United Kingdom VAT & Duties Tribunals Decisions

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Cite as: [2004] UKVAT V18629

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Chan v Customs and Excise [2004] UK V18629 (04 June 2004)

18629

VAT — 2 assessments covering periods 1 October 1998 to 30 September 2001 — Chinese takeaway — observations and test purchases on 4 nights — recorded takings for 1 night only — validity of calculations — appeal dismissed

MANCHESTER TRIBUNAL CENTRE

YUK FONG CHAN Appellant

- and -

THE COMMISSIONERS OF CUSTOMS AND EXCISE Respondents

Tribunal: Mrs E Gilliland (Chairman)

Mr R G Grice (Member)

Sitting in public in Birmingham on 26 March 2004

The Appellant did not appear and was not represented

Mr James Puzey, of counsel, instructed by the Solicitor's Office of HM Customs and Excise for the Respondents

© CROWN COPYRIGHT 2004


 


DECISION
1. Two decisions of the Commissioners are the subject of the appeal before the tribunal today both in respect of assessments raised on Mrs. Yuk Fong Chan (the Appellant) under s. 73 of the Value Added Tax Act 1994 (the Act). The first assessment was dated 9 November 2001 in the sum of £49245 plus interest and was in respect of arrears of tax for the period 1 October 1998 to 30 June 2001. That assessment was amended on 5 May 2002 to £37115. The second assessment was dated 3 April 2002 in the sum of £3210 plus interest and represents arrears for the period 1 July 2001 to 30 September 2001. The Appellant's business is that of a Chinese takeaway trading as Modern Chinese Takeaway Meals at Chaddesden Derby. She had taken over a business previously run by her husband and was registered as sole proprietor from 20 December 1993. The Appellant has not attended nor been represented before us. At the request of Counsel for the Commissioners we have agreed to proceed under Rule 26 (2) of the Value Added Tax Tribunals Rules 1986.
2. Mr. Puzey for the Commissioners has taken us through the background of the matter in some detail. He has called one witness Mr. Julian David Cook the assessing officer. In addition the Commissioners have adduced evidence in the form of witness statements from twelve officers who had taken part in a series of observations and test purchases at the Appellant's premises those not having been challenged. A witness statement from Mr. Cook has also been produced and is unchallenged. The results taken from the witness statements have been scheduled and these also are in the bundle of documents before us. Counsel has requested us accordingly to treat them as agreed documents. An appeals officer Mrs. D.M. Minshall reconsidered and checked the assessments.
3. The assessments were raised as the Commissioners concluded from the information available to them that there had been substantial suppression of sales over a long period of time and thus large amounts of tax had been underdeclared. It would appear that the Appellant has acknowledged that there have been underdeclarations but disputes the level and extent of the suppressions and the issue for the tribunal could be seen as essentially as to the amount involved. The Appellant's case as set out in the grounds of appeal in the Notice of Appeal submitted by her Vat consultant on 12 April 2002 is: " The alleged evidence dated 27 July 2001 was used to raise an assessment of £37152 covering the period 1 December 1998 to 30 June 2001. How can this be justified? Also, the second assessment covering from 1 July 2001 to 30 September 2001 issued on 3 April 2002 is based on the alleged evidence dated 27 July 2001. This was raised after the Appellant prompted Mr. J D Cook. Both assessments are flawed."
4. The evidence from the Commissioners is that there were four evenings of observations of the business and test purchases namely on: Friday 8 December 2000, Thursday 1 March 2001, Wednesday 23 May 2001 and Friday 27 July 2001. There was correspondence between the Commissioners and the Appellant her Accountants and subsequently her Vat adviser Mr Feng and several meetings between the parties.
5. The business trading pattern of the Appellant was to record takings on a weekly not a permanent daily basis and enter the figures in a cash book. The takings and the split between cash and cheques were reconciled daily (less the float) but the meal bills were destroyed at the end of the week. The Appellant had said there were two pads in use; one for caller orders and the other for orders to be delivered. There was an order slip for every transaction however small. A £1 charge was added to the delivery bills and this was the only payment to a driver. The Appellant also had a full-time and a part-time employee. The Appellant was asked by the Commissioners to keep all meal bills and record the daily gross takings and the Commissioners collected these for the period 10 June 2001 to 4 August 2001. The relevance of the date of 27 July 2001 was that this was the only one of the observation dates for which there were records available through which declared sales could be checked against observed sales and test purchases. It was noted that for this night the declared sales were substantially fewer than those observed. For the other three test nights the assessing officer had to calculate the shortfall from the trading profile. Mr. Cook calculated a daily takings figure for these days and compared it to the projected sales based on the number of caller and delivery sales observed. The calculation produced an under-declaration taken as a % of assumed daily takings and this was applied to the takings declared.
6. The schedules produced by Mr. Cook are in the bundle before us and these were made use of for the figures on which largely the assessments are based. Schedule 1 deals with the declared takings for a number of quarters with an average weekly sales figure projected for each week calculated in the third column. In schedule 2 the daily gross takings for June to August 2001 (for which records were retained) had been examined and the schedule split average caller and delivery sales by days of the week (excluding Mondays when the business was closed). Schedule 3 analysed the period sales and calculated average weekly sales. Schedule 4 looked at the purchases of staple items in several periods between December 1998 and June 2001 and found the values consistent. Schedule 5 was a more detailed analysis of declared sales on 27 July 2001. In schedule 6 the declared sales on 27 July 2001 were set out and the three test purchases out of five made by the officers which were declared were highlighted.
7. Mr. Feng has contended that the assessments were not to best judgment. On the role of the tribunal we would refer to the judgment of Lawrence Collins J. in Rahman v Customs and Excise Commissioners (No2) [2002] STC 73. He states at paragraph 19 as follows: " In my judgment, the better view is that, first, an assessment which turns out on the evidence to be substantially correct cannot normally be attacked as being contrary to best judgment, and, the fact that it turns out to be substantially incorrect oes not mean that it was contrary to best judgment. It follows from Van Boeckel, Rahman (No1) and McNicholas that to show,on an appeal to the tribunal, that an assessment has not been made to best judgment the taxpayer must show that the assessment is wrong in a material respect, and that the mistake was such that the only inference is that the assessment was arbitrary ( in Woolf J's formulation), or (in Carnwarth J's formulation) dishonest, vindictive, or capricious, or based on a spurious estimate or guess, or is wholly unreasonable. If the assessment is wrong in a material respect but the taxpayer fails to show that it was not made to best judgment the tribunal will deal with it on the quantum aspect of the appeal."
8. We are satisfied and find that there was nothing arbitrary or dishonest, vindictive, or capricious or unreasonable in the approach taken by the Commissioners. It appears to us that the Commissioners set out at all stages to make clear their requirements as to further records and information and the nature of their concerns. In a letter dated 8 February 2002 which appears to be his only detailed written criticism of the assessments Mr Feng has criticised Mr. Cook for producing a series of varying figures including for instance caller sales between 73-76 for 27 July 2001 and revising downwards the number of observed deliveries. He also considered 17 delivery trips on one night as placed too high. Mr. Cook was satisfied on that number given the catchment area. Further the officer pointed out that on 27 July 2001 the delivery slips could be clearly seen on the delivery bags for multiple deliveries. Mr. Feng had stated that the second assessment was in fact raised after prompting from him (Mr. Feng). Mr. Cook in his evidence explained that the older periods were assessed first to stop them going out of date even though negotiations were still in hand. The period 9/01 assessment he acknowledged was dealt with after it had been drawn to his attention by Mr. Feng. On the other point it is clear that there were several re-workings of the figures In his letter of 21 August 2001 Mr. Cook stated that he considered that only 50% of the sales had been declared. In his letter of 1 October 2001 he drew attention to the information obtained on 27 July 2001. The Appellant had then declared sales of £499.80 compared with actual sales of £1061.72.The observing officers on that night had seen a further 35 sales from 20.46 hrs. to the end of trading as against three declared. These factors had meant a declaration of 47.07% of correct sales. Mr Cook did however then say that the percentage might vary once he had completed the calculation for the other days. He examined the annual accounts for 1998/1999 and the mark-up figures on goods for resale were 138% and 127% respectively. In his letter of 2 November 2001 Mr Cook calculated the percentages of declared sales and set these out for the four observed nights at 42%, 56%, 59% and 45% respectively. This produced an overall declared percentage of 51%. A schedule was produced for Vat due of 17.5% to the original assessment total of £49245. Amendments were agreed in a letter from the officer to Mr.Feng of 4 January 2002 excluding certain purchases from projected sales and some sales on 27 July 2001. This led in that letter to an overall declared percentage of 58% and the revised assessment of £37115.This percentage was also used for the second assessment. On each of these occasions however the adjustments were made either in respect of points raised to ensure maximum fairness to the Appellant or when a recalculation was appropriate in view of further information to hand or to correct arithmetical error.
9. Objection was taken in the Notice of Appeal to the use of the date of 27 July 2001 in the calculations. We are satisfied with the methodology employed by the Commissioners and that this was used consistently in the calculations and in the adjustments. Mr Cook used the paper records where these were available. He checked and was satisfied that over the period of time covered by the assessments the sales levels on the Vat returns were consistent and that there were no variations noted in the pattern of declared sales or in the purchases of goods which would suggest fluctuations in trade. The explanation for a lower September 1999 quarter (declared sales of £25,290)was that the business was closed during the Appellant's holiday. Allowance was made for one free meal daily in respect of both caller sales and also delivery sales in case of complaint. Mr. Cook's evidence before us was that he had used the lowest rate of suppression which could be accepted and the highest figures ever achieved in the business as the bases of the calculations and we are satisfied that all relevant factors were given due weight. The earlier meal bills were not retained and therefore it was not possible to use them to verify the Vat position. Where there were no available records the Commissioners had to use projections based on a proper analysis of such figures as were to hand for the accounting periods. Mr Cook set out in a series of schedules how he reached the assessment figures.
10. There was also the question of cash removed from the takings by the Appellant. In an undated unsigned schedule before us the Appellant certified weekly cash suppressions from the business for the quarters ending March 2000 to June 2001 inclusive to a total of £25,740,disclosing Vat underdeclared of £3,833.62. She indicated that this arose in respect of cash taken for cash and carry purposes and repairs and maintenance particularly during bad weather. In correspondence with Mr. Feng in his letter of 2 November 2001, Mr. Cook made it clear that the figure put forward of £500 under-declared per week for June 2001 could not be accepted. It is clear that the Appellant had not fully stated how cash was dealt with in the business. From the evidence before us the Accountants for the Appellant have dealt with any additional cash sums in the next year's accounts as additional sales. An opportunity was afforded to the Appellant's representative by Mrs Minshall to clarify the Vat position but this was not taken up. However we accept the basis on which this has been dealt with in the calculations as proper on the information supplied . Mr. Feng contended in correspondence with Mr. Cook that the business was more unpredictable than the Commissioners were allowing for and that there were fluctuations in the takings period by period. We prefer the evidence of Mr. Cook who checked through the Vat returns and found no appreciable change in the overall position. The daily variations have already been taken into account in the calculations.
11. The appeal is dismissed.
12. The Commissioners are entitled to costs. If these are not agreed the Commissioners are at liberty to apply on costs to a Chairman sitting alone.

MRS E GILLILAND

CHAIRMAN

Release date : 04/06/2004

MAN/02/0279