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Roobs UK Ltd v Revenue & Customs [2008] UKVAT V20590 (27 February 2008)

20590

VALUE ADDED TAX – Assessment – Service station – Whether till buttons used to record cash-back transactions – Insufficient evidence – Appeal dismissed

LONDON TRIBUNAL CENTRE

ROOBS UK LTD Appellant

and –

THE COMMISSIONERS FOR HER MAJESTY'S REVENUE & CUSTOMS Respondents

Tribunal: MISS J C GORT (Chairman)

MR R S SURI

Sitting in public in London on 3 December 2007

Mrs Rubi Arulanantham the owner of the Appellant company, for the Appellant

Mr Jonathan Holl, advocate, for the Respondents

© CROWN COPYRIGHT 2008

DECISION

The appeal is against a notice of assessment dated 26 September 2005 in the sum of £17,089 for the period from 01/07/04 to 31/05/05 made under the provisions of section 73 of the Value Added Tax Act 1994 ("VATA"). Following an internal review the amount of value added tax considered to be due was reduced to the sum of £12,739. The notice of amendment of assessment is dated 3 January 2006. There is no sum in respect of interest on that amended assessment.

There was a further review by HMRC and by a letter dated 30 June 2006 the amended assessment was upheld. The grounds of appeal are as follows:

"The assessment is not in line with information supplied and given verbally to VAT officers. The assessment is excessive and unreasonable given the performance of the profitability of the company. The company would face hardship and may not be able to continue trading."

The background

The Appellant, Roobs UK Ltd ("Roobs") carries on business as a service station and store trading as `East Grinstead Service Station' from premises at London Road, East Grinstead.

Roobs was registered for VAT with effect from 1 July 2004. Between 25 August 1997 and 2 July 2004 Mrs Arulanantham, a Director of Roobs, had traded as sole proprietor at the service station site and had been registered for VAT in that period.

The evidence

The Tribunal heard evidence from Miss Susan Sutton, an assurance officer with HMRC, and Mr Trevor Probert, a VAT compliance officer who had amended the assessment. Mrs Arulanantham gave evidence on behalf of the Appellant. A bundle of documents was produced by HMRC.

Mrs Sutton had visited Roobs' premises on 8 September 2005 when she inspected the records and accounts of the business. She took away the till tails and she established that certain Z-readings were missing from the till. An examination and reconciliation of the sales listing for tax periods 08/04 to 05/05 identified errors in the declared sales figures. She calculated an average daily VAT amount from the appropriate monthly takings. From the discrepancies she had identified she produced a schedule of underdeclaration which was provided to Mrs Arulanantham with a covering letter dated 15 September 2005. In that letter she informed Mrs Arulanantham about the missing Z-readings and that for the missing readings she had calculated the average daily VAT due using the appropriate month's takings. She also stated that from the records she had noted that hot take-away food had incorrectly been zero-rated when it should be standard-rated. Mrs Arulanantham was informed that an assessment would be raised within the next few days in respect of both those matters. She also provided Mrs Arulanantham with a copy of notice 709/1 for guidance. The assessment in the sum of £17,089 was then raised on 26 September 2005, that assessment was said to bear interest.

During the course of her visit Mrs Sutton had made a note of what the different codes on the till referred to, and whether or not the items were standard-rated. For example, Code 6 was used for zero-rated groceries and Code 7 for standard-rated groceries, Code 19 was recorded as being used for jet wash and Code 21 for vending-hot food/coffee. The till recorded items at Code 21 as being zero-rated, but, because hot food is standard-rated, Mrs Sutton included items recorded at Code 21 in the assessment. Code 17 was noted as being used for car wash. During a subsequent telephone conversation with Mrs Arulanantham Mrs Sutton was told that Code 17 related to hot food. Mrs Sutton's working papers show that code 10 appeared to contain some cakes which should be standard-rated and Code 22 contained some standard-rated frozen items, which had been incorrectly dealt with.

Following the issue of the assessment by a letter dated 29 September 2005 T&K Associates, accountants acting on behalf of Roobs, advised HMRC that they did not accept Mrs Sutton's figures and the amount of cash back given to customers had been treated as takings, and there were no missing till readings as alleged. It was also said that hot take-away food had been treated correctly as standard rated and not zero-rated. The letter was treated as a request for a local review of the assessment.

Mr Probert carried out a further review and he requested certain information from Roobs including copies of ten till readings for specific dates, and he informed them that Mrs Sutton had understood that till code 21 was used to record the sale of hot food but that the tax code had been set at zero. Roobs was asked to confirm that this was correct. Mr Probert also asked for an explanation as to how cash back transactions impacted on the sales figures observed on the day of Mrs Sutton's visit. The till readings requested were for the days which Mrs Sutton had said were missing.

In a letter dated 27 October 2005 Mrs Arulanantham replied to Mr Probert in the following terms:

"I confirm that the value of standard-rated sales and lower-rated sales that appear on till tails are exclusive of VAT. But the till tail information contained items such as cash back and e-pay sales (paypoint sales) which makes the tail information on the till rolls irrelevant. For example please refer to the till roll attached.

The item number 7 appears as standard rated e-pay items but this in fact was e-payment which is VAT exempt. Also item number 19 appears as standard rated jet wash but this is in fact cash back item which is also exempt. As there are only limited buttons on the till in use the instruction to cashiers to use one of those buttons which happened to be standard-rated and in turn gives a wrong sales on the till tails."

With regard to sales of hot food she informed Mr Probert that these were recorded in the sales day book which had been given to the accountant and was not available at the day of the visit. She confirmed that sales of hot food (vending) had been recorded correctly as standard-rated. With regard to cash backs, the card company statements did not show these separately. No documents were supplied to her in respect of the value of e-payments received or cash back payments made.

On 1 December 2005 HMRC received an undated letter from Mrs Arulanantham enclosing e-payments and cash backs summaries for each quarter, and in total. It was accepted by Mr Probert that those invoices demonstrated that there was a degree of regular e-payment transactions, but from an examination of the invoices he concluded that code 7 of the sales scanner was not used for e-payments. The average value of each transaction under code 7 was less than 50p while the transactions listed on the e-pay invoices ranged from £5.00 to £280. Mrs Arulanantham was asked to provide a full list of the till codes in use at any given time, stating the date that any new codes were introduced or changes made. In a letter dated 16 December 2005 Mrs Arulanantham informed Mr Probert that code 7 was used not only for e-pay transactions, but also was used for sales of pick-&-mix, which would be only 1p to 10ps worth of children's sweets. She gave a list of the codes that were in use, and in particular Code 6 was said to refer to grocery and Code 7 was pick-&-mix and e-pay, Code 17 was used for car wash and jet wash and Code 19 was for cash back. Mr Probert worked out the average transaction value of code 19 for the relevant period as £4.83, and he concluded that this was consistent with the code heading for jet wash and not with cash back transactions. Furthermore the card transactions summaries did not appear to show any cash back transactions and therefore did not support any reduction of the standard-rated daily takings. Mr Probert did accept that the invoices supported £13,645 of e-payment receipts between July 2004 and May 2005, and accordingly the assessment needed adjusting. However, there remained the matter of the standard-rated confectionary. Mr Probert subsequently issued the amended assessment.

The Report and Accounts for the first year's trading showed an operating profit of £6,914 on a turnover of £808,033. The profit after taxation was £5,183. The operating profit included the director's remuneration of £1,760. Director's emoluments was shown as being £1,500. No dividends were drawn. Commission received is shown as £14,306. This commission was from both cash back and e-pay transactions, Roobs receiving £2.00 commission on each transaction. No evidence of the cash back payments was ever shown to either HMRC or to the Tribunal. The spreadsheet provided by Mrs Arulanantham was not in the bundle of documents, which is unfortunate. Mr Probert had taken figures from this spreadsheet and recorded inter alia that Mrs Arulanantham had calculated that the cash-back amount from the daily gross takings figures should be £18,535.50. The schedule also showed month-by-month break down which was said to have related to e-payments and those totalled £39,217.92. In respect of Mrs Arulanantham's claims Mr Probert wrote a letter on 3 January 2006 in which he said inter alia:

"In re-examining your claim that Code 19 on your till rolls is used to record cash-back transactions, the following conclusion has been reached. The Card Transaction Summaries do not appear to show any Cash-back transactions and are therefore of little value in supporting your reduction of the standard-rated daily takings (excl. VAT) by the £18,535.50 shown on your spreadsheet for July 04 to May 05. Furthermore the average transaction value of Code 19 in the same period is £4.83. This remains consistent with the Code heading of "jet wash".

"In re-examining your claim that Code 7 has been used to record e-payment receipts, the following conclusions have been reached. You have stated that Code 7 is used for recording both sales of confectionery (pick & mix) and e-payment receipts. Why you have supplied invoices supporting £14,645 of e-payment receipts between July 04 and May 05, there remains the matter of standard-rated confectionery that have been included in your adjustments. Only the value of £13,645 is accepted as being deductible from your takings record."

By this letter Mr Probert informed Mrs Arulanantham that he would shortly be issuing a revised assessment plus interest in the sum of £12,739. This was duly done.

Roobs' accounts for the period ended 31 May 2005 were produced to the Tribunal and these do agree with the VAT returns. The turnover is £808,033, and the profit is £5,183. The director's salary is given as £1,500. These were the accounts for the first year. No dividends were drawn. The figure for commissions is shown as £14,305.

Mrs Arulanantham's own evidence was that the till was twenty years old and was the one she had been using when she was sole proprietor before the limited company had been formed. Whereas there had previously been seven to eight coded items, there were now twenty items. Since the assessment she had altered the codes. The staff were trained so that when cash-back of £20 was given there was a 10% charge, i.e. £2.00. She accepted that VAT was payable on the £2.00, but not on the £22. At the time she had not had a separate till for PDQ payments.

The staff kept a record in the day book with the figures from the till roll, the cash sales for the fuel, the volume of the fuel and the commission. He also recorded the sales, the petty cash and other commissions such as those from cash-back and e-payments. This day book had not been available at the time of Mrs Sutton's visit. There had been a subsequent visit by Mrs Sutton and Mr Probert together and she had shown it to them on that occasion but they had not taken it away with them. She kept all relevant documents at all times.

Shift sheets were kept by the cashier who wrote down all relevant matters. Because the products in the shop were bar-coded, they were scanned into the till and it was not always necessary for the cashier to press the relevant code button. Code 19 was used for the cash-back payments. The commission recorded in the Report and Accounts for the year was taken from the day book and related to the cash-back and the e-payments. Commission was also received on the purchase of petrol.

She had not considered producing the shift sheets to the Commissioners, and had at no time been asked about them. The items contained on them were entered into the day book which was given to the accountants. She had not considered that they might be accepted by the Commissioners as proof.

Her staff had been instructed only to use Code 19 for cash-back.

Reasons for decision

The Commissioners' case was that the burden of proof in the appeal was upon Roobs who had not been able to demonstrate that the additional tax takings were related to cash-back and commission charges. The Commissioners would have been prepared to look at any evidence to substantiate her claim. Both officers had used best judgment in making the initial assessment and then in the subsequent amended assessment. In considering best judgment the Tribunal was referred to the case of Curry Inn Restaurant, which no reference number was given, in which the tribunal analysed the leading cases of Van Boeckel (1981) and Rahman (1998) and stated as follows:

"From the decision in Van Boeckel we derive three principles. First, there must be some material before the commissioners on which they can base their judgment. Secondly, the commissioners are not required to do the work of a taxpayer in order to form a conclusion as to the amount of tax due. Thirdly, the commissioners are required to exercise their powers in such a way that they make a valued judgment on the material which is before them. From the decision in Rahman we derive three more principles. Fourthly, the tribunal should not treat an assessment as invalid merely because it disagrees as to how the judgment should have been exercised; a much stronger finding is required; for example, that the assessment has been reached 'dishonestly or vindictively or capriciously'; or is a 'spurious estimate or guess in which all elements of judgment are missing'; or is 'wholly unreasonable'. Fifthly, if the assessment is shown to have been wholly unreasonable or not bona fide there would be sufficient grounds for setting it aside but that kind of case is likely to be extremely rare. Finally, in the normal case it should be assumed that Customs and Excise have made an honest and genuine attempt to reach a fair assessment; that a date before the tribunal should be concentrated of seeing whether the amount of the assessment should be sustained in the light of the material then available."

The Commissioners accepted that Mrs Arulanantham was basically honest, but she had not by the time of the hearing produced any evidence which could be accepted in support of her contention that a proportion of the recorded items related to cash-back payments. However the Commissioners would be prepared to receive any such further information as might be forthcoming.

Mrs Arulanantham in the grounds of appeal had said:

"The assessment is not in line with information supplied and given verbally to VAT officers. The assessment is excessive and unreasonable given the performance and the profitability of the company. The company would face hardship and may not be able to continue trading."

By a letter dated 30 June 2006 a Mrs Weston, who did not give evidence before the Tribunal, had reconsidered the amended assessment. She had been involved in correspondence with Mrs Arulanantham prior to this time. In her letter of 30 June 2006 Mrs Weston stated as follows:

"Code 12, which is used for ice cream or drinks appears on the summary as Spar 8 and is then zero-rated. On the nine till rolls that she sent in, ranging from 31 July 2004 to 30 October 2005, the amount recorded for ice cream was always the amount in the Spar VAT 8 column. In my letter I asked what this particular Code was used for and you have told Mrs Sutton that it relates to Coal Lite and Gas. However, you have also said that gas is coded 16 and coal 24. Both these codes are calculated correctly at 5%. The Spar 8 code should not be used other than for zero-rated items.

"Mr Probate accepted that the e-payments that were supported with invoices could be deducted from your takings record. I did ask in question 7 for evidence that the amounts he had allowed had been recorded as standard-rated. This has not been produced but I do not intend to change Mr Probate's decision on that.

"As regard cash-back I also asked for schedules to confirm how the amount you listed were arrived at. These had not been provided. You told Mrs Sutton that the differences between the cash and the till on the listed takings were put down as cash-back. You cannot reduce your VAT commitment because of any shortfalls. You have also said that some of the cash-back is in small amounts as it is given to customers, who want to purchase phone cards. You say this is because it is more secure to do it that way than to use the card directly to purchase the phone card. I cannot understand why taking the card for cash-back is more secure than taking it for the purchase of a phone card.

"Mr Probate calculated the average transaction value of code 19 for the period of your schedule as £4.83. None of the above has made me consider that there is evidence that the amount of £18,535 should be reduced from your takings."

In her evidence Mrs Arulanantham told the Tribunal that the till used was twenty years old at the time that Roobs was formed as a limited company, and at that time she had created more buttons on the till to handle cash back transactions. Previously there had been 78 items, and she created a further 12. Since the issuing of the assessment she had had the till altered. At the relevant time staff were trained that where cash back of £20.00 was given they should charge £22.00 and value added tax was only referable to the £2.00, not to the whole £22.00. She was aware that she ought to have had a separate till, but she had not had one at the time. From answers given by Mrs Arulanantham to the officers, it appears that the commission varied from 1.5% to 2% depending on the type of card used.

The system had previously been that everything was recorded in the day book. A record of the commissions paid in respect of cash back and e-pay transactions were kept in the day book. This book was not available at the time of Mrs Sutton's visit, however both Mrs Sutton and Mr Probert had subsequently visited Roobs on 30 May 2006 and it was Mrs Arulanantham's evidence that they had been shown it at that time, but they had not taken it away. Mr Sutton's evidence was that no new documentary evidence was provided at the May meeting. A shift sheet was kept on which the cashier would write down the commission amount. These shift sheets were never produced either to HMRC or to the Tribunal.

The Respondents' case was that the officers had been willing to look at anything which was produced by Mrs Arulanantham on behalf of Roobs, but she had not been able to demonstrate that what had been treated as taxable takings were in fact cash back and commission charges. The assessment had been made to best judgment and the cases of Van Boeckel v Customs and Excise Commissioners [1981] STC 290 and Rahman v Customs and Excise Commissioners [1998] STI 937 were relied on.

It was accepted by the Commissioners that Mrs Arulanantham was basically honest and had been operating under difficult circumstances but she had not discharged the burden of proof that there was upon Roobs. Mr Holl however indicated that HMRC was always ready to receive further information should it be available.

Mrs Arulanantham has not satisfied us on the balance of probabilities that the assessment was not made to best judgment. We accept the case as put by Mr Holl on behalf of the Respondents and dismiss the appeal.

MISS J C GORT

CHAIRMAN

RELEASED: 27 February 2008

LON 2006/0787