United Kingdom VAT & Duties Tribunals Decisions

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Cite as: [2003] UKVAT V18263

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Bon Bon Milk Bars v Customs & Excise [2003] UKVAT V18263 (08 August 2003)

ASSESSMENT S —snack bars — whether quantum of assessments relating to only 2 of appellants 10 outlets based on large amounts of cash found on premises but which cash was satisfactorily explained as being intended for cash and carry purchases should be reduced – on facts assessments reduced to nil – appeal allowed

MANCHESTER TRIBUNAL CENTRE

BON BON MILK BARS LTD Appellant

- and -

THE COMMISSIONERS OF CUSTOMS AND EXCISE Respondents

Tribunal: Mr David Demack (Chairman)

Mr C B H Gill FCA

Sitting in public in Manchester on the 2nd and 3rd July 2003.

Mr Richard Barlow of counsel instructed by IVC Leeds for the appellant

Mr Nigel Poole of counsel instructed by the Solicitor for the Customs and Excise for the Respondents

© CROWN COPYRIGHT 2003


 


DECISION
1. Bon Bon Milk Bars Ltd ("Bon Bon") appeals against amended assessments to tax totalling £36,954 notified on 24 July 2001 and covering the period between 1 April 1998 and 31 December 2000. Those assessments were made by the Commissioners of Customs and Excise under s. 73 of the Value Added Tax Act 1994 on the basis that Bon Bon's returns for the relevant accounting periods were incorrect or incomplete in that:

1) it had not retained all till rolls, despite requests by their officers;

2) there were significant rises i.e. in one case 15 per cent and in another 25 per cent, in individual transaction prices at two of Bon Bon's trading outlets between 29 October 2000 and 23 December 2000 as compared with the same period in 1999 (in both cases after adjustment for price rises); and

3) in the absence of other credible explanations, the explanation for those increases was that prior to 29 October 2000 Bon Bon had not fully declared its takings .

2. Bon Bon appealed by notice given on 24 April 2001 (against original assessments to tax of £37,223 notified on 17 April 2001), simply maintaining that the assessments had not been made to best judgment.
3. Each party produced a bundle of copy documents and parol evidence was given by two directors of Bon Bon, Mr C G Ignatiou and his son Mr G A C Ignatiou, and by Miss Angela Norris, the assessing officer. From that evidence, we find the following facts to have been established.
4. Bon Bon supplies catering, amusements and property from a base in Halifax, West Yorkshire. It was founded in or about 1954, and registered for VAT on the tax being introduced in 1973. Its directors are Mr and Mrs C G Ignatiou and Mr GAC Ignatiou. Bon Bon operates 10 outlets, some of which are in the same premises.
5. The appeal is concerned with but two of those outlets, The Beefeater Grill and Griddle at 1 George Street, Halifax (the Beefeater) and the Hellenic Grill at Vicar Lane, Leeds (the Hellenic). Despite the names conveying the impression of their being restaurants, we find that they are snack bars and cafes mainly providing cups of tea and coffee and light refreshments, but also serving cooked meals such as workmen's breakfasts.
6. During a control visit to Bon Bon in 1988, officers established that Mr Ignatiou senior collected their takings from its various outlets, and checked cash controls and staff. At that time it kept till and audit rolls. Mrs Ignatiou prepared cash sheets and takings records from each outlet from which Bon Bon's accountants prepared its VAT returns. (The company operated the special scheme for catering establishments to calculate its VAT on sales.)
7. On 12 July 2000 Miss Norris paid a control visit to Bon Bon. She found it was no longer keeping a record of daily takings (as required by C&E Notice 727, Appendix F). She also established that the staff at each outlet placed the cash takings in a safe on the premises at the end of every day's trading for collection by Mr Ignatiou junior on Saturday, and that he took a weekly Z reading from each till. She further established that Bon Bon's suppliers' sales records agreed with its purchase records, and that there were no irregularities in the purchase records. Miss Norris instructed Bon Bon to keep a daily takings record.
8. Miss Norris returned on 22 August 2000 when she uplifted what she described in the receipt provided as "5 x bags containing daily shop sales/weekly print and audit rolls for 6 shops weeks 22.7.00 to 19.8.00". In evidence the bags were described as "bin liners".
9. Her analysis of the contents of those bags covers just over 3 pages of notes. (We might add that the analysis was not included in the Commissioners' list of documents, and was only produced at our insistence). In relation to the Beefeater she noted on the first page, "No audit rolls", yet on the third page we find;

"Examination of audit rolls for Beefeater

Friday 28.7.00 £786.20 dec £659 Diff[erence] £127

Thursday 20.7.00 £503.40 £377.94 £125.46

Sunday 23.7.00 £754.94 £682.40 £ 72.54

Thursday 3.8.00 £615.80 £502.19 £113.61

£438.61

Trader is declaring the weekly Z reading

The daily amounts on the audit rolls do not agree with the cash

None of the audit rolls carry on from each other"

10. Miss Norris also analysed the weekly Z readings for the Beefeater as follows:

Daily sheets

"22.7.00 £3571.00 45 £3438.75

7.00 £4276.35 46 £4275.73

8.00 £4117.85 47 £4061.73

8.00 £3821.60 48 £3704.32

8.00 £3113.70 49 £4091.73"

11. The third column of the analysis contains the Z reading numbers. As they are consecutive and complete, we find that it kept all the weekly Z readings.
12. (The fourth column of the analysis is headed "daily sheets": it should read "weekly sheets").
13. In evidence, Miss Norris said and, as we understood her, accepted that the differences between the daily takings as per the audit rolls and Bon Bon's declarations were accounted for by moneys put aside for weekly cash and carry purchases, and the takings were adjusted each Saturday when the purchases were made so that, viewed weekly, the declarations were correct. We find that as fact.
14. In relation to the Hellenic, Miss Norris noted "No audit rolls". She analysed its 5 weekly Z readings for the same dates as those for the Beefeater and, apart from noting a question mark in place of the first Z reading number, found the other four to be consecutively numbered from 99 onwards. What '?' indicated was not explained to us, and in the absence of an explanation we ignore the sign.
15. The evidence adduced about the contents of the 5 bin liners, when viewed against the general background of the whole case was most unsatisfactory. We have already mentioned that Miss Norris, having initially noted that there were no till rolls for the Beefeater, then proceeded to list 4 of them. Her analysis of the contents of the 5 bin liners took just one day. (The records were returned on 5 November 2000). In that time according to her evidence, she personally examined and analysed the "daily shop sales/weekly print and audit rolls for 6 shops" for four weeks. We are inclined to doubt that she carried out that analysis with the degree of care the exercise warranted, particularly (as will appear later) she went on, inadvertently and thus carelessly, to transpose certain figures in her calculations necessitating amendment of the original tax assessments. On the evidence, we are not satisfied that the audit rolls for the Beefeater were as few in number as Miss Norris recorded, or that there were none for the Hellenic.
16. On 18 October 2000 Miss Norris wrote to Bon Bon instructing it to ensure that it kept all till rolls.
17. On 4 November 2000 officers attended various of Bon Bon's outlets at the end of trading to observe the cashing up procedures, and found nothing amiss in the procedures themselves.
18. But subsequently they analysed the takings of the various outlets for the weeks ending 11 September 1999 to 28 October 2000 and calculated the average weekly takings of each. They then compared the results with the corresponding outlet's takings for the week ending 4 November 2000 and found that the takings for that particular week exceeded the average for some of them.
19. As it appeared to Miss Norris that Bon Bon's VAT returns were incomplete or incorrect in that it had underdeclared its liability to output tax, on 10 November 2000 she interviewed Mr Ignatiou senior and Mr Ignatiou junior. Both denied that there was anything wrong with the company's records, or that they were incomplete.
20. There followed correspondence between Bon Bon's accountants and the Commissioners in which the Commissioners' concerns about the records were explored, and the accountants provide at least some missing audit rolls and information about price increases made by Bon Bon. But the accountants failed to satisfy the Commissioners that there had been no underdeclarations of takings and tax.
21. On 17 April 2001 the Commissioners notified Bon Bon of assessments to tax of £37223 for the period between 1 April 1998 and 31 December 2000 inclusive. The sum assessed was calculated in the following way. Dealing first with the Hellenic, Miss Norris determined the average price of each of its transactions in the two four week periods commencing on 29 October 2000 and 26 November 2000. Then she adjusted the prices to take account of a 6 per cent price increase notified by Bon Bon's accountants. Next she calculated the average price of each transaction in the two corresponding four week periods in 1999. Miss Norris claimed to have to estimate the figures for 3 of the 8 weeks adjusted. As the aggregate of the 2000 prices exceeded that of the 1999 prices by 25 per cent, Miss Norris assumed that percentage rate to be the rate of Bon Bon's underdeclaration of tax at the Hellenic in the assessment period. She therefore assessed Bon Bon to the difference between its declared takings and its declared takings increased by 25 per cent.
22. Miss Norris then carried out an identical exercise in relation to the Beefeater and arrived at an increase in average price per transaction of 15 per cent in 2000. Again, she assumed the percentage rate to be that of underdeclaration in the assessment period, and assessed accordingly. (In the case of the Beefeater, Miss Norris claimed to have to estimate the figures for 4 of the 8 weeks).
23. Unfortunately, in the assessments themselves Miss Norris inadvertently transposed the percentage increases calculated for the two outlets, and failed to give credit for zero-rated sales of 4 per cent at the Beefeater and 1 per cent at the Hellenic. Consequently, the assessed sums had to be recalculated and amended assessments – those now before us – made. (As the revised figures led to an increase in the tax assessed in three accounting periods, the original assessments for those periods were allowed to stand.)
24. Miss Norris explained that she assessed for the whole of the three year period permitted by s.77(1)(a) of the Value Added Tax Act 1994 because some audit rolls for the two outlets had not been produced to her, so that she had an incomplete audit trail. But, as we understood her, she did acknowledge that Bon Bon had all the weekly Z readings for that period, and they contained nothing of a suspicious nature. On the basis of that misunderstanding and the other evidence presented to us, we find that Bon Bon held all the weekly Z readings for the Hellenic and the Beefeater for the whole of the assessment period.
25. We enquired of Miss Norris why, since Bon Bon had 10 trading outlets, she chose to assess only in respect of two. She replied, "Because there seemed to be a lot of cash – about £1600 – on those premises on 4 November 2000, which suggested something might be wrong." But then she proceeded to say that she accepted and was entirely satisfied with Messrs Ignatious' claims that the cash takings allocated to cash and carry purchases had been so applied: the cash on the premises had all properly been accounted for. We too are satisfied that it was all accounted for.
26. The average declared weekly takings for the Hellenic in the year to the end of October 2000 were £4948.09, and those for the Beefeater £4159.40. The declared weekly takings for the Hellenic varied between £3810.74 and £6087.89, and for the Beefeater between £3215.70 and £5131.30. In the week ending 4 November 2000 the declared weekly takings for the Hellenic were £5678.38, and for the Beefeater £5296.95. For the corresponding week in 1999, the figures were £5787.86 and £4301.40 respectively.
27. The average transaction price at the Hellenic in the period between June 2000 and December 2000 varied between £1.71 in the week ending 10 June 2000 (declared week's takings £4054.77) and £2.01 in the week ending 2 September 2000 (declared week's takings £4901.03). At the Beefeater in the same period it varied between £1.45 in the week ending 17 June 2000 (declared week's takings £3222.85) and £2.79 in the week ending 30 December 2000 (declared week's takings £4217).
28. In evidence, Messrs Ignatiou could offer no specific reasons for the increases in the average transaction prices calculated by Miss Norris, but did explain to our satisfaction that the types of sales they made varied with the weather and seasons of the year, and that e.g. road closures and building operations being carried out in the vicinity of their cafes sometimes affected levels of trade. Mr Ignatiou produced a slip of paper showing takings of but £172 for one of the outlets for the two days immediately preceding the hearing when it had almost throughout been pouring with rain, and offered it as evidence that takings did vary considerably from day to day. We accept it as such. Both specifically denied any suppression of takings at any of their establishments. We shall deal with their denials in our conclusion. They also explained their practice (earlier accepted by us) of putting aside a certain part of each day's cash takings to cover their cash and carry purchases.
29. Mr Poole, counsel for the Commissioners, submitted that the "significant" increases in the average prices of transactions found after 4 November 2000 demanded an explanation from Bon Bon. If a particular explanation had been put forward, it could have been checked; and if there had been validity in it could have been taken into account. Bon Bon could have put forward its own figures for consideration, but had failed to do so.
30. Mr Poole maintained that Miss Norris's use of a simple average of Bon Bon's price increases, as opposed to use of a weighted average, had been to its advantage for she had ignored a fall in the price of gateaux and in other prices which remained stationary. He submitted that in the absence of an audit trail our decision should take account of the possibility of Bon Bon having made adjustments to the takings figures before the Z readings had been taken. And as Bon Bon had failed both to keep records capable of verification and to give any credible explanation of the increase in the average price of transactions, it had been reasonable for the Commissioners to proceed on the basis that it had not declared all its takings. The assessments should be upheld in full.
31. Mr Barlow, counsel for Bon Bon, submitted that, taking the evidence as a whole, it had not been proved that it had kept no audit rolls for the Hellenic, and only a small number for the Beefeater; and it had by no means been clear how Miss Norris had so concluded. More fundamentally, he contended, whether audit rolls had been kept or not, consecutively numbered weekly Z readings had been kept for both outlets. He invited the tribunal to assume that the Z readings agreed with the audit rolls unless there were good reason to conclude that the tills had been operated in a way that meant they had not been. In any event, he continued, there was no evidence that either till was capable of making the adjustments suggested as possible by the Commissioners; nor was there any evidence that any such adjustments had been made
32. In relation to the Commissioners' claim as to a "significant" increase in transaction prices, Mr Barlow submitted that it did not necessarily require an explanation: there would be fluctuations in transaction prices in any business for various reasons – many, many factors could affect transaction prices. A claim by Miss Norris in evidence that any increase in prices over 5 per cent should be treated as "suspicious", in Mr Barlow's submission, should be disregarded.
33. Of Mr Poole's submission that Bon Bon should have offered an explanation for the difference in prices in 1999 and 2000, Mr Barlow maintained that no explanation was required unless it was probative of something. If Bon Bon has adduced specific evidence, no doubt the Commissioners would have responded, saying "It's nonsense: prove it." He contended that the Commissioners' case on the point was illogical and unfair.
34. Mr Barlow also dealt with the Commissioners' claim that the result of the cashing up exercise on 4 November 2000 showed that Bon Bon had been forced to declare its full takings for that day, whereas for previous periods they had not been so declared. He observed that the takings figure for 4 November was no higher than figures declared earlier. He maintained that, in the event, the assessments simply became an exercise in the spending patterns of customers, and contended that, unless the Commissioners could show the takings in the period ending on 4 November were higher than would have been declared without their intervention, their case was completely illogical.
35. Mr Barlow then dealt with Bon Bon's positive case. He observed that, in evidence, Miss Norris did not appear to have any positive belief that it had underdeclared tax. He wondered whether the foundation condition of s. 73 of the 1994 Act had been satisfied, saying that mere suspicion following a requirement that an officer be satisfied there were no underdeclarations might not be enough. He submitted that the actual reasons for the Commissioners' suspicions as to underdeclarations had largely been refuted: Miss Norris appeared to accept that takings put aside for cash and carry purchases had been so applied.
36. He submitted that, looking at Bon Bon's business as a whole, there was no indication of the suppression of takings. Indeed, he continued, if price increases had been taken into account, the company declared higher takings in 1999 than 2000. He maintained that there was no evidence to refute Messrs Ignatious' claims that Bon Bon did not underdeclare its liability to tax. Everything appeared to corroborate their evidence, so that the appeal should be allowed.

Conclusion

37. We earlier indicated that Miss Norris compared Bon Bon's purchase records with those of its suppliers, and could find no discrepancies between them. We also found that Bon Bon retained weekly Z readings for both the Hellenic and Beefeater. Those readings were complete and thus consecutively numbered.
38. It is against that background that we turn to deal with the questions of whether the assessments under appeal were made to the Commissioners' best judgment (as required by s. 73 of the 1994 Act) and, if so, whether the quantum thereof should be reduced.
39. At para 44 of the Court of Appeal judgment in Rahman v CEC (No. 2) 2003 STC 150 Chadwick LJ opined that where a tribunal had before it material from which it could see why the Commissioners made an assessment, it would be "well advised to concentrate on the question "what amount of tax is properly due from the taxpayer?" taking the material before it as a whole and apply its own judgment." It was against the background of the judgment, including other parts which we need not cite, that Mr Barlow indicated that he did not intend to pursue the question of best judgment, and focused his submissions on quantum. We consider he was correct to do so. Consequently, we formally find that the assessments under appeal were made to the Commissioners' best judgment for there was at the time they were made some material which led Miss Norris to conclude that Bon Bon had underdeclared its liability to tax.
40. Turning then to the quantum of the assessments, it will be recalled that, when asked why she assessed only in respect of the Hellenic and the Beefeater, Miss Norris claimed she had done so "because there was a lot of cash about at those outlets". But almost immediately afterwards, she accepted that the cash allocated to cash and carry purchases had been so applied. Miss Norris did not challenge the correctness of the weekly Z readings from either the Hellenic or the Beefeater. Based solely on the evidence presented to us, we are unable to find that any of the Z readings were incorrect. The only way we could do that would be to find that adjustments were made and, in the absence of any evidence to that effect, we are not prepared to find that they were.
41. It will be recalled that Mr Poole submitted that Miss Norris' finding of a significant increase in the average price per transaction at the two outlets in 2000 demanded an explanation. At para 27 of our decision, we have indicated the wide weekly variations in the average prices obtained by Bon Bon. The extent of those variations and their number (which we find unnecessary to go into, but which are to be found at pp.62-67 of the Commissioners' bundle of copy documents) indicate to us that, whilst it may be possible to calculate an "average" price per transaction, it is not perhaps the best of methods on which to base assessments. As Mr Barlow, whose experience in dealing with cases of this sort for both parties is probably unrivalled, observed in his closing submissions, this was the first time he had ever found best judgment assessments based on this method. We think the points made by Messrs Ignatiou in evidence about changes in weather and seasons determining the types of patterns of sales, and the other factors such as roadworks, building works etc to be good ones, particularly in relation to a business providing small additions to comfort in life rather than necessities.
42. In all the circumstances of the instant case, particularly the presence of all the weekly Z readings, the fact that only 2 outlets out of 10 were selected for assessment, the wide number and extent of the weekly variations in the average prices, and the fact that there was nothing wrong with the appellants' purchase records, we are satisfied on the balance of probabilities that Bon Bon did not underdeclare its liability to VAT. Consequently, we reduce the assessments to nil, and allow the appeal.
David Demack Chairman Release Date:

MAN/01/341