United Kingdom VAT & Duties Tribunals Decisions

Yengin (t/a One Stop Fast Food) v Customs and Excise [2005] UKVAT V18964 (09 March 2005)

18964

Value Added tax – compulsory registration – whether appellant liable to be registered for value added tax taking into account suppressed sales – yes.

LONDON TRIBUNAL CENTRE

FILIZ YENGIN trading as ONE STOP FAST FOOD Appellant

- and -

THE COMMISSIONERS OF CUSTOMS AND EXCISE Respondents

Tribunal: Dr David Williams(Chairman)

Sheila Edmondson FCA

Sitting in public in London on 1 February 2005

Mr Ezel, ENKA Accountants, for the Appellant

Mr J Holl for the Respondents

© CROWN COPYRIGHT 2005


 


DECISION

1. The Appellant is appealing against a decision of the Commissioners issued on 9 January 2004 that she was required to register for value added tax (VAT) from 1 February 2003. Her grounds of appeal were that the turnover of her shop did not exceed the statutory minimum for registration at that time. At the hearing Mr Exel conceded for her that she should have been registered from 1 September 2003 but strongly argued that there was no basis for earlier registration. It was common ground that the business was deregistered on 31 May 2004. The tribunal is therefore concerned only with the disputed period to September 2003.

2. The Appellant gave evidence on oath at the hearing. The Commissioners wished to offer oral evidence from Miss Laura Castle, the officer responsible for visits to the shop and for the decision. She was not available to appear on the day of the hearing. Having heard an objection for the Commissioners and the views of Mr Ezel, the tribunal ruled that the case should proceed with her written evidence only.

   Evidence about the business

3. Mrs Yengin gave evidence of her business. The tribunal formed the view that she was generally a credible witness who had some difficulty with speaking the English language but a higher, and fully adequate, level of understanding. It was satisfied that generally she gave full evidence, was trying to answer the tribunal's questions honestly, and did not appear to be concealing information in reply to questions. But it seemed to the tribunal that she had a more limited knowledge of her business than would have been expected from her statement of the extent to which she conducted it personally. For example, the tribunal accepts from unchallenged contemporary reports of the Commissioners' officers that at least for part of the time the business made home deliveries of food. But the Appellant failed to remember that the business made home deliveries and (as the evidence from those officers confirms) employed one or more delivery drivers for this reason, despite being asked specifically both about the numbers and functions of employees and the levels of petrol purchases in the garage invoices that Mr Ezel put in evidence.

4. For the reasons above, there was no oral evidence from the Commissioners.

   The evidence of the Commissioners was offered in documentary form. There was a letter of 14 December 2002 from Miss Castle commenting on a visit to the Appellant's business on the previous day when she had seen Mr Yener. This advised the Appellant that the use and retention of till rolls was a requirement. There was no reply to that letter, although a reminder was sent, and the tribunal accepts that there was a visit and letter at that time. There was another visit on 18 February 2003, again by Miss Castle who again spoke to Mr Yener. A bag of till rolls were taken on that occasion. Three test purchases were made by officers of the Commissioners on 23 July 2003. There is contemporary notebook evidence of each visit. Two males were serving in the shop on each occasion. Three further test purchases were made on 1 August 2003, and again there was contemporary notebook evidence of each visit. Again two males were serving in the shop on each occasion. Miss Castle visited the premises on 12 August and again on 26 August, when she collected till rolls. None of the details of these visits was challenged by Mr Ezel or specifically contradicted by the Appellant's evidence. The tribunal accepts that these meetings and visits occurred and also accepts the contemporary signed notebook entries and letters as accurate in fact.

5. Miss Castle visited the premises with a colleague at lunchtime on 21 October 2003. A formal letter to the Appellant required her to be present on that date, and she was. Mr Yener was also present, Miss Castle noting that it was said that he dealt with day to day running of the business. Miss Castle told the Appellant and Mr Yener of conclusions she had drawn from the till rolls previously uplifted. These included the absence of some of the test purchases from the till roll records of the days when the visits occurred and also that the till itself appeared to be regularly reset. Miss Castle recorded the reasons given for the resetting of the till, and that Mr Yener stated that if the business was registered he would close it. The officers noted that the Appellant and Mr Yener left the business together. Save for the reasons why the till was reset, again that evidence was not specifically challenged by Mr Ezel or contradicted by the Appellant, and is accepted by the tribunal.

6. It was accepted by the Commissioners that the takeaway business had been started up by Mrs Yengin's husband, Mr Hasan Yener. No evidence in any form was offered from Mr Yener, and little evidence was given about him. It appeared that he had at some point gone bankrupt and that he had handed the business over to the Appellant at the beginning of 2002, although she had no previous business experience then. It also appeared that at some point Mr Yener and the Appellant had split up and did not live together, although it also appeared that he still maintained close contact with the Appellant and their child. And it appeared that he helped with the business, for example when their baby (born in June 2002) was sick and the Appellant was not able to attend. The tribunal was given no clear evidence of his relationship to the business during this time, whether as employee, undisclosed principal or partner or in the absence of a formal business relationship. But the Commissioners did not dispute the Appellant's statement that she ran the business. However, the tribunal accepts the evidence noted below that Mr Yener was involved in some way in the business on a number of occasions when officers of the Commissioners visited. It notes that during the test visits unidentified males were running the business and the Appellant was not present. And it accepts the officers' contemporary note that the Appellant and Mr Yener left the premises together after the formal interview in October 2003.

7. The business was that of a fast food takeaway in Ramsgate, with no catering on the premises. It was normally open from 4.00 pm to 11.00 pm six days a week. It supplied a range of hot foods and drinks. It made cash sales only and suppliers were also paid in cash. The shop, which was rented, was in a residential area with no other shops in the vicinity but also none of the tourist attractions of other parts of the town. It was not disputed that there was also a gaming machine on the premises for which the Appellant received some rent. The tribunal also accepts from the contemporary notebook evidence of Miss Castle and colleagues that the business engaged in home deliveries (notes from Officer Pavey visit on 23 July 2003 and from Officers Pavey and Cleverly separate visits on 1 August).

8. The Appellant accepted that Miss Castle had visited the business and had collected tills rolls. She did not know anything about the test visits at the times they occurred. She could not comment directly on the non-recorded purchases. She thought that the staff might have stolen the money, but she had made no complaints about this to employees or the police, and had no evidence. She had been away on holiday in Turkey for five weeks during June and July and the purchases were at that time. The tribunal records that the Appellant did not recall exactly when she was away, nor was any corroborative evidence offered of her absence such as stamps in her passport.

9. The tribunal was told that there had been a fire at the shop in July 2002, and it had been shut for a month. No independent evidence was given of this, but the Appellant told the tribunal that she was insured and the insurance company had met part of the loss. The tribunal noted that the declared sales for August 2003 were substantially down on those of surrounding months but that these would not suggest that the shop was shut for more than a brief period. It noted that the Appellant had said that her child was born shortly before this, but that this did not appear to have affected the sales.

   The records

10. The Appellant accepted that her record keeping was basic. She wrote down the

    day's takings from the till on slips of paper, one for each week, with no analysis. All transactions were cash. She did not have enough money to use a bank account. The slips of paper had been produced to the Commissioners and were produced to the tribunal. The tribunal did not examine them, as they had been seen by the Commissioners and the Appellant did not dispute the Commissioners' factual analysis of the takings. Mr Ezel also produced an analysis of bills paid by the Appellant during the period, and offered the invoices in evidence. The tribunal accepted the analysis but did not examine the bills as it understood the Commissioners had already seen them. The Appellant gave oral evidence that her turnover was £800 - £1,000 a month in 2003. It had been perhaps £1,350 a month in early 2002, but things had then gone downhill.

11. The Appellant's evidence about problems with the till was not persuasive. The Commissioners' analyses show that the till or till roll was reset or otherwise faulty on several occasions in June and July 2003. The contemporary record showed that Mr Yener told Miss Castle that this was the electricity at the premises was overloaded and the trip switch went and had to be reset. The Appellant stated that it was because the meter was a "key" meter and she forgot to put money in the meter. Bearing in mind the presence of a gambling machine on the premises and that the hours of operation involved much opening after dusk, the tribunal had difficulty accepting either reason. In oral evidence the Appellant also said that the till was no good. It noted that the then accountants had "instructed" the Appellant to buy a new till in November 2003. The tribunal returns to this below.

12. In addition, the tribunal was given no clear view of what happened to the moneys paid to the Appellant by the owners of the gaming machine. Even Mr Ezel accepted that the Appellant's evidence was contradictory on this, and he offered no firm submission as to whether that money was put in the till. Nor was the tribunal given any clear explanation of the large number of "no sales" entries recorded on the till. The tribunal also found the till evidence to be of uncertain reliability over the period as a whole.

13. The tribunal was shown accounts for the year from the start of the business on 1 February 2002 (said elsewhere to be 1 January). These showed a turnover of £12,100 in the year. These had been seen by the Commissioners. Mr Ezel was not able to produce any accounts for the 2003 year. Provisional figures had been given to the Inland Revenue but they were not put in evidence.

14. The tribunal finds that the Appellant kept inadequate records of her business. Her till roll records were incomplete and also unreliable. Applying the test of probability the tribunal was prepared to accept that there had been a fire in 2002 and that the Appellant had been away from the business in 2003. But there was no persuasive evidence, as against unparticularised assertion, of staff theft. Nor was there any other probable reason offered to justify the suppressions during test visits.

    The turnover

15. For these reasons, the tribunal consider that the Commissioners were fully justified in assuming that there were suppressed takings and that the till and other records were unreliable. The question was whether the acceptance by Miss Castle that there was no suppression in January 2002, but that the suppression increased cumulatively by 3 - 5% a month from February 2002 to 71% in July 2003 was a fair and reasonable analysis of the available evidence. If accepted, this would increase the monthly turnover from £4,163 in January 2002 to £10,673.62 in July 2003. If it was properly assumed that the suppression occurred in this way then the Commissioners' view is that the Appellant would have reached the threshold for registration in December 2002 and would be required to register from 1 February 2003.

16. This conclusion was strongly resisted by Mr Ezel. He would accept on behalf of the Appellant that she should be required to register from 1 September 2003, because her turnover would have reached the relevant level at that time. This was based on the assumption that if the accounts were started in 1 December 2002 at a weekly turnover of £1350, then it would be 42 weeks alter that the total would exceed the registration threshold. This appeared not to take into account the evidence that the turnover had gone down since then because of the fire, the holiday and the Appellant's personal time spent looking after her young child. He contended that there was no justification for a 71% suppression rate or for deriving the cumulative consequence alleged from that rate.

17. The revised sales figures used by the Commissioners in the letter of 31 October 2003 indicated sales of £4,866 in July 2002 followed by an exceptionally low £1,590 in the August – perhaps when the closure following the fire occurred. In July 2003 the recorded figure was £3,095 and no figure was given for August. But the revised figures using the suppression rate set out above was £6,402 in July 2002, and £2,208 in August 2002, but £10,673 in July 2003. The tribunal does not find the end result of that approach very persuasive.

18. Justification of the 71% suppression rate was given by an analysis made by Miss Castle of the declared and assumed sales for the period from 1 June 2003 to 31 July 2003 starting from till records. The tribunal, of course, did not have Miss Castle's oral explanation of her analysis. In fairness Mr Holl, in her absence, raised some points about that analysis himself. The tribunal found difficulty understanding some lines of her analysis without further explanation. For example, her analysis shows that she was satisfied by the till records for 15– 17 June 2003, but she comments that on 19 June there are at least five Z readings missing and 305 transactions with a loss of sales of £510.20. Her till analysis shows sales of £122.20 shown on 15 June, £51.60 on 16 June, £225.33 shown on 17 June after a till reset, nil record on 18 June, and £67.50 shown on 19 June. There is a similar pattern leading up to her comment on 7 June that there are at least 27 Z readings missing and 1831 transactions with a value of missing sales of £3,218.55.

19. The tribunal noted the evidence about the till in paragraph 11. Having looked again at the till records in the light of all the evidence, the tribunal agrees with the Commissioners – and it would seem also both the Appellant and her former accountants – that the till was unreliable. It therefore seems to the tribunal unsafe to rely as closely as Miss Castle has on the till records as showing the level of suppression in the detailed way she has shown it. The fairest approach is to accept both that the Appellant has failed to show any clear record by reference to the till and the available records, but also that the Commissioners have not established their own figures by reference to the till either. It therefore accepts the view of the Appellant that a 71% suppression rate is not established. Nor does it accept the way in which the Commissioners moved from a 0% suppression rate to a 71% rate by constant progression. That may be designed to force the Appellant into appealing but there is no material evidence to justify it, and the evidence that exists shows it not to be a reasonable approach in this case.

20. Nonetheless the tribunal accepts the Commissioners' evidence of underdeclaration on the specific days tested. It is also not satisfied by the Appellant that takings from the gaming machine or from home deliveries were properly shown in the till records even when the till was performing accurately. It notes also that the Appellant concedes underdeclaration by her representative, though to a lesser extent.

21. The tribunal considers that the fairest way to resolve this is to take the Appellant's own figure of £1,350 weekly (or £225 daily) and to apply it to identify the suppression rate on an even basis, save for an allowance for lower figures in August 2002 of two weeks' lost takings. There were 27 trading days in July 2003, suggesting takings of £6,075. Actual takings are shown as £3,095, although it was alleged they may be low due to theft, and they were shown to be low by non-recorded test purchases. This would be a suppression rate of £(6075 – 3095)/6075 x 100 = 49%. The suppression rate in June 2003 on the same basis would be £(5625 – 3243)/5850x100 = 42%. Accepting the Commissioners figure of declared sales of £3596 in January to May 2003 the suppression rate would be 38% in months with 26 trading days.

22. The only direct evidence of suppressions shows sales over the two days of £42.10. Of that only £12.90 was definitely shown in the records, and £17.20 was definitely not shown, there being some doubt about the other entries. That suggests a suppression rate of the range found by the tribunal's approach.

23. The fairest view is that the suppression rate should be capped at 40%, and not extended up to 71%. On that basis "revised sales" need to be recalculated from November 2002, but the Commissioners' figures before that date can be left. This produces an adjustment to the Commissioners' figures in the letter of 31 October 2003 as follows:

    All figures to November 2002 remain

    December 2002 Declared sales £4242 Revised sales £7070

    January 2003 Declared sales £3596 Revised sales £5993

    Same for February to May 2003

    June 2003 Declared sales £3243 Revised sales £5405

    July 2003 Declared sales £3095 Revised sales £5158.

24. On that basis the 2002-2003 limit of registration is crossed at the same time as that set by the Commissioners, December 2002. However, the undeclared sales from that date are significantly lower. Nonetheless, there is no basis for any deregistration in that period. While the tribunal agrees with Mr Ezel that the suppression rate of 71% is too high, nonetheless it agrees that the Commissioners were right to conclude that the Appellant should have registered, and therefore should be registered, from 1 February 2003. The outcome is that the Appellant loses the appeal.

    DR DAVID WILLIAMS

    CHAIRMAN

    RELEASED: 9 March 2005

    LON/ 04/145