United Kingdom VAT & Duties Tribunals Decisions

Brearley & Anor (t/a Pizza Base) v Customs and Excise [2005] UKVAT V18987 (15 March 2005)

18987

VALUE ADDED TAX — take-away pizza shop — admitted suppression of takings — assessment based on observations of customers — whether most appropriate approach — whether extrapolation of suppression at uniform rate over long period justified by evidence — appeal allowed in part

DISHONESTY — penalty — dishonesty admitted — adjustment of penalty to reflect adjustment of assessment to tax — mitigation

MANCHESTER TRIBUNAL CENTRE

MARK BREARLEY and MICHELLE BREARLEY

trading as Pizza Base Appellants

- and -

THE COMMISSIONERS OF CUSTOMS AND EXCISE Respondents

Tribunal: Colin Bishopp (Chairman)

Sitting in public in Manchester on 7 and 8 September 2004, 10, 11 and 12 January 2005

Richard Barlow, counsel, instructed by Levi & Co, solicitors, for the Appellant

Jonathan Cannan, counsel, instructed by the Solicitor for the Customs and Excise, for the Respondents

© CROWN COPYRIGHT 2005


 


DECISION

1. The Appellants, who are husband and wife, trade in partnership selling takeaway pizzas from premises in Otley, West Yorkshire. They have appealed against, first, an amended assessment, made in accordance with section 73(1) of the Value Added Tax Act 1994, of allegedly under-declared VAT of £124,575 and, second, a civil penalty for dishonest evasion imposed pursuant to section 60 of the Act in the total sum of £105,888.75. The assessment and the penalty cover each of the consecutive accounting periods from 1 August 1993 to 31 October 2000. The Appellants admit that there have been under-declarations and that they were due to dishonesty, but they contend that the amount of tax assessed is excessive, that the evasion occurred over a much shorter period than that assessed, and that the penalty should be mitigated to a greater extent than the 15 per cent which the Commissioners have allowed. Nothing turns on the amendment of the assessment, by which some minor clerical errors were corrected.
2. The Appellants were represented by Richard Barlow and the Respondents by Jonathan Cannan, both of counsel. I had two bundles of documents and heard evidence from six Customs officers, Sylvia Jones, Mary Sharpe, Dean Foster, Martin Mummery, Angela McCalmon and Anthony Johnson, from the director of a shop equipment supplier, Howard Parker, and from Mr Brearley. I did not hear from Mrs Brearley who, as I understood, had played little or no active role in the business for the latter part of the period with which I am concerned.
3. The Respondents' enquiries into the Appellants' business began in July 1998 when, in the course of a general investigation into pizza establishments, an officer made a test purchase from the Appellants' shop. The till receipt bore a consecutive number. A second test purchase was made some two years later, in July 2000; on this occasion the receipt given to the officer did not bear a consecutive number. The Respondents considered that fact sufficient reason to warrant further investigations, and they undertook external observations of trade at the shop on 18 August and 26 October 2000, followed by an unannounced visit to observe the cashing up at close of business on 2 December 2000. Mr Brearley was then interviewed, on 23 January and 15 March 2001.
4. It was common ground that the Appellants had begun to trade on 17 July 1989, from the Otley shop, and that they had taken on a second shop in about April 1991. They had disposed of the second shop in 1993. Since the takings of the two shops had not been segregated in the Appellants' records, it was not possible, the Respondents considered, to determine whether and, if so, to what extent there had been suppression in the period when the Appellants had two shops and for that reason the assessment extended back only to the time immediately following the disposal of the second shop.
5. The observations were carried out from premises on the opposite side of the road from the Appellants' shop from a vantage point which, I am satisfied, afforded the officers a good view of the single door by which customers entered and left, even if it was occasionally obscured by passing traffic. By the time the officers came to give evidence, over four years had elapsed since the observations had been carried out and, not surprisingly, all had to rely on their notebooks and the observation records for the detail of what they saw, and some incidental details which had not been noted, particularly the nature and precise location of nearby premises, were remembered poorly, or not at all. Nevertheless, I accept that all had some, even if faded, recollection of having been present.
6. The purpose of the observations was to make a record of the number of sales made to customers, some of whom called into the shop to make a purchase, while the remainder placed an order by telephone, and had the food delivered to their homes. A few, Mr Brearley told me, called into the shop to place an order for later delivery. I accept that some customers might place orders in that way, though I think the number who did so, as a proportion of the whole, would be small. The officers did not merely count the people entering and leaving the shop, but attempted to match those going in to those coming out, to identify groups making a joint purchase, and to determine the number of deliveries made by the delivery drivers engaged by the Appellants.
7. Mr Barlow spent a good deal of time asking the observing officers questions about their observations and their records; his questions were designed to demonstrate that the observation records were not accurate, and that little reliance could be placed on them. They could not, he said, be used as the proper basis for an assessment extending over a period of some seven years. I do not propose to go through the sterile exercise of examining each officer's evidence about the observations in detail. It is sufficient to say that I do not doubt that there are inaccuracies in the records; I would consider it remarkable if the officers had made no mistakes. Some of the mistakes Mr Barlow identified were trivial and of no real consequence in themselves, such as a person thought to be male when observed entering the shop, but recognised to be female when emerging. It is notorious that it is not always easy to distinguish male from female, particularly at a distance, and I am not persuaded that errors of this kind call the overall reliability of the observations into question. What is of more importance is whether the officers were able to determine accurately how many purchases had been made during each trading session by customers entering the shop, and how many deliveries had been made.
8. Here, Mr Barlow was able to point to some more significant errors, particularly of counting, and he made much of the manner in which the officers had counted delivery sales.
9. I am not persuaded that the observations of customers calling at the shop are likely to be materially inaccurate. I am satisfied that the officers were conscientious in their observations, that they recorded as faithfully as they could what they saw, and that their mistakes in counting people entering and leaving were few. Of course, it was necessary or them to observe not only how many people went into and out of the shop, but what they were carrying, and to come to a conclusion whether what was seen to be carried out had not been carried in, and so represented a purchase. That is a more difficult task, and I am sure that some of those entering and leaving the shop were thought to have been customers when in fact they had bought nothing; but I am equally sure that there were instances when the officers failed to observe a purchase. I accept, as Mr Barlow argued, that the officers may have thought two people had entered and left the shop separately, each making a purchase, when in fact they were together and had made a single purchase, but I think it just as likely they would have counted two people entering and leaving at the same time, or in close proximity to each other, as one party when in fact they were two. It is inevitable that the number of purchases thought to have been made will not be precisely right but overall, I think, the mistakes will, to a large extent, have cancelled each other out, and I am satisfied that the observation records give a fair and reliable impression both of the numbers of customers calling at the shop, and of the purchases they made.
10. Food to be delivered was placed in large red insulating pouches, and carried out of the shop by the drivers. The officers had assumed that each pouch represented one delivery sale and for this reason the officers attempted to count and to record the number of pouches the drivers carried. Mr Brearley's evidence was that drivers would make two deliveries in a single journey only rarely. Each pouch could contain no more than four or five pizza boxes; thus a larger order would require more than one pouch. It was also his practice to put hot and cold food—such as salads—in separate pouches; that, in my view, is elementary common sense. I accept that making two deliveries in one trip would be practical only if two customers living within reasonable proximity to each other placed orders for delivery at much the same time, and that such occasions would be infrequent. The officers' approach is therefore, I have concluded, likely to have led to an over-estimation of the number of delivery sales.
11. Mr Foster (who was in due course the assessing officer) and Mrs Jones made the unannounced visit on 2 December 2000, as the business was closing for the day just before midnight. Mr Brearley was asked to, and did, count the cash in the till, and took a Z-reading; the officers obtained some further readings from the till themselves. The Z-reading showed the takings for the day to be £911.05. The aggregate value of the cheques and cash found in or near the till amounted to £890.90, but Mr Brearley told the officers that an additional £25 had been paid to each of the two delivery drivers, bringing the total to £940.90. It was discovered that Mr Brearley had already entered the day's takings, in his record of daily gross takings, as £530. He told the officers that the difference between that figure and the total found was accounted for by a main float of £200, a supplementary coin float of £60 (of which £40 had been used and replaced by notes to the same value) and £150 which he had retained from the preceding day's takings in order to lend the money to the chef, who needed it to pay for a car repair.
12. His explanation of the Z-reading was that it was distorted by entries which had been made during the course of the evening as he trained the delivery drivers in its use. The cashier whom the Appellants employed had walked out early in the evening and, because of the shortage of staff, Mr Brearley had, he said, been required to show the drivers, for the first time, how they could take a telephone order and enter it into the till. Some of the entries on the till roll did not represent true sales, but the "dummy" training entries. However, their values had been included as if the sales were genuine, and the total takings for the day, as shown by the Z-reading, were higher than the true total.
13. It is convenient at this point to deal with the evidence I heard about the Appellants' till. It was of a sophisticated modern kind, though not new in 2000 (it seems to have been acquired by the Appellants in about 1995). It was supplied by Mr Parker's company; on installation it had been set up as the Appellants requested, by varying the standard settings as far as necessary. Mr Parker would not change those settings thereafter, he said, unless the owner asked him to do so. Some changes could be made by the user, though he might need guidance from a dealer. Mr Parker could not remember whether the Appellants had asked his company to remove the sequential numbering of the receipts, or had asked for guidance in how to do so; this was one of the changes the user could make himself.
14. The sophistication of the till was such that a new user would require some training. It was possible to use a training mode, which would not affect the Z-reading, but it was not usual to programme the till to allow the use of the training mode since it exposed the owner to cheating by his staff, and Mr Parker advised against it. It was possible to correct errors, either by cancelling the incorrect item immediately, or by voiding an earlier error once it had been detected. As sales were made, a key on the keypad corresponding to each item ordered was pressed and when the order was complete, the total button was pressed in order that the aggregate value of the order could be calculated. When a telephone order was placed, a separate button was pressed in order to display the aggregate value of the order, but that value, Mr Parker thought, was not then added to the cumulative total of the day's takings—it appeared on the till roll, but only as a memorandum item. When the payment was received, the amount was keyed in as payment for a telephone sale and at that point it was added to the cumulative total.
15. Mr Brearley's explanation of the removal of the consecutive numbering of the receipts, at his interviews, was that the till had required some repairs, with the implication that the removal of the numbering was an accidental consequence of the repair. In the Appellants' defence it was claimed that there had been several changes to the appearance of the receipts, and that the numbers had been removed since there was no longer room to accommodate them. That explanation is, in my view, plainly untrue—the sequential number is printed on a line which also contains other information and I do not think its removal would result in any saving of space; on the contrary, it seems to me clear that the receipts can readily accommodate the sequential number without limiting the other material which may be printed on them. Finally, in his evidence, Mr Brearley conceded that he had asked Mr Parker for instructions about the removal of the numbers, and had made the change himself, for the purpose of concealing the number of sales made from the shop, should the till records be examined.
16. Mr Brearley also conceded in his evidence that the £530 he had recorded as the day's takings was incorrect, and that he had lied to the officers about his float (which was £100 rather than the claimed £200) and the money kept in the till for the chef's car repair (the correct amount was £100 rather than the claimed £150). The true takings, he said, were £680.90. I do not accept that evidence, and I do not accept his claim that the Z-reading was affected by his training the drivers.
17. The till roll for the day was made available to me, and I have examined it. It shows that 64 delivery sales (each is identified as "phone order" on the till roll) were made. In most cases, there appears, later on the till roll, an entry recording the payment for the sale; the entries can usually be married together as the amounts correspond, although there are a few duplications of values, and in some cases the payments cannot be matched with certainty to the orders as the drivers appear to have paid for several orders simultaneously. But in no case of a delivery sale does the payment immediately follow the taking of the order; there is always an interval, as one would expect when a telephone order has been taken, the food has been cooked and delivered to the customer and the driver has returned with the customer's payment. That feature is, in my view, quite inconsistent with training, where one would expect the payment to appear immediately after the order. Even if (which I think most unlikely, particularly if, as he claimed, he was busy) Mr Brearley deliberately introduced an interval between recording an order invented for training purposes and the corresponding notional payment, there was no impediment to his using the facilities for cancelling and voiding entries. Mr Brearley struck me as an intelligent man, and I am quite sure that he was not ignorant of their existence, or of the manner in which they should be used, since there is evidence from the till roll itself that the cancel function was used. I reject the contention that training was undertaken on 2 December 2000—I am satisfied that the claim is merely one example of Mr Brearley's efforts to minimise the scale of the suppression—and similarly reject the possibility that training affected the Z-reading for the day. Mr Foster, in his calculations, made an allowance for training but since, as will emerge, I propose to adopt my own approach to the calculation of the suppression, I do not intend to do so.
18. Rather to my surprise, examination of the till roll for 2 December 2000 reveals that Mr Parker is mistaken in his belief that the till accumulates payments received, and stores phone sales only as a memorandum; the aggregate of the cash actually shown to be received is £902.15, although the value of the orders placed (both for delivery and for collection from the shop) was the total recorded on the Z-reading for the day, namely £911.05, a difference of £8.90. Though it does not excuse his conduct, I can understand why, as he complained, Mr Brearley was unable to reconcile the cash in the till to the Z-readings. He also said that he frequently received hoax orders, so that a phone order was keyed into the till, but the corresponding payment was never received. While I do not accept that hoax orders were as frequent as Mr Brearley would have me believe, I recognise that they might occur from time to time. They may, perhaps, account for the missing £8.90. Certainly that is a difference easily accounted for by error, or short payment by customers, but not by a training exercise such as Mr Brearley claimed.
19. There was, of course, a further discrepancy between the amount found in and near the till and the amount recorded by the Z-reading, the former being £29.85 greater than the latter (the difference between the cash shown to have been received and the amount found is £38.75). The discrepancy was not explained: I have no evidence at all about it, and I do not intend to speculate. In my view the most reliable guide to the true sales of the day (or, more precisely, the cash received), and the one which should therefore be adopted, is likely to be the Z-reading since I am satisfied that Mr Brearley made proper use of his till, and discarded the Z-readings (as he agreed was his practice) in order to conceal the difference between the accurate Z-readings and the false entries in his record of daily gross takings. Indeed, Mr Foster found the Z-reading for the previous day in the rubbish bin at the shop.
20. Taking all of those considerations into account, I find as a fact that the true takings of the business on 2 December 2000 amounted to £902.15, the cash recorded by the Z-reading to have been received.
21. Mr Foster made a number of calculations derived from his analysis of the till roll, including the respective average values of collected and delivered orders, and he also examined the Appellants' record of daily gross takings in order to determine the proportion of each week's takings which were achieved on each day. He undertook the latter calculation by reference to the 01/00 accounting period, since it was the period in the preceding year in which 2 December fell. He concluded that, on average, Saturday's trade represented 21.18 per cent of each week's trade and, working back from his assumption that (allowing for some training) the true takings on 2 December 2000 amounted to £888.55, he arrived at average weekly takings of £4195.23. I have made some similar calculations of my own (based on my conclusion that the true takings on 2 December 2000 were £902.15), which lead to results, depending upon the period adopted for comparison, in a fairly narrow range a little above and a little below £4000 per week. In the absence of reliably accurate records it is, of course, impossible to be precise and (as section 73(1) of the 1994 Act indicates) it is necessary to exercise one's judgment. On that basis, I determine that a fair average value of the Appellants' takings at the end of 2000 was £4000 per week or, allowing for two weeks' closure per year, £200,000 annually.
22. However, Mr Foster discarded most of the calculations he had made from the till roll as a basis of assessment, and instead decided to use the number of sales determined from the external observations, applied to the average values of collected and delivered sales as he had calculated them from the till roll for 2 December 2000. He made three separate calculations, one for 18 August alone, another for 26 October alone, and a third for the two days combined. After comparing the results with the Appellants' declared turnover, he concluded that there had been suppression at an average rate of 104.7 per cent, that is the Appellants had understated their true takings by a little over half. He assessed upon the assumption that there had been suppression, at that uniform rate, over the whole of the relevant period; the amount assessed is the VAT fraction of the turnover assumed to be suppressed.
23. The task for this tribunal is, primarily, to determine the correct amount of tax due: see Pegasus Birds Limited v Customs and Excise Commissioners [2004] STC 1509, especially at [38]. I am satisfied, as I have said, that the observing officers have made a fair estimate of the number of customers calling at the shop, and their calculation of the number of purchases made by those customers is unlikely to be seriously incorrect; but I have already alluded to the error the Respondents may have made in determining the number of deliveries. It is, or at least should be, simple to calculate the average cost of a delivered order from the till roll, but for reasons which I have been unable to discover I disagree with Mr Foster on the amount of that average. It is rather less simple to calculate the average value of a purchase made by a customer calling into the shop. Some have bought one or more pizzas, often with other goods; but some have bought no more than a can of drink or a bag of chips. Some of the latter, I suspect, have bought and paid for food, and have then bought drinks, or chips, as an afterthought, with the consequence that they have caused the creation of two entries on the till roll. While I do not think any criticism can be made of Mr Foster for his decision to base the assessment on the observations—he took a reasoned decision to adopt that approach—I have concluded that the greater certainty of the till roll, even though it relates to only one day's trade, is to be preferred.
24. If the matter rested there, I would direct adjustment of the assessment to assume true weekly takings of £4000 in December 2000. The Appellants' case, however, is that although there was suppression at that time, it had begun only in early 1998. Mr Brearley's explanation was that their youngest child, then aged about 18 months, and who had been seriously ill shortly after birth, was not developing as one might expect, and was of increasing concern to them; and late in 1998 he was diagnosed to be autistic. Mr and Mrs Brearley spent less time at the shop (and Mrs Brearley, I understood, stopped working there altogether) in order that they could devote their time to their child, and, Mr Brearley said, he took on replacement staff whose wages were paid from the takings, and not declared. To conceal the fact that undeclared wages were paid, the takings were under-declared by the same amount. As time passed, Mr Brearley spent more and more time at home, with the consequence that he needed to take on even more replacement staff, whose wages he likewise did not declare; and the under-declarations of takings increased further so as to cover the cost of various treatments for their child which the Appellants tried in the hope of finding some cure. I was provided with a bundle of documents dealing with the child's illness and the treatment, and I accept that Mr and Mrs Brearley did indeed spend a good deal of money on treatments, and that their ability to devote their time to the business must have been impaired.
25. I am not, however, persuaded that the evasion began, as Mr Brearley claimed, in early 1998, nor do I accept that it was of the comparatively modest scale which he admitted, by means of a schedule setting out his estimate of the amounts he had under-declared, starting at £100 per week and increasing to £600 (with one week in which he admitted concealing the entirety of the takings by claiming falsely that the shop was closed). Mr Brearley's credibility is damaged by his having lied to the officers when they observed the cashing up, and by his not having taken the opportunity to correct his lies at his interviews—in some cases he repeated them. Mr Brearley told me that he had wanted to tell the truth when he was interviewed, but was intimidated by the presence of a tape recorder, and was advised by his solicitor to say nothing. I find that implausible; the transcript of the interviews (whose accuracy was not challenged) shows not only that Mr Brearley refused to answer some questions, but that he answered others untruthfully. I must take it, too, that the defence, served on their behalf by the Appellants' solicitors, was prepared on their instructions. It does not consist of mere denials, but advances a positive case, and repeats some of the lies.
26. Mr Brearley said that by August 2004, when he prepared a statement admitting suppression which was given to me as part of his evidence, he had decided to make a frank disclosure. I accept that by then he had decided (and for the first time) to admit some suppression, but I do not regard his statement as a frank disclosure; rather, I think it is further evidence of Mr Brearley's attempts to minimise the extent of the suppression which he had by then recognised he could not conceal altogether. Further admissions—particularly those about the float and the amount of money kept in the till for the chef's car repair—did not emerge until Mr Brearley gave his evidence, and it was clear to me that he made those admissions only reluctantly. I have already rejected Mr Brearley's claim that he undertook training on the till on 2 December. I also reject his claim that, of the money found in the till, £100 was to be lent to the chef. It is implausible that such money would be kept in the till and I am satisfied that this claim is invention. I can conceive of no reason to bring £100 of the previous day's takings to the shop, or retain that amount there, in order to make a loan when, as Mr Brearley must have been aware, the takings of the day itself would provide ample cash for that purpose. I find myself unable to conclude what was the true amount of the float, though I accept that there must have been a float. It does not seem implausible that it represented the difference between the amount shown by the Z-reading to have been received, and the amount found in or near the till (£38.75), but the evidence does not enable me to make any such finding with confidence.
27. Moreover, Mr Brearley's admitted suppression is difficult to reconcile with the known facts. His schedule claims that in the Appellants' accounting period 07/00 he was suppressing, initially, £500 per week until the week beginning 26 June 2000, when he suppressed the entire week's takings of £2200, and thereafter he continued to suppress the takings at the rate of £600 per week. The declared turnover for the period 07/00 was £25,593 or, allowing 12 weeks (that is, omitting the week whose takings were wholly concealed), £2133 per week. Of those 12 weeks, nine were (according to Mr Brearley) under-stated by £500 and three by £600. The true total for the period, if Mr Brearley is right, and for the moment leaving the week whose takings were wholly concealed to one side, was £31,893 or £2658 per week. The difference between that figure and the amount admitted for the week wholly suppressed is substantial: it is £458, or over 20 per cent of the amount admitted to have been concealed in that week. I recognise that the takings of the business would have fluctuated from week to week, and one cannot expect exact correspondence between the amount of the takings suppressed in one week and the average weekly takings in the period in which that week falls, but the difference between the two figures is such that it reinforces my conclusion that Mr Brearley's evidence cannot be relied on.
28. Mr Cannan pointed to Mr Brearley's claim that initially, and for a period of about a year, he suppressed only £100 per week, and with VAT rather than income tax in mind. As Mr Cannan argued, the saving of VAT over a whole year would have amounted to only £775. I find it difficult to believe that Mr Brearley would take the risk of discovery, and go to the trouble of re-programming his till, for so small a reward. I do not accept his evidence about the scale of the evasion, which I am satisfied he has under-stated even now. Nor do I accept his evidence about the period over which it occurred; rather, I think he has used his son's unfortunate condition as a means of concealing the truth.
29. There is some, though modest, evidence that the scale of the suppression did increase, but not from early 1998 as Mr Brearley claimed. The declarations between the disposal of the second shop in 1993 and October 1997 are remarkably uniform, varying by very small amounts above and below the average. In the accounting period 01/98, there was a conspicuous surge ((due, Mr Brearley said, to the temporary closure of a nearby competitor) when the declared takings exceeded the average by 28 per cent, but the earlier pattern then resumed until 10/99, when the declared takings declined markedly. If the declarations indicate increasing suppression, they do so, in my view, only from the beginning of that accounting period, August 1999. There may be other reasons why the takings, or at least the declared takings, declined from that time. Whatever the explanation may be, I do not accept that offered by Mr Brearley, and I am not satisfied that the decline is indicative of limited suppression over a comparatively short period. I mention in passing that the declared takings for 10/00 were very low, at barely two thirds of the earlier average. No explanation of that fact was given.
30. Though I reject Mr Brearley's contention that suppression began only in 1998, I have some difficulty in accepting one of Mr Foster's conclusions, that the suppression continued at a uniform rate over the whole period assessed. The pattern of the declared takings, of figures deviating from the average by only small amounts, with no upward (or downward) trend, over a period of several years seems to be inconsistent with what one might expect from the effects of inflation and with what one might also expect of a business run by a man who, as I have said, is intelligent and, I am sure, energetic and keen to maximise his family's income.
31. In order to support his claim that suppression began only in 1998 Mr Brearley endeavoured to explain the absence of any increase in the takings over the preceding years by two factors. First, he said, there had been increasing competition as more take-away outlets opened in Otley over the same period. Second, the town centre was becoming run down for lack of trade, and landlords were finding it increasingly difficult to find tenants for shop premises; indeed, the rent the Appellants paid had not increased for some years for that reason. There is an obvious inconsistency between those two propositions, though it is not for that reason that I reject them.
32. Mr Brearley's evidence was that in 1989, when the Appellants began trading from the Otley shop, it was the only take-away pizza outlet in the town, but now there were several competitors. There were, he accepted, take-away outlets offering other types of food in 1989; some of those had since started to sell pizzas, and other, new, establishments had opened. Competition had forced the Appellants to keep down their prices, and had limited the volume of their sales. Aware of this argument, the Respondents had prepared an analysis of the Yellow Pages entries for take-away food shops in Otley in 1993 to 1994, and in 2000 to 2001. That analysis showed that there had been a reduction from ten to eight competitors. I accept that there is some merit in Mr Brearley's criticism that the analysis is crude, and that it may not compare like with like, but I found his evidence about the supposed increased competition vague and unconvincing. I am not persuaded that changes in the level of competition are a material factor.
33. The evidence that landlords were finding it difficult to let shops in Otley town centre consisted of a cutting from the local newspaper of as long ago as September 1992. Its relevance to the period with which I am concerned is therefore a matter for some doubt. It is, of course, notorious that town centre shops, throughout the country, have been losing trade to out-of-town shopping centres. In this case—and contrary to Mr Brearley's evidence—the newspaper lays the blame primarily on "greedy absentee landlords", although the lack of car parking facilities is also mentioned. The article is surrounded by photographs of recently closed shops; it is conspicuous that not one is a take-away food shop. If, as Mr Brearley claimed, more competitors were opening, or even if the number of competitors was constant, town centre trading difficulties cannot, in my view, be a material factor.
34. Mr Barlow produced evidence that in the recent past, starting in 1999 and continuing into at least 2003, the Appellants were borrowing from their bank; that fact was, he said, inconsistent with their having suppressed large parts of their takings: if they had done so, they would not need to borrow. The documentary evidence produced was incomplete and, so far as it relates to periods after that assessed, seems to me to be quite irrelevant to Mr Barlow's argument. Such as there is for the period within the assessment gives no information about the purpose for which the money was lent, nor the purpose to which it was put, and I gleaned little from Mr Brearley's evidence. I am not satisfied that the Appellants' borrowing is of significance.
35. The conclusion I have reached is that there was some suppression of takings over the entire period assessed, as the Commissioners have determined, but that it started at a comparatively modest level, increasing gradually until it was discovered in December 2000. The Appellants have not discharged the burden of satisfying me that the suppression began at some later date than 1 August 1993, the beginning of the period assessed; but I think it unlikely that the scale of the suppression was uniform, as the assessment assumes. In my view the probability is that Mr Brearley gradually increased the amount by which he under-stated the takings, and took care (for example by failing to keep Z-readings, and by eliminating the sequential numbering of till receipts) to make discovery of his concealment more difficult.
36. The evidence obtained on 2 December amounts to no more than a snapshot; the day may have been atypical but, in the absence of any evidence that it was, it seems to me to be as reliable an indication as can reasonably be obtained of the level of the Appellants' turnover in the latter part of 2000. As I have already indicated, I have concluded, on the strength of the till roll evidence, that the Appellant's turnover was then at a level of £200,000 per year.
37. On the other hand, I have, unfortunately, no reliable evidence of any sort on which I might come to a conclusion about the extent of the true takings in 1993. The declared takings for the first year of the period assessed amount to £114,953. That figure, which is tax-inclusive, corresponds with the net-of-tax turnover disclosed by the Appellants' annual accounts for the same period, of £97,758. It is, as I recognise, little more than a guess, but the view I have reached is that at the start of the period assessed, 1 August 1993, 25 per cent of the true takings were suppressed (since I agree with Mr Cannan's point that suppression of much less would incur significant risk for little reward), and that the true, tax-inclusive takings of the business at 1 August 1993 amounted (rounded down) to £150,000.
38. I direct that the assessment be re-calculated upon the assumption that the tax-inclusive turnover of the business increased, on a straight-line basis, from £150,000 per year at 1 August 1993 to £200,000 per year at 31 October 2000. Although I have not made an exact calculation, it is apparent that this change will result in a substantial reduction of the amount due.
39. Mr Brearley accepted that the suppression to which he admitted was due to dishonesty. He was at pains to tell me that only he was responsible for it, but his wife was in partnership with him (and, I presume, has benefited financially from the suppression) and she cannot escape the consequences merely because, for some at least of the relevant period, she was not actively involved in the business; her duties as a partner remained. No explanation was offered for the further suppression I have found (understandably so, since it was denied), but none other than dishonesty could realistically be suggested. I am satisfied, therefore, that a penalty for dishonest evasion was properly imposed for the entire period assessed. The penalty will need to be adjusted to reflect the amendment to the assessment itself.
40. Mr Barlow did not address me on the subject of mitigation, but I have nevertheless considered the matter. The Respondents have allowed mitigation to the extent of 15 per cent of the maximum penalty, to reflect such limited cooperation as Mr Brearley offered by not obstructing the cashing-up exercise, by handing over some records and by attending two interviews. I am not bound by the scale which they apply, and which is designed to encourage prompt cooperation, though in the interests of uniformity of treatment of different traders it is appropriate that the tribunal should respect it. I do not think that the mitigation allowed by the Respondents is unfair. Mr Brearley's cooperation was limited, and for most of the period since the investigation began he has disputed the entirety of the Respondents' contentions. Only recently has he made any admissions, but, as I have indicated, I am satisfied that they are inadequate and, moreover, are themselves designed to deceive. I can find no factors which cause me to think that the penalty should be adjusted, save to the extent made necessary by the adjustment of the assessment.
41. Both Mr Barlow and Mr Cannan asked that I make a direction for costs in their clients' favour in the event of success. The Appellants have succeeded, but to a limited extent and despite, rather than because of, the evidence they put forward. As I presently see the matter, I am not minded to make any direction in their favour. On the major issues, that there was suppression and that it was due to dishonesty, the Respondents have succeeded. I prefer to hear further argument (which may be in writing if the parties wish) before deciding whether, and if so to what extent, the Respondents should have their costs before making a direction. Accordingly I give permission to the parties to restore the appeal for further hearing (or will entertain written submissions) on the question of costs, and if it should not be possible to agree the amount of tax or penalty due.

COLIN BISHOPP

CHAIRMAN

RELEASE DATE: 15 MARCH 2005

MAN/01/0396