United Kingdom VAT & Duties Tribunals Decisions

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19133

Disallowance of input tax because an alleged tax invoice was said to be an estimate and not an invoice - Status of the invoice - Whether the Customs officer acted reasonably in rejecting other evidence

LONDON TRIBUNAL CENTRE

THE ORANGE ROOMS

Appellant

- and -

HER MAJESTY'S REVENUE AND CUSTOMS

Respondents

Tribunal: HOWARD M. NOWLAN (Chairman)

SUNIL K. DAS A.C.I.S.

Sitting in public in London on 16 May 2005

Mrs Pamela Moreland F.C.A. of HJS, Accountants, for the Appellant

Mrs P A Crinnion of Her Majesty's Revenue and Customs, for the Respondents

© CROWN COPYRIGHT 2005

DECISION

This was an appeal by The Orange Rooms, a bar and restaurant business conducted by a partnership of three individuals in Southampton, against the disallowance of input tax referable to building supplies involved in the initial modification and refurbishment of the bar and restaurant premises at 1-2 Vernon Walk, Southampton.

Evidence was given at the hearing on behalf of the Orange Rooms by Mr. Gary Bennetton, one of the three partners in the business, and by Sally Fisher, the Client Manager at the firm's accountants, HJS or Hunts Johnston and Stokes. Evidence was given on behalf of Her Majesty's Revenue and Customs ("HMRC") by Mr. Neil Brooks, the officer of HMRC who had handled this case in Southampton.

THE FACTS

Mr. Bennetton and Mr. Daniel Foss joined together in partnership in early February 2001 to take over leasehold premises at the address mentioned above in order to commence the business of running a bar café and restaurant. Mr. Bennetton stated in his evidence that he had had considerable experience in marketing new bars and clubs but neither he nor Mr. Foss had ever before acquired their own business, or been in any way involved with building works.

The premises taken over in early February were in a dilapidated state. The two partners had the benefit of a short rent-free period but they were very conscious that it was vital to ensure that the building works were completed quickly in order that the restaurant could open for business in mid-April, and start generating revenues. We were not given detailed evidence as to how it was proposed that the initial capital works were to be financed but Mr. Bennetton did state in his evidence that he obtained finance from his bank by re-mortgaging his house, he referred to using credit cards and "every available source of funds", and he mentioned that a third partner, Mr. Banks, joined the partnership at some slightly later date, contributing capital of £30,000, in order to provide additional funds to the partnership. Once the business opened for trade, the takings from the bar and restaurant were in part used to pay the remaining building bills.

Most of the building work was undertaken by a local firm of builders and project managers, the identity of which was disclosed to us, but which we will refer to throughout this decision as "the Builders". Several of the men involved in the Builders' business were known to Mr. Bennetton because they had frequented one of the bars that Mr. Bennetton had been involved with in his marketing role, and this was why The Orange Rooms engaged the Builders to undertake the modification and refurbishment work.

It was said in evidence by Mr. Bennetton that the Orange Rooms did receive an informal, unwritten, estimate of what the building works would cost from the Builders, at £60,000, and he also said that it was assumed at the outset that £60,000 would turn out to be £100, 000. In her cross-examination Mrs Crinnion was somewhat sceptical and critical of the proposition that no written estimate was obtained at the start of the work, and of the fact that when the Orange Rooms engaged the services of a quantity surveyor to check on the quality of work done and its costings in June 2001, no written summary of costs appeared to have been given to the quantity surveyor. We did not find any of these facts particularly disturbing. We accept the proposition that Mr. Bennetton and his partners were inexperienced. We can well understand that their priority was to get the work done quickly and start generating revenues, and that they would have accepted that costs might escalate somewhat if they took necessary short cuts in order to complete the work on time. It was also mentioned that as the project proceeded, various changes were made to the specification which inevitably increased costs (more expensive flooring being one item alluded to), and for style reasons various areas had to be painted and re-painted several times.

The bar did manage to open for business on 12 April 2001, the originally projected date. Only one of the floors was then completed and further work had to be completed subsequently in relation to the second and third floors and the kitchen. The kitchen for instance was only able to serve food from 11 June. Total completion of the works was not achieved until the end of the year, but it appears that the major works were largely finished by the end of April.

THE FIRST VAT RETURN

The partnership registered for VAT purposes on 1 July 2001 and in its first VAT return the partnership made a large repayment claim. Much of the repayment was referable to an amount allegedly owing to the Builders of £143, 243.99. In support of the claim for input relief for this debt, the partnership furnished a document on the headed paper of the Builders. This was addressed to the Orange Rooms, dated 30 April 2001, and it was set out as follows. Within a large box were contained the words "To supply the following", and then Labour Costs, Material Costs and a Management Fee were itemised. The respective figures against them were £65, 864.37, £53, 045.41 and Management Fee £3,000. At the bottom of the box the three were added together to a figure of £121, 909. 78, and immediately below that figure, against a printed heading in the box "VAT@ 17.5%" was the figure (showing the VAT charge) of £21, 334.21. Immediately below the VAT figure, and against a printed word "Total" on the form was the figure of £143, 243.99.

The only two other points to make about the relevant piece of paper were that at the bottom it did provide the Builders' VAT number, but it had no identifying invoice number, and indeed did not contain the word "Invoice".

Two things are not clear about this relevant piece of paper. Firstly we are not clear whether when this piece of paper was issued by the Builders to the Orange Rooms it included the word "Statement". Photocopies of the paper produced by the Orange Rooms do contain that word, whereas the copy of the paper that it will emerge that HMRC obtained from the Builders did not include that word. Far more significant however was the question of whether when the paper was issued it was accompanied by an Appendix. It was asserted by the Orange Rooms that the Appendix was attached and indeed we were shown the original of that Appendix on the Builders' headed paper at the hearing. We will defer the summary of the contents of this Appendix because it is not clear to us that the Appendix was furnished to HMRC when the alleged invoice was handed over in support of the claim for an input deduction for the Builders' charge.

In view of the large VAT input recovery claim, the piece of paper referred to in paragraphs 8 - 10 above was forwarded by the Orange Rooms' local VAT officer to a division of HMRC in Liverpool that scrutinises large and possibly suspect VAT recovery claims. It was noted that by virtue of the single feature of not having an identifying number the document did not strictly comply with the Regulation specifying the required contents of an official VAT invoice, but nevertheless after undertaking various checks, the repayment claim was passed for payment and duly paid. An internal memo was however sent to the VAT office dealing with the Builders, asking that office just to double check that the Builders' records recorded the output supply containing the gross figure of £143,243.99. It was assumed at the time that this routine inquiry would confirm the corresponding entry.

When representatives of HMRC visited the Builders on a routine inspection they failed to find any entry that corresponded with the £143,243.99. Instead they were shown a VAT Invoice on identical paper to the one that we have described in paragraphs 8 to 10 above, save that this document was headed "Invoice LS OR1" and the wording in the box and the figures were different. The wording in the box said "To supply materials and labour to refurbish throughout, the public house formally known as Simon's Wine Bar", and the figures demonstrated a net supply of £80,851.06, related VAT of £14,148.94, and a gross figure of £95,000. The Builders did not dispute that the piece of paper referred you in paragraphs 8 to 10 above had been issued, and indeed both appeared to be dated the same date, 30 April 2001. As already mentioned the Builders' copy of the "£143,243.99 document" omitted the word "Statement" but was otherwise identical to the document that the Orange Rooms had received, and passed to their VAT office, which had in turn asked the Liverpool division of HMRC to verify the document.

On further enquiries, including interviews with two of the directors of the Builders, it appeared that the Builders' accounts included only the receipt of £95,000, the Builders explaining that the other document, alongside the £95,000 tax invoice was "an estimate", and they asserted that they had never received payment of anything other than the £95,000. .

Not surprisingly the case was then referred back to the Southampton VAT office so that Neil Brooks, the relevant officer, could make further enquiries of the Orange Rooms. The first visit took place on 1 October 2002, when Mr. Brooks identified some further but relatively minor claims for input deductions not accompanied by Tax Invoices, and also raised queries in relation to the computer system that registered gross takings. In a letter shortly afterwards HJS, the Orange Rooms' accountants maintained, as regards the major disputed item, that £95,000 had been paid by cheque to the Builders and £40,000 in cash, and at all times it was maintained that the Orange Rooms had never seen the Tax Invoice containing the figure of £95,000. For its part HMRC suggested that the £95,000 invoice issued by the Builders was the only valid VAT Invoice; that the £143,243.99 document was only an estimate; and that no evidence had been produced to satisfy them that any more had in fact been paid to the Builders than the £95,000 covered by the £95,000 invoice.

THE FURTHER ENQUIRIES

In the period of approximately one year following Mr. Brooks' visit referred to in paragraph 14, there were various exchanges between HMRC and the Orange Rooms and HJS. These exchanges allayed some of the concerns on the part of Mr. Brooks. One area of confusion had arisen because of a misunderstanding whereby Mr. Brooks had totalled up both records of amounts owing to the Builders and payments, so showing (rather remarkably) a total figure in excess of £200,000 payable to the Builders. Some further confusion arose because of a difficulty in extracting the required detail from the computer records of payment, but this was largely resolved.

At the end of the year period, on 24 September 2003, Mr. Brooks issued an assessment for £10,580.75, to recover excessive input deductions. Of this total figure, £7,185.27 reflected the VAT content in the disparity in the figures between £95,000 and £143,243.99 in the two documents produced by the Builders, and the balance of £3395.48 reflected other disputed input deductions.

In the period following the making of the assessment referred to in paragraph 16, the Orange Rooms and HJS worked to reduce the smaller component of the assessment, relating to the minor matters. In some cases suppliers furnished replacement, and more satisfactory, invoices, and other evidence was adduced to support the deductions claimed. Accordingly on three occasions, Mr. Brooks issued amended assessments, always reducing the 24 September assessment, as matters were satisfactorily resolved. By the time the Orange Rooms' appeal was heard by us we were told that there was no further issue in relation to the minor items that had once totalled the £3,395.48 referred to in paragraph 16.

In the period following the making of the assessment referred to in paragraph 16, there appears to have been little movement in the dispute as to the invoice from the Builders. At one time another firm represented the Orange Rooms, and an argument was advanced that the September assessment was invalid as being made out of time. The case was also reviewed internally within HMRC, though nothing changed the stance adopted by HMRC that the only valid Tax Invoice that had been issued was that for £95,000, and that no satisfactory evidence had been adduced that amounts in excess of £95,000 had been paid.

In mid April 2005, following various exchanges, HJS wrote to HMRC providing further documentation in support of the Orange Rooms' case, the dispute by this time only relating to the invoice mismatch with the Builders. This documentation was to be considered at a meeting that took place on 28 April 2005.

One of the relevant documents was a carefully written reconciliation prepared by HJS purportedly demonstrating that a total of £136,000 had actually been paid by the Orange Rooms to the Builders. We will refer in more detail to this document when dealing with the evidence that was produced to us. We should simply mention here that HJS confirmed that although the Orange Rooms prepared its VAT returns on an accruals basis, rather than a cash basis, and notwithstanding that no credit note had been obtained from the Builders (reducing their charges from £143,243.99 to the lower figure of £136,000), The Orange Rooms conceded that its input deduction should be just for the £136,000.

The other document that was provided to HMRC in preparation for the April meeting was the Appendix that it was alleged had always been attached to the document that the Orange Rooms received from the Builders in April 2001, containing the figure of £143,243.99. The three page Appendix to this document, which HMRC has consistently described as "an estimate" is all typed in the same type-face as the main document, and is on the printed note paper of the Builders. We were shown the original of this Appendix at the hearing.

The Appendix is divided into two parts. One takes the Labour Costs figure of £65, 864.37, which was specified in "the £143,243.99 document" and was mentioned in paragraph 8 above and breaks it down into 8 separate items, such as "Electrics", "Plumbing" etc. Against each is a figure, the figure against Electrics being £15,422.62, and that against Plumbing being £7,831.75. The itemised figures , some of which are rounded (for instance "Carpentry" is rounded at £12,600) total £65,864.37.

The second part of the Appendix takes the "Materials" figure shown on "the £143,243.99 document", namely £53,045.41 and breaks it down between 15 itemised suppliers. These suppliers include RMC, B&Q, Travis Perkins, Wicks and other well known names. Not a single figure in the list is rounded in any way. The figure against the third materials supplier, Elliots, for instance is £3.39. The much larger figure against Travis Perkins was the equally non-rounded figure of £19,717.94. The totals of the Labour and Materials figures in this Appendix correspond exactly to the relevant figures in the £143,243.99 document.

Notwithstanding the production of this further information, HMRC indicated at the meeting that took place, without giving any reasons, that they were not swayed by this further information; that they still considered that "the £143,243.99 document was an "estimate"; and that they were not minded to compromise and wished to proceed to the hearing that had been set down for 16 May.

THE EVIDENCE

Mr. Bennetton gave evidence in relation to the paperwork relating to payments passing between the Builders and the Orange Rooms and the arrangements generally and to put it shortly the systems were sloppy in the extreme.

It appeared that the Builders were also a small and fairly new business and although many payments had clearly been made before the end of April 2001, it appears that no invoice had been issued demanding payment. This is rather confirmed by the fact that the "£95,000 invoice" that the Builders said they issued on 30 April 2001 had as part of its invoice number "OR1", which seems to indicate that it was the first invoice issued. Payments had manifestly been made and received before that date because there was produced in the bundle of documents produced by the Orange Rooms one receipt dated 23 February on the Builders' headed paper, saying "Received with thanks the sum of £20,000 for the 1^st stage payment for works to date at the Orange Rooms, £10,000 cheque, £10,000 cash". A further receipt, again on headed paper confirmed that as at 29 March 2001, £60,000 had been received to date, "£10,000 to be paid by G. Bennetton, 29.3.01".

Alongside the absence of interim invoices, there was a near total absence of receipts. The two referred to in paragraph 26 appear to cover 6 payments in total, and refer to a further payment, and there were certainly not receipts for anything approaching the 40 separate payments that according to the Schedule prepared by HJS (which we refer to below) were made.

In addition to absence of interim invoices, and absence of receipts, payments appear to have been made in three different ways. Some were made by cheque drawn in favour of the Builders. Some were made by drawing a substantial cheque to cash (which was of course recorded on both cheque book stubs and bank statements) , and allegedly handing over the cash to a representative of the Builders. Reference was made by Mr. Bennetton to the fact first that the Builders had requested that some of the payments be made in cash, and secondly that on one occasion he was accompanied to the bank by a representative of the Builders, when drawing a cash cheque in the way just described. Payments were also made in cash out of cash till receipts, in the later period when the business had commenced.

Reference was also made to a meeting that took place at the Orange Rooms at a time when the Orange Rooms had fallen somewhat behind in making payments and to an agreed schedule for paying the balance of the amounts owed. It was not made clear precisely when this meeting took place, but the rather poor record of the suggested schedule of payments rather suggested that payments for work that had been nearly completed by 30 April were having in fact to be made (presumably largely out of turnover) in the period after the business commenced.

We asked Mr. Bennetton why he had not sought to obtain evidence from the Builders, to the effect that they had received all of the payments which it was contended had been paid. In answer Mr. Bennetton said that the team originally involved in the relevant firm had split up, and were no longer operating in the Southampton area. He was also somewhat wary of further dealings with some of the people involved. General reference was also made to the rather obvious point that there was a manifest difference between the information given by the Builders and by the Orange Rooms as to whether more than £95,000 had been paid, and it was hardly realistic to expect a representative of the Builders to support the claims of the Orange Rooms that in excess of £40,000 had been paid in cash, beyond the acknowledged payment of £95,000.

Whilst the evidence on the part of Mr. Bennetton created a far from perfect picture, it certainly appeared to be consistent with initial inexperience on the part of the partners in dealing with a rush building project, and the fact that everyone gave more attention to getting the work finished, and the business operating than to keeping the books. We will refer below to other impressions made by Mr. Bennetton in giving his evidence.

Sally Fisher of HJS, the Orange Rooms' accountants, also gave evidence. She said that she had not been employed by HJS at the time of the construction work but she gave evidence about the work that she had done in assembling information, and in particular the difficult task of trying to establish, to the satisfaction of HMRC, that even if the Orange Rooms had not received a valid Tax Invoice, they could nevertheless demonstrate that the alleged £136,000 (notably not the £143,243.99) had been paid. Her evidence struck us as being entirely honest and cogent. She said that she had researched every payment and reconciled it either to a cheque stub made out to the Builders, or to a cheque stub drawn to cash, or to available cash till receipts. As a professional she gave the clearest impression that she was supporting what she thought was a valid case. Of course she had no direct evidence that cash amounts had been handed over to the Builders, but all the cash cheques and applications of cash out of till receipts tallied with the Balance Sheet of the business, in which the claimed cost of £136,000 had been reflected.

THE DECISION

Our decision is made more difficult by an issue to which little attention was given until we specifically asked for guidance on two legal issues. Both of these relate to the fact that for an input deduction to be given the strict legal position is that the trader must either show that he holds a valid VAT invoice, meeting all the requirements specified in the Regulations, or the trader must persuade the VAT Inspector to exercise their available discretion (permitted by s.26 VAT Act 1994, and the Regulations and reflected in published material and a recent Statement of Practice) and accept other evidence of payment for goods or services supplied.

On the first of those issues, when we asked whether the absence of an identifying invoice number or some sort of statement to the effect that "This is an Invoice" resulted in the "£143,243.99 document" not being a valid VAT invoice we were given somewhat conflicting guidance. It was asserted that it was actually quite common for invoices not to have an identifying number, and indeed we were specifically told that many traders only issued one invoice in a period and supplied no identifying number. In this regard HMRC had known all along that the "£143,243.99 document" had not contained the word "Invoice" and that it had no identifying number, and this deficiency had been waived. It was only when HMRC adopted the terminology of the Builders and claimed that the "£143,243.99 document" was an Estimate, and that the "£95,000 Tax Invoice" was the only valid Tax Invoice that it was asserted that the "£143,243.99 document" was not a valid Tax Invoice.

As a technical matter the failure of the "£143,243.99 document" to carry an identification number does appear to us to mean that the document does not, as it must, meet all the conditions for being a valid Tax Invoice. However the form of the document was known to HMRC from the very outset and any very minor deficiency in the document was waived even when the document was sent to the Liverpool division that deals with major doubts about input recovery. On the basis thus that this deficiency was waived, and never re-raised, we consider that the case should be decided by disregarding that very minor defect in the document.

The ground on which the "£143,243.99 document" was alleged not to constitute a valid VAT Invoice, once HMRC had interviewed the directors of the Builders was that it was an "estimate", and that the only document which constituted a valid VAT invoice was the "£95,000 invoice", which the Orange Rooms say they never received.

Looking merely at the "£143,243.99 document" in isolation without the Appendix which it is alleged was attached to it, we consider that its description as an estimate was wholly unconvincing and untenable. At the end of April 2001 when the bulk of the building works had been finished, the document can hardly have been an estimate of the cost of the remaining works. It could conceivably have been a statement of the cost of works so far, plus an estimate of the costs until final completion, but there was nothing in the document that referred in any way to its being an estimate. It was typed on the identical paper to the £95,000 Invoice, and the wording (figures apart) was virtually identical.

Once however the Orange Rooms produced not just a copy, but the original of the Appendix which clearly matches the "£143,243.99 document" precisely, because the total figures in the two sections of the Appendix exactly match the figures for Labour and Materials in the "£143,243.99 document", we consider it impossible to regard the £143,243.99 document" as any sort of estimate. The genuine nature of the Appendix was not challenged, and it had every appearance of being genuine. We cannot understand why it was not made available to HMRC at an earlier date (assuming that it was not), but it was certainly made available before the meeting in April 2005. And when the Materials figures, in particular, itemised 15 building suppliers with absolutely specific, non-rounded costs against each, we consider that to challenge the status of the "£143,243.99 document" and its Appendix as a VAT invoice on the ground that it was merely an estimate became quite untenable.

On this ground therefore, we think that the Orange Rooms should succeed in their entitlement to deduct input tax referable to the further payments in excess of the £95,000 up to £136,000, the Orange Rooms having disclaimed the excess over £136,000 which has not been paid and appears unlikely to be paid.

We will deal with the appeal on the alternative ground that the "£143,2343.99 document" was not a valid VAT Invoice. Whilst we asked for guidance on the second issue, referred to in paragraph 33, we were left in some doubt at the end of the hearing as to our jurisdiction in reviewing the discretionary power of the VAT Inspector to allow, in his judgment, other material in substantiating an input recovery claim in the absence of a valid VAT Invoice. With the aid of the various authorities helpfully handed to as at the end of the hearing, and not least because the trader's right of appeal in this situation is expressly confirmed by paragraph 21 of the HMRC Statement of Practice published in July 2003, we conclude that we do have power to review this decision but only on the ground that the decision could not reasonably have been made or that information was unreasonably disregarded in arriving at the decision.

We approach this review with some diffidence, partly because of the high burden of proof in establishing that the VAT officer's decision was unreasonable, partly because it is difficult to reach a decision on the material made available to us only minutes before the commencement of the hearing which others have been considering for some years, and most of all by the fact that we have seen only one side of the argument in this case. It is manifest that in this case one party has sought to defraud HMRC, and the difficult point to decide is whether the Builders have failed to return (implicitly for Corporation Tax purposes as well as VAT purposes) receipts in excess of £95,000, or whether the Orange Rooms were only billed that amount and only paid that amount, such that other cheques drawn for cash were used for personal expenditure. In that eventuality, the Builders would necessarily have been complicit in a plan to provide the Orange Rooms with fake, ballooned invoices, so as to back up claims for excessive input deductions. Having heard only one side of the story we must reach our decision on the basis of the evidence that we have heard, conscious that this may be only one side of the story.

Notwithstanding the reservations mentioned in paragraph 41, we have reached the conclusion that the Orange Rooms should succeed in their appeal for the input deduction for payments in excess of £95,000 and capped at £136,000, and that HMRC were unreasonable in refusing this claim. We consider in short that for the very long period during which HMRC appeared to believe that the "£143,243.99 document" was an estimate, during which period it was impossible to prove that money obtained by cheques drawn to cash had in fact been paid to the Builders, there may have been no failure of judgment on the part of HMRC. Once however the original of the Appendix to the "£143,243.99 document" had been produced, and once HJS had (for the same meeting in April 2005) made available their very carefully prepared Schedule, tracing all the sources of cash to the alleged payments, the combination of those two factors made the Orange Rooms' case, we believe, compelling.

In support of our decision in paragraph 42, we will list the factors that have influenced us.

(a) Although Mr. Bennetton's evidence revealed casual, informal and almost chaotic financial checks over payments etc., Mr. Bennetton did strike both of us as an honest man.

(b) A point which Mr. Bennetton made which struck us as both persuasive and obvious is that there is some significance to the fact that the Orange Rooms has taken this case to appeal, risking full scrutiny of all evidence, when the sum in contention is less than the professional costs that Mr. Bennetton suggests the Orange Rooms have incurred. That suggests that the case has been pursued as a matter of principle, rather than as a last effort to complete a fraud.

(c) When we asked Mr. Brooks whether he had detected any element of fraud or dishonesty in his researches into all the other invoices and calculations of gross income that had been undertaken (i.e. in relation to the minor issues that have now been resolved), he answered candidly that he had not.

(d) We found the evidence of Sally Fisher very persuasive. We accept that she had carefully and independently traced the origin of all alleged payments to cheque stubs and bank statements, and available cash from till receipts, and had reconciled them with the accounts.

(e) It was manifest in this case either that the Builders had received some or all of the disputed cash payments and not returned them, or that the Orange Rooms, on only paying the lower amounts, had deliberately tried to claim excessive input deductions. When the latter would have required the Builders to co-operate by providing false (or at least misleading) documentation, and when the benefits of such a fraud would have been relatively minor (the Income Tax implications being far less significant than the corresponding implications of suppressing receipts) we found this latter explanation implausible.

(f) When the credibility of the Orange Rooms' case largely revolves around whether cash payments were paid and correspondingly received by the Builders, the written receipt from the Builders referred to towards the end of paragraph 26 above, referring to the receipt of £10,000 in cash and £10,000 by cheque, is of some significance.

(g) There is also some significance to the fact that on everyone's admission the Builders knew of the existence of the two competing documents, both apparently dated 30 April 2001, and both typed in broadly similar terms on identical invoice paper. On the evidence produced to us there was no particular suggestion that the Orange Rooms had ever received the invoice for £95,000.

(h) The utterly compelling factor however is the existence of the Builders' Appendix to "the £143,243.99 document", which leads strongly to the conclusion that the "£143,243.99 document" was what everyone (including HMRC) initially assumed that it was, namely an invoice with a detailed accompanying breakdown of all costs incurred. This coupled with the carefully prepared Schedule, tracing alleged payments totalling £136,000 and the fact the Orange Rooms disclaimed any claim for input tax for any amount in excess of £136,000, insofar as they are now unlikely to pay anything in excess of the £136,000 leads us to conclude that even though these two most compelling pieces of evidence might only have been divulged for some reason to HMRC at a very late stage, it was nevertheless unreasonable not to be swayed by them. It was also particularly unreasonable not to have given any indication (either at the April meeting or at the hearing) why these documents should not be taken at face value, and thus seen as decisive.

COSTS

No order for costs was requested and we do not propose to make any order for costs. We are partially influenced here by the undeniable fact that the Orange Rooms' supporting evidence had been kept and then presented to HMRC in a somewhat chaotic manner, and that evidence that we considered vital had only been produced at a very late stage.

HOWARD M. NOWLAN

CHAIRMAN

RELEASED: 1 June 2005

LON/2004/970