United Kingdom VAT & Duties Tribunals Decisions

---

You are here: BAILII >> Databases >> United Kingdom VAT & Duties Tribunals Decisions >> Wong v Revenue & Customs [2006] UKVAT V19565 (27 April 2006)
URL: http://www.bailii.org/uk/cases/UKVAT/2006/V19565.html
Cite as: [2006] UKVAT V19565

---

[New search] [Printable RTF version] [Help]

---

Lee Andrew Wong v Revenue & Customs [2006] UKVAT V19565 (27 April 2006)

VAT – tax assessments – no appearance by appellant and no challenge to tax assessed – appeal dismissed

VAT – civil evasion penalty – finding that evasion proved and inference drawn that it was dishonest – reduction in assessment for production of documents – appeal substantially dismissed by HMRC application for costs refused as result of their refusal to supply appellant with observation and test eating results

MANCHESTER TRIBUNAL CENTRE

LEE ANDREW WONG Appellant

- and -

THE COMMISSIONERS FOR

HER MAJESTY'S REVENUE AND CUSTOMS Respondents

Tribunal: David Demack (Chairman)

Susan Stott FCA CTA

Alban Holden JP

Sitting in public in Manchester on 27 March 2006

The Appellant did not appear and was not represented

Mr James Puzey, counsel, instructed by the Acting Solicitor for HM Revenue and Customs for the Respondents

© CROWN COPYRIGHT 2006


 


DECISION

2. This is an appeal by Lee Andrew Wong, trading as Woo Sang Restaurant, against:

a) assessments to tax (the tax assessments) of £162,172 covering the period 10 July 1994 to 30 November 1999 (the assessment period); and

b) an assessment (the penalty assessment) by letter of 15 June 2000 to a civil evasion penalty of £162,172 covering the assessment period.

3. Dealing first with the legislation relating to the tax assessments, section 73(1) of the Value Added Tax Act 1994 (the 1994 Act) makes provision for Her Majesty's Commissioners of Revenue and Customs (HMRC) to assess a person in the absence of a return, or where he has failed to make the return as required under the Act. The amount of such an assessment must be "to the best of their judgment".
4. The tax assessments were made to recover output tax allegedly underdeclared by Mr Wong in the assessment period. In the Notice of Appeal against them, given on 27 March 2000, Mr Wong gave his reason for appealing as follows:

"The assessment appears to be based on flawed evidence which the appellant can only guess at. Despite repeated requests the observation evidence has not been produced and what little has been alluded to appears to [be] flawed. The assessment exceeds the three-year period permitted."

5. We observe that ordinarily HMRC are restricted to assessing for a three year period. But where, as here, dishonest evasion of tax is alleged, that period is extended to 20 years.
6. The penalty assessment was made because HMRC considered that Mr Wong had dishonestly evaded the tax included in the tax assessments. In his Notice of Appeal against it, given on 3 July 2000, Mr Wong appealed because:

"The underlying [tax] assessment is under appeal. The assessment is not accepted and neither is any implication of dishonesty. Despite repeated requests all relevant information has not been disclosed by the Respondents [HMRC] and further details/grounds will need to be provided when a sensible Statement of Case and complete discovery is made."

7. Provision for civil evasion penalties is made by section 60 of the 1994 Act, headed "VAT evasion: conduct involving dishonesty". Subsection (1) thereof reads:

"(1) In any case where-

(a) for the purpose of evading VAT, a person does any act or omits to take any action, and

(b) his conduct involves dishonesty (whether or not it is such as to give rise to criminal liability),

he shall be liable, …, to a penalty equal to the amount of VAT evaded or, as the case may be, sought to be evaded, by his conduct…"

8. Section 60(7) provides that on an appeal against an assessment to a penalty "…the burden of proof as to the matters specified in subsection (1) (a) and (b) above shall lie upon the Commissioners." By section 70 of the 1994 Act the amount of the penalty may be reduced in specified circumstances by the Commissioners or, on appeal, by the tribunal.
9. When the HMRC investigation into Mr Wong's affairs commenced, he was represented by Messrs Kidsons Impey, a well respected firm of chartered accountants based in Manchester. They were replaced on 9 November 1999, by Mr T Nawaz, a chartered accountant based in Bradford. Mr Nawaz has a large practice in these tribunals and is familiar with all aspects of appeals. Consequently, we are satisfied that Mr Wong has throughout been properly advised. We so say for Mr Wong withdrew his instructions from Mr Nawaz but two working days before the hearing, and did not appear personally to pursue the appeal. It was made plain to us in an e-mail from Mr Nawaz that Mr Wong did not intend to attend the hearing.
10. Against that background Mr Puzey, counsel for HMRC, made application for the hearing to proceed under rule 26(2) of the VAT Tribunals Rules 1986, as amended. After carefully considering the application, particularly in the light of the very recent decision of the Court of Appeal in Mohammed Siddiq Khan v HM Revenue and Customs (2006) as yet unreported, we acceded to his application.
11. Mr Puzey called Mrs Patricia Ann McErlaine, the HMRC officer who had recommended that Mr Wong be assessed to the penalty, and we were presented with a single bundle of copy documents. Amongst the papers in the bundle were records prepared by HMRC officers who had carried out observations at Mr Wong's restaurant and had partaken of meals there (commonly referred to as "test eats"). Their statements had been objected to by Mr Nawaz, but in his absence and that of Mr Wong, and in the absence of any documentary challenge to the tax assessments, we proceeded on the basis that the objections had been withdrawn, for, as was explained by Macpherson J in Grunwick v Customs and Excise Commissioners [1986] STC 441 at p445:

"At no time do the commissioners have any burden to prove anything before the tribunal. Neither its case nor any aspect of the matter, factually or evidentially, carries any burden imposed on the commissioners. It is throughout, in my judgment, up to the taxpayer company, if it can, to attack the assessment in whole or in part…."

Macpherson J made those observations in an appeal which concerned only tax assessments, i.e. there was no civil penalty involved.

12. Having dealt with the preliminary matters, we now proceed to make our findings of fact.
13. At all material times Mr Wong carried on business as a Chinese restaurateur from premises at 19/21 George Street, Manchester, under the style of Woo Sang Restaurant. He registered for VAT with effect from 10 July 1994. He has now ceased trading.
14. On Friday, 6 September 1996, officers of HMRC carried out speculative test eats and observations at the Woo Song Restaurant, and on 6 February 1997 an examination of Mr Wong's meal bills revealed that a number of transactions carried out on the former date had allegedly gone unrecorded. Consequently, a further programme of observations and test eats was arranged.
15. HMRC's interpretation of the observations and test eats on 6 September 1996 resulted in their concluding that Mr Wong had suppressed 15.12 per cent of his takings. Their calculation ran as follows:

Lunch diners observed	40	Evening diners observed	23
Lunch diners declared	31	Evening diners declared	20
Missing bills	9	Missing bills	3
Undeclared officers bills	3	Undeclared officers bills	3
Average costs calculated		Lunch bills	£17.68
(per declared bills)		Evening bills	£65.85
Notional sales
Declared lunch bills	31		£548.15
Declared evening bills	20		£1316.90
Undeclared lunch bills	9 x £17.68		£159.12
Undeclared officers bills			£173.20
			£2197.37
Declared sales			£1865.05

Suppression rate	2197.37 – 1865.05 x 100 =	15.12 percent
	2197.37

16. Their officers having carried out observations on the six other days of the week , namely on Wednesday, 26 February 1997. Saturday, 26 April 1997, Monday, 2 June 1997 (part of day only), Sunday, 3 August 1997, Tuesday, 14 July 1998, and Thursday, 17 September 1998, using the same methodology as for the 6 February 1997, HMRC interpreted the results as showing the following suppression percentages of takings: 27.87, 23.47, 8.46, 26.68, 11.8 and 33.75 respectively. Applying a weighted average to the various figures, they determined that overall Mr Wong had suppressed 23.41 per cent of his takings in the assessment period. They concluded that suppression had taken place throughout the assessment period on the basis of there being little difference in Mr Wong's declared takings during the whole of it. Applying the 23.41 per cent figure to declared takings in the relevant accounting periods, HMRC arrived at the figures included in the tax assessments.
17. It is now well established (see e.g. Rahman v Customs and Excise Commissioners [1998] STC 826) that the principal concern of the tribunal in an appeal against a tax assessment is to ensure that the amount of the assessment is fair, taking into account the judgment of HMRC and any other points raised by an appellant. Apart from the inclusion of the officers' bills in the calculation, there is no evidence before us which might indicate that the tax assessments were unfair or which might allow us to reduce the tax assessed. And, as far as the officers' bills are concerned, without challenge to the tax assessments supported by evidence, we consider ourselves unable to exclude them from the calculation. Consequently, we confirm the tax assessments in the amounts raised, and dismiss Mr Wong's appeal against them.
18. We then turn to the penalty assessment. At the time it was made, HMRC policy as to the mitigation of section 60 penalties was set out in Notice 730 of 1 December 1994. They were prepared to allow a reduction of up to 40 per cent for an early and truthful explanation of why the arrears arose and the true extent of them; a reduction of up to 25 per cent for a taxpayer's co-operation in substantiating the true amount of arrears; and up to 10 per cent for his attending interviews and producing records and information as required.
19. Prior to the imposition of the penalty, Mr Nawaz, on behalf of Mr Wong, asked HMRC to disclose their observation and test eating results. They refused to do so. Consequently, Mr Nawaz apparently advised Mr Wong not to agree to be interviewed by officers, and he seemingly accepted that advice. The result was that Mr Wong failed to qualify for a reduction in the penalty for attending interviews. We observe at this point that, as HMRC uplifted Mr Wong's books and records on 6 February 1997 and the limited evidence before us indicated that the records were probably complete (albeit perhaps inadequate), we consider that he should have qualified for some reduction in the penalty for producing records, but in the event he was considered to have given them no co-operation whatsoever, and he was assessed to a penalty of 100 per cent of the tax assessed on him.
20. We can understand why Mr Nawaz advised his client not to attend an interview, but he did his client no favours in advising Mr Wong not to do so; and we can only proceed on the basis that Mr Wong's behaviour amounted to a failure to co-operate with HMRC.
21. As we indicated earlier, in relation to the penalty assessment, it is for HMRC to prove both the evasion of tax and that the taxpayer has acted dishonestly. In his address to the jury in R v Fairclough (1993) unreported, a case involving a prosecution under what is now section 72 of the 1994 Act for fraudulent evasion of VAT, His Honour Judge Crabtree explained 'evasion' as "an English word that means to get out of something. If you evade something, you get out of its way, you dodge it …" He went on to explain "fraudulently" as "a common English word" meaning, basically, dishonestly. He further indicated that the jury were to decide for themselves as "ordinary, right-thinking people" whether what the taxpayer did was dishonest. The observations of Judge Crabtree were approved by the Court of Appeal in R v Dealy [1995] STC 217.
22. Acting as ordinary, right-thinking people, and applying the observations of Judge Crabtree, we have no hesitation in concluding that Mr Wong evaded the tax to which he was assessed, and we infer that he did so dishonestly. We therefore hold that HMRC have established that the conditions for the penalty assessment have been met.
23. That leaves the question of mitigation of the penalty. As we mentioned earlier, Notice 730 in the form in force at the relevant time provided for a reduction of up to 10 per cent of the penalty for attending interviews and producing records and information as required. In our judgment, Mr Wong was entitled to some mitigation of the penalty for production of records, albeit minimal. We therefore reduce the penalty assessment by five per cent, that is to £154,064. To that very limited extent, we allow the appeal.
24. As is usual in cases where a civil evasion penalty appeal has been dismissed, or substantially dismissed, Mr Puzey made application for HMRC's costs. At the time the application was made, we indicated that we should grant it. But, on reflection, we have decided to reject it. We do so because HMRC refused to provide Mr Nawaz with information about their officers' observations and test eats. That information was essential to Mr Wong and his representative if he were to have any opportunity properly to challenge the tax assessments. The tax assessed was calculated on the basis of HMRC's interpretation of the observations and test eats, and that interpretation could have been open to challenge had it been made available to Mr Nawaz.
25. Observation and test eat evidence should, in cases such as the present one, be made available to an appellant and his representatives as a matter of course. It is a matter so obvious that the tribunal should not have to point it out to HMRC

DAVID DEMACK

CHAIRMAN
Release Date: 27 April 2006

MAN/00/0589