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United Kingdom VAT & Duties Tribunals Decisions
You are here: BAILII >> Databases >> United Kingdom VAT & Duties Tribunals Decisions >> Yau (t/a Sun Do) v Customs and Excise [2004] UKVAT V18550 (26 March 2004)
URL: http://www.bailii.org/uk/cases/UKVAT/2004/V18550.html
Cite as: [2004] UKVAT V18550
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Registration whether appellant had exceeded registration limits question whether trader had suppressed profits trader acknowledged that profits had been suppressed but argued these did not result in registration levels being attained best judgement assessment resulted in registration and assessment to VAT was assessment to best judgement yes question as to quantum tribunal disagreed with formula adopted and requested Respondents to recalculate adopting a different method appeal allowed as to quantum no decision about registration which will turn on revised figures hearing adjourned for figures to be agreed between the parties parties to apply for re listing before the same chairman and member if they fail to agree upon the revised figures
LONDON TRIBUNAL CENTRE
MR LAM YAU T/A SUN DO Appellant
THE COMMISSIONERS OF CUSTOMS AND EXCISE Respondents
Tribunal: JUDITH POWELL (Chairman)
MR A L ROBINSON
Sitting in public in London on 16 December 2003
Mr J Lambie of Lambie & Co Accountants, for the Appellant
Mr D Bettoney, senior officer of HM Customs and Excise, for the Respondents
© CROWN COPYRIGHT 2004
DECISION
Preliminary
This Mr Bettoney Senior officer with HM Customs and Excise appeared on behalf of the Respondents and Mr J. Lambie of J Lambie and Co Accountants appeared on behalf of the Appellants.
For the Respondents, the Tribunal heard the oral evidence of Mr Desmond Lewis (Officer with HM Customs and Excise, Canterbury)whose responsibility it is to check declarations by registered and unregistered businesses.
The Appellant, who spoke little English, had brought a friend with him; the Appellant was happy that this person should translate the proceedings for him. The Appellant's representative explained that the Appellant did not intend to give evidence.
The issues
The written grounds of appeal were expressed in rather general terms but the issue was whether the Appellant had under declared the amount of his turnover in the period from 1 November 2000 to 31 July 2002 by the amounts which formed the basis of the Respondents' assessments.
The Appellant says that the assessment was not made to the best judgement of the Commissioners and that, whilst there was an element of under declaration for the later part of this period, it was, even in that period, far less than the amount on which the Respondents had based the assessments. He also says that the amount of the under declaration did not result in there being a liability to register for VAT on the date calculated by the Officer. He does accept that he was liable to register for VAT with effect from 1 April 2001.
The Respondents say that the effective date of registration calculated by the Officer for this previously unregistered trader is reasonable and that the Commissioners have assessed the tax due to the best of their judgement as required by section 73 Value Added Tax Act 1994.
The assessments and the relevant law relating to the appeal
The appeal is against two assessments each made under section 73(1) Value Added Tax Act (VATA) 1994; the first is in the sum of £9552 and the second is in the amount of £5242.75. These assessments relate to tax believed to have been under declared by the Appellant between 1 November 2000 and 31 July 2002.
Section 73 VATA provides that ".where a person has failed to make any returns required under this Act ..or to keep any records and afford the facilities to verify such returns ..they may assess the amount of VAT due from him to the best of their judgement and notify it to him".
Section 83(p) VATA allows the Appellant to appeal to this Tribunal; the Appellant can challenge the fact of the assessment and this involves the Tribunal in considering whether the assessment was made to the best of the Commissioners' judgement - and its amount.
The facts
Mr Lewis was aware of the Appellant's business because he passed the premises frequently and upon checking the records he established that it was not registered for VAT. He was surprised that this was the case.
He and a colleague made an unannounced visit to the premises on 20 February 2002. The Appellant's business sells Chinese meals to take away. It opened for business every day of the week; between the hours of 5pm and midnight on Fridays and Saturdays and between the hours of 5pm and 11.30pm on the other days.
On the day of their visit, Mr Lewis and his colleague arrived at the premises before any meals had been sold but Mr Yau was there and so was his wife. Mr Yau spoke very little English, Mrs Yau was a little more fluent but a friend of Mr and Mrs Yau (Mrs Lamb) was contacted and she translated for them what the Officers said and the questions they asked.
When the Officers asked to see the record of takings, Mrs Yau produced a W H Smiths exercise book and this showed a daily record of takings together with the total at the end of each week. It was written up to, and included business done on, February 17.
The Officers asked to see the meal bills which they expected to be available because the bills were used by the kitchen to prepare the meals. As they stood looking over the counter, Mr Lewis could see various piles of meal bills on a shelf behind it. The bills were in bundles - some bundles were in a plastic bag and some were not but, with the exception of one pile, were held together with an elastic band; the one bundle not held together with a band was neatly stacked.
The bills comprise sheets that are torn from a book containing 100 sheets. These sheets are blank apart from a number at the bottom; the sheets are numbered consecutively from 1 to 100.
The procedure followed by the business for selling its meals is as follows:-
When a customer decides upon his order Mrs Yau writes it on a bill sheet and hands it to her husband in the kitchen. The meal is assembled by Mr Yau, and he takes the meal to Mrs Yau with the meal bill attached. Once the customer has paid for the meal Mrs Yau detaches the bill and places it on a spike on the counter.
None of the bills is individually dated. At the end of the day the bills are removed from the spike. It was not clear what then happens to them. There was some suggestion from the Officer's account of what he was told by Mrs Lau that they are then dropped into a plastic bag on the floor where they await entry into the takings book and that the takings book might not be written up for some weeks with the time it took for the entries to be made dependent upon the time Mrs Yau had available to do this. It was also said that the bills for each week were separately identified and that the date of the last day of the week was written on the back of the last bill for that week.
The bills that we saw appeared to conform to some extent to the procedure described. We saw hundreds of bills in batches and each batch was held together in bands. These were the bills uplifted by the two Officers at the time of their visit. The bills in the individual bundles all seemed to be numbered consecutively. The number borne by the first bill in each bundle (each bundle started with a number following on from the last number in the previous bundle) was followed by successive bills which each bore a successive number through to 100 and then the sequence started again as, obviously, a new book was started. It seemed to be possible to determine the relative ages of the bundles because, from time to time in each bundle there was a date on the back of a single bill; the Officer confirmed that each date coincided with the end of a different week. The earliest bill in the batches was for a date in August 2000 but the notebook covered daily totals for March 1999 through until February 17 2002.
We would have accepted this as evidence of the procedure which had been described had it not been for two matters. First, on the day of the visit the book was written up to 17 February 2002. The book did not only show weekly totals it also showed individual day entries. As trading had not begun on the day of the visit this meant that two days worth of bills had not been transferred into the takings book. But there were no meal bills separately allocated to February 18 and February 19. Secondly, Mr Lewis noticed that Mrs Yau was attempting to withhold some bills. Upon insistence, these were handed over. The last recorded bill (for 17 February 2002) was numbered 50 and the (127) bills that Mrs Yau was reluctant to hand over started with the number 51 and ran to 100 and then started again with the number 1 and ran sequentially to number 71. As already mentioned, the books of bills used in the business are bought in books of 100 and numbered sequentially so that once bill number 100 has been used the next bill in the sequence would be 1 denoting the start of a new book. Although an explanation for these 127 bills might be that they related to business done on February 18 and 19 the number of meals (127) covered by the bills as well as the value of those meals (£1511) made it an unlikely explanation in the context of a business which had recorded, on average, sales of 95 meals per week with a stated weekly turnover averaging under £1000 and whose busiest days were Friday and Saturday evenings. Even if that was the explanation there was no apparent way for Mrs Yau to determine which bills related to each of the two days for which the takings book had not been written up.
Mrs Yau was reluctant to discuss the 127 bills with the officers and did not explain how they related to the records kept by her. None of the bills was dated but none of the other bills found on the premises was individually dated. There was no explanation where the bills for 18 and 19 February could be found and how, therefore, the takings book for those two days could be written up so as to correspond to the procedure apparently followed for the previous days.
When asked further about these bills Mrs Yau told the officers that, on average the business done was under declared by £100 per week. This was later confirmed by Mr and Mrs Yau in a letter to Mr Lambie which they asked him to pass to the Officer. However they went on to say that this suppression had not started until 1 March 2000 when they deducted "this sum from our weekly turnover in order to help pay our cost of living". They went on to say that they could not cast any light on the bills "being in sequence at the start and end of the days trade" - it was not clear to us whether this was a reference to the 127 bills and as Mr Yau did not give evidence we had no opportunity to decide this point. There was some suggestion that the 127 bills might have already been incorporated into the takings; we did not accept that was the case. There was also a suggestion that the amounts involved were intended to be paid as salary to the couple's two sons but that cash flow had not permitted the cash to be paid over and so the bills were being stored until it was possible to make payment. We did not accept that explanation which was confused and unconvincing. We did not accept the explanation about the level of suppression nor about the date on which it started. We did find that there was clearly some level of suppression.
The assessment
Mr Lewis took the records away with him and used the records plus the 127 bills as the basis of his assessment. He explained his method of his workings to the Tribunal.
The total value of the 127 bills was established as £1511.40 and then compared with the average weekly declared bills and values. In the three weeks immediately preceding the visit the average number of weekly bills was 95 and the total average value of these bills was £954.70. He used the declared figures to estimate the period to which the 127 bills related and calculated that, as 127 divided by 95 was 1.34, the bills related to a period of 1.34 weeks and that if this was expressed as a weekly amount the figure would be £1127 i.e. the suppressed value each week was calculated to have been £1127. If this is correct, the under declared amount is some 10 times the amount acknowledged by Mrs Yau to have been suppressed. By adding the amount that he regarded as having been suppressed to the declared amount the Officer found what he regarded as the true takings. The suppression rate is the value of the suppressed amount expressed as a percentage of the "true takings".
The suppression rate was applied to the sales shown in the record books (ignoring the gaming machine takings) and the figures uplifted. To this uplifted total was added the gaming machine takings and the "true takings "for the period were established. The true takings were such that the business was considered liable to have been registered for VAT in November 2000 and the assessments were issued accordingly. We have truncated this explanation a little: there were actually two assessments but this was the end result.
In relation to the period after the visit the Officer observed that the declared takings had increased substantially and these figures were not uplifted by the suppression rate. For this period (i.e. from 18 February 2002 until 31 July 2002 (164 days) the declared takings were spread evenly over each day in the period and an average daily total of £169.48 was established. This was compared with the average daily total in the period 1 April 2001 to 17 February 2002 (found by using the "true takings for that period i.e. the declared takings uplifted by the suppression rate and dividing this by the number of days in the period). The difference between the daily total in the earlier period (£271.54) and £169.48 was then multiplied by 164 and the resulting figure was added to the declared takings for the period 18 February 2002 to 31 July 2002.
Mr Lewis told us that the revised totals for the period were, in his experience, credible in the context of the business. He had been involved, over a number of years, in looking at Chinese takeaway businesses in the same geographical area. He had not looked at the cost of the food purchases; he did not believe he would be able to rely on the information provided. He was unable to explain why the 127 bills had been retained despite asking for reasons. He thought that the period to which he had allocated the 127 bills was fair in the absence of any information about the period to which they might otherwise relate. He regarded the 127 bills as "holding" or "pending" bills some of which, if the visit had not occurred, would have been used in the declared takings for the next week and so on. He agreed that, if this was correct, no bills would have been destroyed so that the extent of under declared takings was the amount represented by the 127 bills i.e. some £1511 less the amount which would have been declared for the two days where business had been done but the books had not been written up. Of course, the assessments were based on a far higher amount. He recognised the inconsistency between his reasoning about the existence of the 127 bills and the assessments issued. He agreed that there was no logical explanation for the 127 bills that fitted with his assessments if no bills had been destroyed by the Appellant. Mr and Mrs Lau had said on two occasions that they had under declared by some £100 per week since March 2001 so they acknowledged that the under declared amount between then and February 2002 would have been nearly £5000.
Submissions and the Tribunals decision
It is, of course, for the Appellant to show that the assessment was not to best judgement and (if that fails) that its amount was excessive. Mr Lambie repeated that the assessments were excessive but did not offer any alternative suggestion that was credible. The suggestion that the Appellant was retaining the bills until the business had sufficient cash to fund salaries for his two sons was simply unconvincing.
Mr Bettoney submitted that the Tribunal had to determine two issues; first, was the assessment to best judgement and secondly was it correct as to quantum. On the first issue he submitted that the Officer had cause for concern that the business was wrongly unregistered and when he asked for records to establish whether his concern was justified he found that there were the 127 unaccounted for bills and the Appellant acknowledged some degree of under declaration. With no assistance from the Appellant, the Officer tried to make a sensible explanation for the 127 bills. He had several options. First he could treat the 127 bills as the extent of under declaration and this would not cause the Appellant to exceed the registration limits. Secondly, he could accept the Appellants evidence that they under declared for the period from 1 March 2001 but only by £100 per week and try to allocate the bills accordingly. He submitted that this acknowledgement by the Appellant made the first option unattractive since the under declaration would then have been less than the amount which the Appellants themselves acknowledged was the case. Thirdly there was the suggestion put forward by Mr Lambie which Mr Bettoney suggested was not realistic.
He submitted however that none of these options offered a satisfactory explanation for the increase in declared takings which occurred immediately after the visit had taken place.
The Tribunal considered the facts and the submissions. It was most unfortunate that we did not have the opportunity to hear oral evidence from the Appellant since this might have cast light on the reason for the 127 unallocated bills. He might also have been able to explain the significance of his declared intention to pay a salary to each of his two sons.
We could see that Mr Lewis had very little information on which to work in trying to assess the level of under declared takings. He had the admission by both the Appellant and his wife that there had been some level of under declaration, the mystery of the 127 bills and the evidence of an increase in declared takings starting immediately after his visit. The acknowledged level of under declaration did not explain the 127 bills; indeed no credible explanation was given for them. We are satisfied that the Appellant has not shown the assessment to have been other than to best judgement in the circumstance. He made his assessment in good faith and so we dismiss the appeal insofar as it was based on the assertion that the assessment was not made to best judgement.
However, we are persuaded even on the sketchy evidence put forward to support the submission that they were excessive that quantum of the assessments was too high. This may affect the Effective Date of Registration. Mr Bettoney volunteered at the hearing that if the Tribunal did not agree with quantum but preferred to suggest an alternative method of calculation the Commissioners would use this to recalculate the assessments and the Effective Date of Registration rather than the Tribunal having to make their own calculations.
The Tribunal have considered this suggestion. The reservations that we have about the method adopted by Mr Lewis for calculating the suppression rate is that his decision to allocate the 127 bills to 1.34 weeks - in effect attaching some significance to the 95 declared bills for each of the three weeks previous to the visit was arbitrary and resulted in an astonishing level of suppression. If there was suppression, and we accept that there was, the 95 declared bills are themselves inaccurate and cannot form a sensible basis for any other calculation. We accept that there is very little other evidence which could form the basis of a sensible calculation. There are two relevant factors to consider. The first is the statement by the Appellant that the under declarations were £100 per week for some of the period. The second is that the declared takings increased after the visit. We are inclined to give weight to this second factor. The takings increased by more than £100 per week and we would not be surprised if the £100 was an underestimate. We suggest that the "true takings" should be calculated on the basis of the declared takings in the period following the visit. We are inclined to give weight to this because it does exceed the acknowledged under declarations of £100 per week by a significant margin and we are inclined to find it evidence of a trader making correct declarations. The declared takings for the period 18 February 2002 to 31 July 2002 should be compared with the same period in the previous year. As there is no evidence that the business either increased or decreased year on year and as the business takings had shown a remarkable consistency over a long period (indeed the remarkable consistency of the declared takings was found itself to be a indication of their inaccuracy) we suggest that the suppression rate should be calculated by taking the "true takings" for the earlier period as being the same as the declared takings for the later period i.e. the true takings for the period 18 February 2001 to 31 July 2001 should be treated as the same as the declared takings for that same period in 2002. This suppression rate might then be applied to calculate first the Effective Date of Registration and secondly the assessments for any subsequent period before 18 February 2002. The declared profits for the period 18 February 2002 until 31 July 2002 should be treated as the true profits for that period. It is possible that the periods suggested will not exactly match by date - if that is the case we suggest that corresponding numbers of days are used in what is substantially the same period.
In order to ensure that delay does not occur we direct that if the calculations are to be done by the Respondents, the calculations should be carried out within 90 days of the release of this decision and that if this does not occur the appeal will be re listed and this Tribunal will make such order as to quantum as it thinks reasonable on the basis set out above.
We make no order as to costs.
JUDITH POWELL
CHAIRMAN
RELEASED:
LON/03/685