Worldwide Designs Ltd v Customs and Excise [2005] UKVAT V18999 (22 March 2005)
18999
VAT — ASSESSMENT — best judgment — outputs declared in VAT returns amounting to less than true level of inputs — taxpayer appearing to be trading at a loss — alleged by taxpayer that business was financed by its trade creditors and that Customs had ignored stock shown in accounts — evidence of taxpayer rejected — assessment for undeclared VAT on difference between declared outputs and true inputs upheld as reasonable — appeal dismissed
MANCHESTER TRIBUNAL CENTRE
WORLDWIDE DESIGNS LIMITED Appellant
- and -
THE COMMISSIONERS OF CUSTOMS AND EXCISE Respondents
Tribunal: Michael Johnson (Chairman)
J T Brian Strangward
Sitting in public in Birmingham on 8 November 2004 and 21 January 2005
Alan Rudge, solicitor, for the Appellant
Helen Redmond, counsel, instructed by the Solicitor's office for HM Customs and Excise for the Respondents
© CROWN COPYRIGHT 2005
DECISION
"The writer has no recollection in the notes he took of the meeting [in March 2003] that [Mr Harjit] stated 'All items were paid for at the time of purchase'. All that was stated concerning purchases was that 'purchases were paid either by cash or cheque'. There was no statement that all items were paid for at the time of purchase, obviously (sic) there has been a misunderstanding on this issue."
"You argued, in your letter dated 22 April 2003, that the differences [5] were in part due to build-up of stock and subsequent part-time working. In the absence of any accounting evidence this was rejected.
"In your letter dated 25 April 2003 you questioned the rejection above and some of the statements attributed to [Mr Harjit], which included whether the business was profitable or items purchased on credit. Again in the absence of any accounting evidence your points were rejected.
"Whilst certain points have been raised no accounts or other evidence have been produced to substantiate them".
"[The Appellant] has been obtaining credit from suppliers in order to build up its stock level. It had to build up its stock level to achieve sales. As and when sales increased and cash-flow improved the supplying creditors could be paid and the stocks accordingly reduced. As the [Appellant's] cash-flow has improved [the Appellant] does not require to have such a high stock level".
- Calculate the Appellant's wages bill from the information available to Customs;
- Make an assumption as to the minimum rental cost of the Appellant's premises;
- Compare the declared outputs for VAT with the declared inputs plus the wages bill and the rent (since wages and rent had been omitted from Box 7 of the Appellant's tax returns) for each of the four quarters under consideration respectively;
- Since on that basis inputs exceeded outputs for each of the four VAT periods, the difference was said to represent an apparent trading loss on the part of the Appellant;
- Assume that the Appellant must have had takings to achieve at least a break-even trading result, calculate 7/47ths of the difference just mentioned, and deem that to be undeclared VAT due.
MICHAEL S JOHNSON
CHAIRMAN
Release Date: 22 march 2005
MAN/2003/0721
Note 1 The accounts are dated 24 October 2003. The tribunal bundle also contains “trial balance accounts” for the 12-month period January-December 2002. [Back]
Note 2 amounting to £1,802. [Back]
Note 3 ie the four periods of the assessment. [Back]
Note 4 Apart from missing invoices in period 07/02, resulting in the separate assessment mentioned in paragraph 14 above. [Back]
Note 5 (ie between the respective positions of Mr Payne and the Appellant, the former maintaining that the business appeared to be loss-making, so that sales must have been under-stated, and the latter maintaining that this was not so). [Back]
Note 6 (see paragraph 6, footnote 1 above). [Back]
Note 7 These matters were included in the additional information sought by Mr Dutton in his letter dated 24 July 2003. [Back]
Note 8 named after Aluminium Industrie Vaassen BV v Romalpa Aluminium Ltd [1976] 2 All E R 552 – the English case in which such a clause was first considered. [Back]
Note 9 (The accounts do not indicate any bank overdraft or non-trading loan facilities). [Back]
Note 10 See the Pegasus Birds case at [14] (page 1515 of the report). [Back]
Note 11 (This is a very truncated rehearsal of counsel’s submissions, which were comprehensively prepared. No discourtesy to her is intended.) [Back]