United Kingdom VAT & Duties Tribunals Decisions

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Cite as: [2003] UKVAT V18120

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Karen Ann harris v The Commissioners of Customs and Excise [2003] UKVAT V18120 (07 May 2003)

18120

ASSESSMENT – Bank statements reflected greater income than shown on returns – No explanation and no sales figures produced – Whether best judgment

COSTS – Previous hearing order made that Appellant pay – Respondents had applied for hearing in absence Appellant under Rule 26(1) Tribunal Rules 1986 – Statement of Case did not reflect true position – Previous order set aside

LONDON TRIBUNAL CENTRE

KAREN ANN HARRIS Appellant

- and -

THE COMMISSIONERS OF CUSTOMS AND EXCISE Respondents

Tribunal: MISS J C GORT (Chairman)

MR G MILES

Sitting in public in Bristol on 12 March 2003

The Appellant did not appear and was not represented

Mr Matthew Barnes, counsel, instructed by the Solicitor for the Customs and Excise, for the Respondents

© CROWN COPYRIGHT 2003

DECISION

This appeal had previously been called on in Bristol on 28 June 2002 when there was no appearance by or on behalf of the Appellant. A decision in respect of that hearing was released on 25 July 2002 which is annexed to this decision. The facts in the case are set out in paragraphs 1 to 6 of that decision, and are not repeated here, save and insofar as there is an error in paragraph 1 relating to the assessment which is dealt with in the following paragraphs..

In the statement of case the disputed decision of the Commissioners is stated to be an assessment of tax in the sum of £3,729.78 plus interest. In the earlier decision the chairman refers to the assessment having been reduced to £3,729.78 following the appellant's production of further business records in January 2001. This was not in fact the case. An assessment in the sum of £26,537 plus interest was issued by a letter dated 10 March 1999. Following the production of the records, by a letter dated 4 May 2001 the Commissioners invited the Appellant to amend her VAT returns in such a manner that for the three relevant periods, namely 07/96, 10/96 and 01/97 the total tax outstanding would be shown as £3,729.78. This would be the correct amount if the Appellant had paid central assessments which had been issued to a total of £152. Mr J McCubbin, the reconsideration officer who had written the letter then continued:

"If this is not accepted, then the Commissioners will amend their assessment to reflect the above amount and the matters will be pursued accordingly."

The Appellant by a letter dated 25 May 2001 replied that she did not agree with the Commissioners' findings and did not accept that any tax was due. However, no amended assessment was ever issued by the Commissioners, and therefore the assessment dated 10 March 1999 was the only one in existence both at the time of the appeal and the date of the original hearing..

At the second hearing of the appeal, following the Tribunal's having pointed out to the Respondents that the statement of case did not reflect the true position, Mr Barnes applied to amend the statement of case to show that the assessment was in the sum of £26,537 plus interest. Because we did not find that the Appellant would be prejudiced by it, the application was granted upon Mr Barnes' undertaking that the assessment would then be reduced to the sum of £3,729.78 and his further undertaking not to charge interest upon that sum.

At the second hearing of the appeal the Tribunal heard evidence from Mr Stephen Fay, the senior officer of Customs and Excise who had examined the Appellant's business records and returns and had held a meeting with a Mr D Madeley, who was thought to be the Appellant's husband. We also heard oral evidence from Mr McCubbin.

Apart from the matters set out in paragraphs 2 to 4 above, we accept the facts in paragraphs 1 to 6 of the tribunal's decision of 25 July 2002, and we also find the following.

Following the production of the bank statements covering the period 23 April 1996 to 28 July 1997 to the Commissioners, Mr Fay calculated the value added tax due on the basis of the bank figures alone, and issued the original assessment in the sum of £26,537 plus interest.

The bank statements themselves were unusual in that the name of the account holder was deliberately obscured on the statements produced, which were photocopies. The Commissioners contacted the bank but the bank would not divulge the account holder. They also asked the Appellant for this information, but never received it.

It was Mr Fay's opinion that Mrs Harris was not herself running the business, but that it was being conducted by Mr Madeley. This caused Mr Fay some concern, because he felt her name might be being used and that as she was not herself running the business she herself need not to be registered for the purposes of value added tax. Such was his concern that he visited her at her place of work, but found her to be non-committal, and not to be alarmed by the situation. He therefore took the matter no further.

Following the issue of the assessment, and the Appellant having lodged an appeal against it, Mr McCubbin reconsidered the case. As set out in the earlier decision, there was correspondence between the Appellant and Mr McCubbin, and certain records of the business were produced to Mr McCubbin. In particular a simplex VAT register from 1994 onwards, several box files containing monthly bundles of purchase invoices from August 1995 up to December 1996, several bank paying-in book stubs and some cheque books stubs, and several sheets of bank statements from a building society from 1994 to 1995. On the basis of these records Mr McCubbin was able to calculate that the VAT owed was the lower figure not the higher one on the assessment. However, at no stage did the Appellant produce the sales invoices, although she was asked to do so.

It was apparent from the simplex book that the quarterly totals for input tax for the relevant periods were correctly calculated, however without the sales invoices it was not possible to calculate the output tax correctly. From the total of the moneys going into the bank account as shown in the bank statements produced it was apparent that more money was going into the account than was reflected in the sales account. No explanation was ever offered for this.

At some stage the business was deregistered for value added tax, but the Commissioners did not know at what date that took place. However in the bundle of documents produced on behalf of the Respondents there is a letter dated 7 September 1999 from a Mr Peter Leigh, appeals and reconsiderations officer, written to the Appellant in which he states as follows:

"The TSB bank statements ran from April 1996 to December 1997. The later ones, from January to December 1997, tie up with the VAT returns submitted by Mr David Madeley on his VAT registration (which also trades under the name Udell Services). His registration only began on 1 January 1997 so the earlier bank statement cannot be attributed to that registration. Mr Madeley himself says they relate to your registration."

The Appellant traded under the name `Udell Services', as noted in the previous decision. The final period with which this appeal is concerned is 01/97. There is therefore a period of one month, namely January 1997, which overlaps with Mr Madeley's trading under the same name. Whilst it is possible that the sums which appear in the bank statement for that month may in fact relate to Mr Madeley's business, there is no evidence before the Tribunal to confirm that that was the case.

On behalf of the Respondents it was submitted that the assessment had been made to best judgment at the time, and that the Commissioners had taken account of all relevant matters and had not taken into account irrelevant ones.

It was further submitted that, whilst it was unusual to proceed as the officers had in this case, namely to accept amended returns, rather than to reduce the assessment, this method was of benefit to the Appellant since he would not be liable for interest charges if she took that route. It had been considered by Mr McCubbin to be the most practical way of dealing with the situation.

The Tribunal was referred to the case of Rahman [2002] STC 73.

Reasons for decision

We accept the Respondents' submission that this assessment was made to best judgment. The Appellant had been repeatedly asked to provide documents and it was only after the issue of the assessment that she produced further documents which enabled Mr McCubbin to calculate the lower amount which it is now accepted is the correct amount. At no time did she produce the sales records for the relevant period which might confirm that the excess funds shown in the bank account did not relate to the Appellant's business. The Respondents throughout have tried to assist the Appellant.

Upon the Respondents' undertaking to reduce the assessment to £3,729.78 and not to charge interest thereon, this appeal is dismissed.

Following the earlier hearing the chairman had directed that the Appellant pay the wasted costs of the Respondents of the hearing on 28 June 2002, subject to both parties being at liberty to apply as to costs. Mr Barnes asked for costs of the present hearing in addition to those of the previous hearing. There was no application by the Appellant under the liberty to apply. However at the earlier hearing counsel appearing for the Respondents had applied for the matter to be dealt with under the provisions of rule 26(1) of the Value Added Tax Tribunal Rules 1986. The tribunal at the time acceded to that application and accordingly dismissed the appeal. Subsequently the Tribunal became aware that it was inappropriate to have proceeded under rule 26(1), the appropriate rule being 26(2). The hearing was therefore adjourned and set down for hearing at a later date. Had counsel made the application under the correct provision of the rules no doubt the tribunal would have proceeded to have heard the appeal under rule 26(2). Neither counsel nor the tribunal itself put their minds to the fact that this was the inappropriate rule at the relevant time and that is what occasioned the necessity for the re-hearing. Had the statement of case properly reflected the situation and had counsel for the Respondents asked the Tribunal to consider the matter under the correct rule in June 2002 the appeal could, and almost certainly would, have been dealt with at that time. In the circumstances it is clear that the order of the Tribunal that the Appellant pay the Respondent's costs was per incuriam and we set it aside. We do not consider it to be right that the Appellant should pay the Respondents' costs of a hearing which, through the fault of the Respondents proceeded on a wrong basis. It cannot be said that the Appellant by her non-appearance had occasioned the re-hearing and we do not consider it right that she should be ordered to pay the costs of that hearing.

With regard to the costs of today's hearing, again the Respondents had been prepared to let it proceed on the wrong footing insofar as the statement of case did not reflect the true position, and had the Tribunal not pointed this out and allowed an amendment, another hearing would have been necessitated. In the circumstances we made no order for costs.

MISS J C GORT

CHAIRMAN

RELEASED: 7 May 2003

LON/00/1307