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United Kingdom VAT & Duties Tribunals Decisions

You are here: BAILII >> Databases >> United Kingdom VAT & Duties Tribunals Decisions >> Azad (t/a Indian Chef) v Revenue & Customs [2008] UKVAT V20705 (06 June 2008)
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Cite as: [2008] UKVAT V20705
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Mohammed Azad (t/a Indian Chef v Revenue & Customs [2008] UKVAT V20705 (06 June 2008)
    20705

    REGISTRATION – decision of Commissioners to compulsorily register the Appellant – penalty for late registration – assessment to tax – misdeclaration penalties – default surcharges – incomplete and incorrect returns – inadequacy of records – appeal dismissed

    MANCHESTER TRIBUNAL CENTRE

    MOHAMMED AZAD Appellant

    T/A INDIAN CHEF

    - and -
    THE COMMISSIONERS FOR

    HER MAJESTY'S REVENUE AND CUSTOMS Respondents

    Tribunal: Lady Mitting (Chairman)

    Marilyn Crompton (Member)

    Sitting in public in Manchester on 29 April 2008

    Mr. Michael Wilde, accountant, appeared for the Appellant

    Miss L Linklater, counsel, instructed by the General Counsel and Solicitor to Her Majesty's Revenue and Customs for the Respondents

    © CROWN COPYRIGHT 2008
     
    DECISION
  1. The Appellant, Mr. Azad, appeals against the following decisions of the Commissioners;

  2. The decision to compulsorily register him with effect from 6 August 1999

  3. A penalty for late registration in the sum of £3,682

  4. An assessment to tax dated 12 September 2005 in the sum of £11,488 and covering tax periods 11/02 to 11/04 inclusive

  5. Two penalties for misdeclaration relating to tax periods 05/03 and 08/03 in the sum of £330 each

  6. Three default surcharges for periods 05/04 (£43.37); 08/04 (£59.86) and 11/04 (£210.07)

    7. The total sum is dispute was therefore £16,143.30. The Appellant had originally also appealed against a centrally-issued assessment in the sum of £24,549.32 covering the period 6 August 1999 to 6 August 2002. On a preliminary hearing the tribunal had ruled that this assessment did not give rise to an appealable issue and the appeal was therefore struck out. The tax therefore remained owing but was not in dispute before us.
  7. We heard oral evidence from Mr. Azad himself and, on behalf of the Commissioners, from the assessing officer Mr. Jon Bott.

  8. Mr. Azad carries on business running an Asian-style restaurant and takeaway as a sole proprietor. He had registered for VAT at his own request by application dated 17 September 2002 and was registered with effect from 7 August 2002. He was visited at his business premises by Mr. Jon Bott on 23 March 2005. The visit was made to check on the accuracy of figures declared on the VAT returns and to establish the correct liability for period 11/04, the return for which had not been submitted. On his visit to the premises, Mr. Bott saw Mr. Azad's takings book and on a subsequent visit to his accountant, Mr. Andrew Green at Messrs Hewitt Allison, he saw the accountant's complete file, working papers, copy returns and annual accounts. The visit to Mr. Green took place on 6 April 2005. On this visit, Mr. Bott saw the annual accounts for the years ended 6 August 2001 and 6 August 2002. These disclosed annual turnover in the sums of £72,103 and £55,873 respectively. He later saw accounts for the years ended 6 August 1999 and 6 August 2000 reflecting annual turnover of £85,185 and £56,998 respectively. Set against the registration thresholds, it was apparent to Mr. Bott that throughout this period, Mr. Azad's turnover never fell below the registration limit and he was therefore registerable at some stage in the year ended 6 August 1999. The records were insufficient for Mr. Bott to establish precisely when he should have been registered so, giving maximum credit to Mr. Azad, he decided to compulsorily register him with effect from the year end, namely 6 August 1999.

  9. Mr. Bott also decided to raise a penalty for late registration. The amount of the penalty was later reduced on review to £3,682, calculated in the following way. Taking the annual declared turnover for years ended 8/00; 8/01 and 8/02 and applying the VAT percentage thereto, approximate output tax due was calculated at £27,549.32. Notional input tax of £1,000 per year was allowed (in the absence of receipts or any other documentation to prove a higher entitlement) giving a tax liability of £24,549.32. The penalty was then calculated by applying the statutory rate of 15%. Default surcharges were raised in respect of periods 05/04, 08/04 and 11/04. The tax for all three periods still remains outstanding and additionally, the returns for 05/04 and 11/04 were both rendered late.

  10. For periods 05/03 and 08/03 Mr. Azad submitted nil returns, answering "none" in each of the nine boxes on each return. In interview with Mr. Bott however, Mr. Azad agreed that he had in fact traded during these periods. Mr. Bott had also had passed onto him by Mr. Green a copy of a letter dated 21 July 2004 from Mr. Green, addressed to Mr. Azad. The relevant parts of this letter state as follows;

    11. "Further to our recent meeting concerning the situation regarding your VAT, we are enclosing the four outstanding duplicate returns as you clearly stated that you wished to fill these in yourself.
    As you are aware, we have already calculated the VAT for the four periods in question and enclose copies of the Returns, which remain on file at your instruction. We must emphasise that we have prepared these Returns on the basis of information supplied by you and believe the figures quoted to be correct. We cannot accept responsibility for the consequences if you submit Returns on any other basis.
    As we have still not received the Voluntary Disclosure form to replace the incorrect NIL Returns for 05/03 and 08/03, we have chased this at the VAT office and they have undertaken to send out another one today. We will send this on to you when it is received."

    Mr. Bott took the view that Mr. Azad had knowingly completed incorrect returns and raised misdeclaration penalties in relation to each of the two periods.

  11. During the course of correspondence with Mr. Green, Mr. Bott received a letter dated 22 June 2005 in which Mr. Green informed Mr. Bott that after he had prepared the 1999 accounts – which would have been within three months of the year end – he actually advised Mr. Azad of his need to be VAT registered and he completed a VAT1 form for him and left it with Mr. Azad to finish off and submit to the Commissioners. He later discovered that Mr. Azad had never submitted the form.

  12. The assessment to tax was calculated by Mr. Bott in a number of ways. For periods 11/02, 02/03, 11/03 and 02/04, he took his figures precisely from draft returns already prepared for Mr. Azad by Mr. Green. For periods 05/04 and 08/04 he calculated the assessment from the trading records which he had seen on his visit. For period 05/03 and 08/03, output tax was based upon the accounts for year ending 6 August 2003. He gave an allowance for input tax calculated on the average of periods 11/03 to 08/04, these latter figures having been taken from the returns prepared by Hewitt Allison and records seen on the visit. Having prepared a schedule of assessment, Mr. Bott sent a copy of it to Mr. Azad, letter dated 10 August 2005. He gave Mr. Azad 21 days in which to come back to him with any challenges but as no reply was received the assessment was issued as drafted.

  13. In cross examination, Mr. Wilde put it to Mr. Bott that the accountants had been incompetent and untruthful and that Mr. Bott should not have gone to visit Mr. Green without Mr. Azad being present. To this Mr. Bott responded that Mr. Azad knew he was going to see Mr. Green and had not asked to be present. Mr. Wilde also maintained that Mr. Bott should have allotted a higher allowance for input tax to which Mr. Bott responded that he would have been surprised if a greater amount of input tax was due as the bulk of Mr. Azad's purchases would have been of food and no evidence had been put forward to justify any higher allowance. Mr. Wilde also contended in cross examination that by virtue of the decision to register and the assessment based on declared turnover in the annual accounts, Mr. Bott had rendered those annual accounts invalid because the inclusion of VAT would have inflated the sales figures. Mr. Bott responded that this may be so but it would not invalidate his use of the figures as a basis for assessment.

  14. Mr Azad's evidence in chief was confined mainly to his dealings with Andrew Green. He told us that he started dealing with Mr. Green in 1995, since when he (Mr. Green) had moved home several times, had moved office several times and had passed in and out of partnership. Mr. Azad had over the years become increasingly disillusioned with Mr. Green who was inefficient, forgetful and lost things. Far from it being Mr. Green's advice to Mr. Azad that he should have registered for VAT in 1999, in fact it was Mr. Azad who told Mr. Green that he wished to register. Mr. Green brought him the VAT1 form which they completed. Mr. Azad signed it and Mr. Green took it away with him for submission to the Commissioners. It was later that Mr. Azad realised that Mr. Green had never submitted it. Mr. Green had been supposed to charge Mr. Azad £250 per annum for dealing with the VAT returns and accounts. It was Mr. Green's fault that the VAT returns were not submitted.

  15. Mr. Azad also complained that when he eventually moved accountants to Mr. Wilde, they had been unable to retrieve any of the accounting records from Mr. Green who had maintained a lien over them as a dispute had arisen over payment of Mr. Green's fees which by this time had risen to well over £2,000. Mr. Azad also complained that Mr. Green had refused to come to the tribunal despite a witness summons having been issued. Mr. Azad and Mr. Wilde were somewhat unclear about the issue of witness summonses but with the aid of the tribunal file we managed to piece together what appeared to have happened. It appears that a witness summons had been issued in respect of a very much earlier hearing. It had been served upon Mr. Green by the tribunal but Mr. Green had responded to the effect that as no conduct money had been rendered he did not intend coming. A second witness summons had then apparently been issued and personally served upon Mr. Green by Mr. Azad together with £75 conduct money. The return date on the witness summons, we were told by Mr. Azad, had been for a preliminary hearing in September 2007. In fact Mr. Azad had applied for an adjournment of this hearing as he was abroad but had not told Mr. Green it was to be adjourned. As it turned out the tribunal did not adjourn the hearing but made standard directions for setting the case down in the absence of Mr. Azad. Mr. Azad did not know whether or not Mr. Green ever came for that hearing. It was however clear that no further witness summons had been issued and in particular it should be noted that no witness summons had been issued in respect of the current hearing before us.

  16. Mr. Azad stated that from 30 December 2000 to 4 November 2007, the main restaurant was closed and he traded only as a takeaway. He had had a number of family bereavements and had had to return to Kashmir and had rather lost interest in his business. Whilst he was away in Kashmir in 2001, he had left his 14 year-old son in charge. There had been a burglary during which a number of records were stolen and others were just left in a mess on the floor. In all innocence, his son had asked the cleaners to throw these away. In cross examination, Miss Linklater asked Mr. Azad how he came to submit nil returns for periods when he was trading. Mr. Azad maintained that these returns had been completed by Mr. Green and had only been signed by Mr. Azad because Mr. Green told him to do so. They were signed in front of Mr. Green's secretary who apparently was so upset by the dishonesty of this that she had walked out. Miss Linklater asked Mr. Azad about the letter of 21 July 2004 from Mr. Green to Mr. Azad. Mr. Azad denied ever having received this letter and maintained that in fact it had been created after the event by Mr. Green purely for his own protection. Miss Linklater suggested that that could not be true because the copy letter was given to Mr. Bott in April 2005 and Mr. Green and Mr. Azad did not start falling out until after that. In response, Mr. Azad maintained that they had in fact been falling out from 2002 onwards but that Mr. Green would not let him go. In response to questions about the annual accounts, Mr. Azad agreed that he had signed them each year, certifying their accuracy and indeed he expressly stated that he was not challenging the accounts or the figures contained therein. Mr. Azad maintained that a number of the returns had been completed by Mr. Green and the signature contained on them was not Mr. Azad's. Miss Linklater also questioned Mr. Azad on the application to register which had been put in in September 2002. On this form the date of the first taxable supply was given as 7 August 2002, a date which was clearly incorrect given the annual accounts and indeed Mr. Azad's oral evidence. Mr. Azad maintained that although he had signed the form every entry had been completed by Mr. Green who was therefore responsible for any incorrect entries. Mr. Azad also maintained during cross examination that he had completed VAT returns on time but these had not been submitted by Mr. Green and duplicates therefore had to be applied for and were submitted late.

  17. It was Mr. Wilde's closing submission to us that the Commissioners were not prepared to understand the duties of a professional accountant. From the outset Mr. Green had failed to perform his duties competently or in the interests of his client. He accepted that Mr. Azad had to pay something to the Commissioners but that he did not accept that a demand for approaching £50,000 could be correct. However, in the absence of Mr. Green's working papers, correct figures could not be submitted.

    18. Conclusions
  18. Mr. Azad's turnover during the year ended 6 August 1999 was so far in excess of the registration threshold that he quite clearly should have been registered at a much earlier date during that year but, acting in Mr. Azad's favour, Mr. Bott chose 6 August. That this was the correct date for registration was expressly accepted by Mr. Azad during cross examination. His failure to register on time renders him liable to a penalty (section 67 VAT Act 1994). Section 67(8) provides that a person shall not be liable to a penalty if there is a reasonable excuse for his conduct. Section 71(1)(b) provides that where reliance is placed on any other person to perform a task, neither the fact of that reliance nor any failing on the part of the person relied upon shall be a reasonable excuse. There is a total conflict of evidence here between Mr. Azad and his own professional advisors. Mr. Azad maintains he wished to register but Mr. Green let him down. Mr. Green, in correspondence with the Commissioners, maintains that he advised Mr. Azad to register but he failed to do so. The allegations which Mr. Azad makes against Mr. Green throughout the case are extremely serious and would appear to be refuted by correspondence written by Mr. Green to the Commissioners. Mr. Azad accuses Mr. Green in effect of lying and expressly maintains that Mr. Green created false documents. Mr. Green was given no opportunity before us to put his own case and without hearing him we are not prepared to make any finding in relation to the allegations raised against him. However, in the context of the case before us this really matters not. Mr. Azad's own case is that he knew he had to register, he wished to register and expressly relied on Mr. Green to effect that registration and Mr. Green failed in that task. By virtue of section 71, this reliance cannot provide a reasonable excuse and we are therefore unable to find that Mr. Azad did have a reasonable excuse for his failure to register. This, we would add, could only be right. The responsibility for registration is that of the trader. Mr. Azad completed no returns for three years, he must therefore have been quite clearly aware that he had not been registered and should have taken steps himself to put that right. The tribunal does have a power to mitigate the penalty but nothing has been raised before us to suggest that it should be mitigated and indeed Mr. Wilde did not address us on this. We therefore reject the appeal against the decision to register and the imposition of the late registration penalty. No alternative figures have been put before us and we have no reason to believe that the quantum of the penalty was incorrect and it is therefore upheld as imposed.

  19. In period 05/03 and 08/03, Mr. Azad submitted nil returns. By his own admission he was trading during this period and the returns were incorrect. These facts give rise to liability for a misdeclaration penalty pursuant to section 63(1)(a) VATA. Section 64(10) provides that a person shall not be liable to a penalty if he has a reasonable excuse or he takes steps to correct the returns before the Commissioners begin their enquiries. No attempt was made by Mr. Azad to correct the returns and indeed if Mr. Green's letter of 21 July 2004 was genuinely written, Mr. Green specifically advised Mr. Azad to complete a voluntary disclosure form which he failed to do. Precisely the same provisions apply in relation to reasonable excuse as outlined in the previous paragraphs. It was Mr. Azad's case that it was entirely Mr. Green's idea to submit nil returns and Mr. Azad merely went along with this. Whose idea it was is entirely immaterial. Mr. Azad signed the returns knowing that they were incorrect and he does not in our view have any reasonable excuse for this conduct. Equally there is nothing in what he has told us to lead us to believe that the penalty should be mitigated. Mr. Wilde did not challenge the quantum of the penalty and it seems to us to have been very fairly calculated by Mr. Bott.

  20. With regard to the default surcharges, two of the returns were submitted late and the tax has not been paid on any of them. The liability to the surcharge therefore clearly arises. Mr. Azad maintained he had a reasonable excuse due to the negligence of Mr. Green. As stated previously, this cannot amount to a reasonable excuse. There was no challenge to the quantum of the surcharges as indeed these were calculated on the basis of the figures returned and the appeal in relation to the surcharges is therefore also dismissed.

  21. With regard to the assessment, Mr. Azad did not seek to argue that his returns had been correct. In his amended grounds of appeal, the problem with the assessment was "figures used by Mr. Bott incorrect". Mr. Bott took us through his calculation in great detail. In relation to each period it appears to us that he applied the fairest method he could and we have been shown and told nothing which leads us to believe that the quantum in relation to any period was incorrect. Mr. Azad maintains that he was prejudiced by an absence of records but he at no time suggested which figures were incorrect and which records would have assisted him in answering them. It would always have been open to him to obtain duplicate bank statements and in relation to input tax duplicate receipts and invoices. He could also of course have taken further steps to issue a witness summons against Mr. Green in relation to this hearing. We are quite satisfied that the assessment was issued to best judgment and in the absence of any alternative figures we find the quantum to be correct and the assessment is upheld.

  22. In summary therefore, in respect of each individual element of the appeal, the appeal is dismissed. Miss Linklater made an application for costs on the basis that, in the context of the Sheldon statement, the appeal was vexatious and frivolous. We do not believe that the circumstances of this case fall within that category and we are not prepared to make any order for costs against the Appellant.

    23. LADY MITTING
    CHAIRMAN

    Release Date: 6 June 2008
    MAN/06/0402

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