the discovery assessment and closure notice. I also bear in mind Walton J's statement in Jonas v Bamford 51 TC 1 at 24F:

"But he [the taxpayer] is once again forgetting that the onus falls upon the taxpayer to show that the Revenue's figure was wrong – an onus which is not discharged merely by showing that there may have been an explanation for the accretion in Mr Jonas's wealth, not that there in fact was. Similarly, Mr Jones sought to argue that a sum of £200, the residue of a couple of sweep stake wins omitted in Mr Jonas's hands, was expended by him upon the affairs of the company; but there was not a scintilla of evidence that this was the case. It is equally fair to say there was not a scintilla of evidence in the contrary direction, but this is precisely why the onus is, in this case, of such vital importance. At the end of the day I should have been more than willing to follow Mr Jones through all the figures if there had been anything concrete upon which to bite: but there was not, and at the end of the whole of Mr Jones's financial wizardry the simple fact remains that he had not discharged the onus which lay upon the taxpayer of showing that the additional assessments were wrong."

9. In drawing any conclusions from the facts I shall make allowances for the missing accounting records. While the burden of proof is on the Appellant she cannot be expected to do the impossible. I instanced the case where accounting records were not available because of a fire. The question is whether she has done everything that is possible in the circumstances. It seems to me that much of the problem is not that records are now missing but that there never was any proper split of the expenses between the Appellant and the other related entities, or of the wages between the Appellant and Doshi Group Limited, all of which one would have expected to have been invoiced between the related entities at the time.
10. Mr Williams started by suggesting that that Mr Doshi's witness statement had accepted that there was negligence. After hearing Mr Doshi it seemed that he did not accept this. However, by the end of the hearing he accepted carelessness on behalf of Mrs Doshi (but with the mitigating circumstance that she had left accounting to qualified people) and on my stating that this amounted to negligence he conceded negligence. In case there is any doubt about this, I find that the muddle over the accounts demonstrated by the facts that I have found speak for themselves in amounting to a clear case in relation to both years of assessment that there has been loss of income tax attributable to the Appellant's negligence or to the negligence of those acting on her behalf.
11. I had hoped that I would be able to reconstruct a profit and loss account by making adjustments to the one proposed by Mr Doshi. However, my conclusion is that there are far too many unknowns for this to be possible.
12. The income figure in the accounts is a cash figure taken from the VAT returns after analysis of the bank statements without taking the transfers between related entities into account. There is even a suggestion that Registered Auditors' income has gone through the Appellant's VAT returns (see paragraph 4(7)). There are invoices totalling £461,942.71 not included in the turnover, which Mr Doshi contends represents expenses charged to the Appellant and re-charged to other entities and he points out that they are of the same order of magnitude as the VAT inputs not claimed as expenses in the accounts. But, if this is so, why did the invoices describe it as labour charges? I do not accept that the Appellant could issue 13 invoices all for labour charges when she was intending to recharge other expenses. Why was the only entity charged for a proportion of the expenses Doshi Group Limited when one would expect the other entities sharing the premises, such as Registered Auditors, also to be to be charged (having the accounting records of Doshi Group Limited would have helped on this)? Why are there invoices for such charges for January to March 1998 when the Appellant ceased trading on 31 December 1997? Why are 9 of the invoices in round figures if the Appellant was recharging a proportion of actual expenses? I cannot relate the invoices to the inputs (expenses) in the summary of the VAT returns for the same period. For example, the total of the invoices for the quarter ended October 1997 is £93,500 whereas the total inputs for that quarter are only £18,686.48. In view of all these questions I find that the invoices do not relate to the re-charge of such expenditure and I find that the invoices represent undeclared turnover.
13. The possible figures for the amount expended by the Appellant on wages include £10,000 (VAT return, presumably invoiced), £45,000 (invoices), £105,207.86 (nominal ledger), £141,566 (accounts), £180,000 (if the rate of invoicing had continued), £422,106 (the cross-charge document), £492,457 (the same plus two further months, as now claimed by the Appellant). I have no method of deciding which, if any, of these is correct and so I am unable to find what amount was actually, as opposed to what might properly have been, expended by the Appellant on wages. I would accept that the £45,000 invoiced by Doshi Group Limited plus the £10,000 in the VAT return was for wages.

On the other expenses, the possibilities include £840,140.05 (VAT summary), £24,7471 (accounts, implying a cross-charge of the difference of £592,670, or £451,103 if the wages are also taken into account), and £24,741 (10% of the accounts figure now claimed by Mr Doshi). Mr Doshi agrees that the first figure includes expenses relating to other associated entities. I have no means of determining what, if any, change should be made to the accounts figure, or of determining the extent to which they represent expenditure wholly and exclusively incurred for the purposes of the Appellant's trade. I cannot accept taking an arbitrary 10% of the expenses shown in the accounts accompanying the tax return, on the basis that 90% represents a proper recharge to other entities. On the evidence I am unable to come to any conclusion about what expenses should be allowed.

14. the best estimate I can made on the basis of the evidence is to add the £461,942.71 missing invoices to the turnover, allow only the £55,000 for which there are invoices or entries in the VAT summary for wages, and disallow the whole of the other expenses, except for the charge from Registered auditors for consultancy and accountancy services of £59,365, on the basis that it is clear that they were not expended wholly and exclusively for the purposes of the Appellant's trade, and there is no means of knowing what part of them was so expended. This would give a profit of £786,205 but as there are so many unknowns I cannot determine the profit in this figure.
15. As to the capital allowances claim, I am left with the claim for two cars, but there is no evidence of use of these cars in the business, particularly bearing in mind that the Appellant had no employees. I do not therefore accept any allowance in respect of cars. So far as plant and machinery is concerned the facts found suggest various different figures. Mr Doshi's notes (effectively his skeleton argument) conclude "It appears that Yannick [Chan, who prepared the accounts] was trying to simply get Shilpa Doshi T/A Doshi & Co to break even ever the period; and proportion certain costs to Doshi & Co, Doshi Group Limited, DFS, Registered Auditors." In the circumstances, I am not satisfied about any of the figures and disallow all capital allowances.
16. Being unable to form a view about the profit I am reluctantly left with Mr Andrew's approach which is to say that all receipts into any of the Appellant's business accounts are income unless proved otherwise. In relation to this method Mr Doshi contends that that account No.504 is the Registered Auditors' account and should be omitted from the total if this method is adopted (except as to receipts from the Appellant's business that has been paid into that account, which appear to have been analysed in the VAT returns). Mr SP Dubb, Mr K Doshi and Mr K Shah whose names appear on the account are the three who formed Doshi & Co Registered Auditors and Mr Shah gave evidence in response to a witness summons acknowledging that it was the account of that firm, although he did not often sign cheques himself, and Mr Alargaratnam also stated that it was the Registered Auditors' account into which some standing orders from clients of the Appellant paid money. It is more probable that this account is in fact the account of that firm, and I so find.
17. Mr Doshi has made a detailed attempt to eliminate the double counting which is likely to have occurred in this method. Unfortunately he did this in his reply. His documents and witness statement came so late that Mr Andrew cannot have had time to consider it, and Mr Williams addressed me on the burden of proof generally.
18. The choice facing me is between my going through Mr Doshi's detailed calculations and forming my own view without any assistance from Mr Andrew, or giving him a chance to comment before doing so. Although I would have preferred to determine the appeal after what has already been a four-day hearing, I have decided that I should adopt the latter course. I will therefore give Mr Andrew the opportunity of replying in writing to Mr Doshi's contentions relating to the bank accounts (including, if he so wishes, the contentions on the personal accounts), and I will give Mr Doshi the opportunity to reply in writing to Mr Andrew's contentions. Following that I will make a decision based on the written representations and using this method (that is to say I will not revisit my decision on the impossibility of reconstructing the accounts and will allow only the expenditure found in paragraph 14). In doing so I will be influenced by what is possible for the Appellant to prove given the lack of records. Mr Doshi produced some further documents from Halifax plc after the hearing, to which Mr Williams objected, but I will allow these to be taken into account as any information may be helpful.
19. As I am not sure how long would be reasonable to give the parties to do this, I direct them within 21 days of the date of release of this Interim Decision to give the Clerk to the Special Commissioners an estimate of how long they would request, following which I will issue a direction setting time limits which I shall fix in the light of the representations (or of my own view in the absence of representations). Naturally it is open to the parties to negotiate a figure based on this method and I will extend the time limits to enable this if requested to do so by both parties. I would encourage the parties to do this. Indeed, Mr Andrew expressed surprise about Mr Doshi's previous unwillingness to enter into any negotiations.
20. My colleague Dr Brice issued Directions on 2 November 2004 following a hearing attended by Mr Doshi the previous day that the Respondent was to serve its documents on the Appellant who would provide any additional documents, following which the bundle was to be served on the Clerk to the Special Commissioners 14 days before the hearing; that witness statements were to be served on the other party and the Clerk 14 days before the hearing; and that the Appellant serve a skeleton argument 7 days before the hearing. Mr Doshi did not agree any of the Inspector's documents, and produced his own which included many that were in the Inspector's bundle which means that I had two sets of many of them. He produced 4 bundles of documents (one of 369 pages) on the Thursday before the hearing which began on a Monday, which include some notes which could be regarded as a skeleton argument. He faxed 4 witness statements on the early morning of the second day. Mr Williams (greatly to his credit) elected to continue with the appeal in spite of having difficulty in obtaining instructions from Mr Andrew on these but invited me to issue a penalty under regulation 24 of the Special Commissioners (Jurisdiction and Procedure) Regulations 1994. I consider that I should. The point of issuing directions is to avoid any ambush. They failed completely to achieve this and the result is that I am unable to decide the appeal without giving the parties time to make further representations. I am not prepared to allow Directions to be ignored in this way. Directions mean what they say and they are backed up by penalties (maximum £10,000). I issue a penalty of £250 against the Appellant.
21. I should like to add two further points. First, I have made reference in paragraphs 4(11) and 4(12) to invoices that do not show VAT separately, and which I assume should be treated as inclusive of VAT which will not have been paid. I direct the Inspector to bring these to the attention of HM Customs and Excise (or the relevant person in the merged department if the merger is imminent).
22. Secondly, accounting records destroyed by the Official Receiver would have been of great assistance particularly in determining what had been expended by the Appellant for wages. Where the Revenue are investigating a related entity would it not be possible for the Official Receiver to be asked to retain records? I have previously had exactly the same problem in a VAT appeal where a director was appealing against a penalty imposed on account of actions of a company in liquidation (see Sped Abdul Malik v Customs and Excise Commissioners (2003) VAT Decision 18091 at paragraph 13).
23. Accordingly my interim decision is:

(1) I direct the parties within 21 days to give an estimate of the time they require for making further submissions in accordance with paragraph 19, and adjourn the appeal pending the receipt of these further representations.

(2) In any event, account No.504 is not an account of the Appellant and so Mr Andrew's calculations should be revised by reducing it by the bankings into this account of £260,968 (including VAT), but not for amounts paid into this account by the Appellants' clients.

(3) I direct the Respondent to bring the invoices not showing VAT referred to in this decision to the attention of HM Customs and Excise (or the relevant person in the merged department if the merger is imminent).

(4) I impose on the Appellant a penalty of £250 for failure to comply with the Directions issued on 2 November 2004.

JOHN F. AVERY JONES

SPECIAL COMMISSIONER

RELEASE DATE: 5 April 2005

SC 3014/04

Authorities referred to in skeletons and not referred to in the decision:

Jonas v Bamford 51 TC 1

Nicholson v Morris 51 TC 95

Hudson v Humbles 42 TC 380

Hurley v Taylor 71 TC 286