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Cite as: [2008] UKVAT V20818

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Richard Jamison & Neil Patton (t/a Flour v Revenue & Customs [2008] UKVAT V20818 (07 October 2008)

20818

MANCHESTER TRIBUNAL CENTRE MAN/07/1079

RICHARD JAMISON & NEIL PATTON Appellants

T/A FLOUR

- and -

THE COMMISSIONERS FOR

HER MAJESTY'S REVENUE AND CUSTOMS Respondents

Tribunal: Ian Huddleston, Chairman

A.F. Hennessey, Member

Sitting in public in Belfast on 3rd September 2008

DECISION

The Appeal

This Appeal raises two issues. The first issue is the question of whether or not crepes and/or smoothies served by a trader should be standard rated. The issue, however, whilst a live one during the period when the facts germane to this case arise, is not actually before the Tribunal. It has since been established that both crepes and smoothies should be standard rated, and the Respondents are not seeking to advance that argument in relation to this Appeal and, therefore, the first issue can be easily disposed of.

The second issue, however, does come before this Tribunal and is the substance of this Appeal. The Appellants trader in this case has been assessed for unpaid VAT in the sum of £8,049, arising on foot of an assessment issued on the 12^th December 2005 ("the Assessment"). That Assessment is based on undeclared returns for what was virtually the entire trading period of the Appellants, ie. from the 1^st June 2003 to the 31^st August 2005 ("the Relevant Period"). The basis of the Appeal is that for the Relevant Period the Appellants had apportioned 25% of its sales as standard rated and the rest as zero rated. The business was essentially a creperie serving food and drinks for consumption on and off the premises. The Respondents, when they conducted an investigation, however, disagreed with the trader's basis of apportionment, and attributed standard rated sales of 49.56%. The assessment, therefore, is based on the shortfall between the VAT which has been charged and accounted for by the Appellants through the Relevant Period, and that which the Respondents feel ought to have been returned during that period.

Facts

The facts of the case are as follows.

Richard Jamison and Neil Patton ("the Appellants") carried on trading as a café selling crepes and hot and cold drinks and smoothies from premises at 46 Upper Queen Street, Belfast, BT1 6FD. The partnership was registered for VAT with effect from the 10^th February 2003. The Appellants, as part of their set up investigations, had taken the following steps.

To decide how they should apportion their sales between standard rated and zero rated supplies, they initially took advice from the Respondent's Help Desk in Cardiff. That led them to decide that the true comparables for their operation were takeaway sandwich or bagel bars, and the Appellants, in line with investigations which they undertook with traders of that type, decided that the correct apportionment of their sales was 25% standard rated and 75% zero rated. They checked that basis of apportion with a number of accountants whom they felt to be experienced in businesses of this type, but it is not clear whether they actually retained the services of an accountant to advise them in relation to the matter.

Trade was commenced and Mr. Patton (one of the Appellants) did a "spot survey" to check whether or not the basis of the apportionment which the business had adopted was reasonable. At that point, ie. in the early days of trading, he felt that it was appropriate and therefore that basis was continued.

It is extremely unfortunate that thereafter the business suffered a considerable set back. In May 2003 someone broke into the premises and started a malicious fire. The consequence of the fire was that the business was unable to trade from May to December 2003. Upon re-opening, however, the Appellants retained the same basis of apportionment, ie. 25% standard rated, as against 75% zero rated. At this point it is perhaps worth nothing that the Appellants treated all crepe sales as zero rated – on the basis that they were largely sold for takeaway use. The basis of that assumption was subsequently challenged by the Respondents and it appears to be accepted by both parties that it was in fact incorrect and that the crepes ought to have been standard rated. Having said that, this particular issue is not actually relevant to this hearing. Customs are not seeking to rely on that error, nor did they use the error in terms of the calculation of the Assessment that was subsequently levied.

The circumstances which led to the assessment are these:

(a) Mr. Mark Stevenson, an Officer of the Respondents, visited the Appellants on the 29^th September 2005. At that stage the Appellants confirmed that the apportionment basis adopted was 25% / 75%. Subsequent to the initial meeting, the Respondents visited the trading premises and uplifted till rolls for the period from the 22^nd October to 5^th November 2005. From those till receipts, the Respondents extracted what they considered to be standard and zero rated sales, and established that the true apportionment basis ought to be 49.5% of sales subject to standard rating – accepting for the purpose of the calculation (and in deference to the Appellants) the (incorrect) assumption that as a starting point crepes would be zero rated;

(b) following that visit and the analysis which the Respondents undertook, they wrote to the Appellants on the 24^th November 2005 indicating the methodology which had been adopted and requesting further clarification of the apportionment of liability to VAT based on food consumed on and off the premises. In the absence of any definitive response the Respondents raised the Assessment in accordance with Section 73 of the VAT Act 1994;

(c) the Appellants wrote to the Respondent on the 20^th February 2006 to seek a reconsideration of the Assessment, contending that the apportionment of 25%:75% was fair and reasonable and reflected the circumstances of the business at that time. In particular, the Appellants contended that the Respondents, in order to arrive at a fair assessment, should have regard to the pattern of sales in the warmer as opposed to the colder months;

(d) as a response, the Respondents invited the Appellants to furnish till rolls or sales figures for the month of June 2004;

(e) in the absence of further information, the Respondents wrote to the Appellants on the 6^th April 2006 upholding the Assessment.

Dialogue continued between the parties, culminating in a visit by the Respondents to the Appellants' trading premises on the 24^th November 2006. On that occasion, till rolls for the periods 25^th March to 6^th April 2006 and 18^th to 28^th October 2006 were examined, along with the purchase invoices for the 05 / 06 menus and details of previous menu prices. On the basis of an analysis of that information, the Respondents arrived at the following results:

(a) for the week ending 28^th October 2006, that "eat in" crepes accounted for 47.4% of the total income for that week. In addition to that income, there was also the sale of standard rated soft drinks and beverages which made up a substantial proportion of the overall sales;

(b) for the week ending 01^st April 2006, the level of standard rated eat in sales equated to 62% of the overall income.

In short, therefore, the Respondents considered that based on the analysis of those two trading periods in 2006, that the 49.56% apportionment attributed by Mark Stevenson was fair and reasonable to the Appellants, and on the 6^th December 2006 the Respondents wrote to the Appellants on that basis.

As a side issue, by a separate letter of the same date, the Respondents also wrote to the Appellants confirming that they had determined that the supply of crepes and smoothies made by the Appellants ought to be standard rated, and that VAT should be charged on those supplies with immediate effect. As indicated above, that issue does not form part of this Appeal, which proceeds now only on the dispute between the parties as to the correct level of apportionment that ought to be applied to the vatable sales through the Relevant Period.

The Appellants' Case

The Appellants, in their Notice of Appeal, stated that:

"the percentage of vatable output was correct at time of trading, and we dispute the findings of the case as only current market trends have been considered and no previous trading history has been taken into account."

The Appellants appeared in person, and Mr. Patton gave evidence on their behalf in support of that contention. The grounds upon which they relied (and here I summarise) are shortly put as follows:

(a) Mr. Patton was of the view that the Appellants had taken all steps that reasonably could be required of them to establish a correct basis of apportionment. The steps which were taken are outlined at paragraph 5 and not repeated here;

(b) Mr. Patton gave evidence that during the Relevant Period the restaurant only had capacity for twelve seats to serve customers who wished to "eat in" and that, therefore, the bulk of their sales should be zero rated. In support, he explained that during the Relevant Period the trading premises were not air conditioned and therefore did not present a particularly attractive location for diners to eat in; and finally

(c) that the Respondents had given insufficient consideration to earlier trading – namely at a point when the business was trying either to establish itself (when it initially opened) or to re-establish itself (after it re-commenced trading when it re-opened after the fire).

The Respondents' Case

The Respondent's case can be shortly put. They are of the view that the Assessment has been correctly made in accordance with Section 73 of the Act and that, more particularly, based on the analysis which they undertook in relation to the till rolls which were subsequently examined, that Mr. Stevenson's apportionment of 49.56% in favour of standard rated sales is in fact generous to the Appellants and, therefore, very reasonable – particularly in the absence of any contrary evidence adduced by the Appellants.

Decision

There is no doubt that this is an unfortunate case. Here we have two traders who were trying to establish something novel for the local market. Clearly it appears that they did undertake some initial research as to how they should trade and, for the purposes of this Appeal, charge and account for VAT. The reality, however, is that the apportionment which they adopted as between standard rated and zero rated sales was misconceived – even ignoring the manner in which they attributed for the sales of crepes and smoothies.

The evidence before this Tribunal is that:

(a) on Mr. Stevenson's evidence, having conducted an analysis of actual sales for the period between 22^nd October and 5^th November 2005, that a more correct basis of apportionment would have been 49.56% of sales;

(b) on the analysis which was undertaken for the period from the 25^th March to 6^th April 2006, eat in crepes alone reflected 47.4% of trade - without including the standard rated soft drinks and beverages;

(c) for the week ending 28^th October 2006, eat in sales equated to 62% of the income, again without including standard rated sales of takeaway soft drinks and beverages.

We find this evidence to be cogent – based, as it is, on the trader's own till receipts. The trader was asked repeatedly for evidence to justify or establish the proposition which they advanced in correspondence and repeated again in this Tribunal – namely that the 25%:75% apportionment was more correct. However no such evidence was furnished to Customs, and indeed none was provided to this Tribunal.

In a case such as this, the burden of proof falls squarely on the Appellants to disprove the Assessment which Customs has raised. In this case we find that the Appellants has failed to discharge that burden. Had they been able to establish from the trading records for the period through which they were open in 2003 or, indeed, the year 2005, that Customs' Assessment at 49.56% apportionment of standard rate sales was incorrect or excessive, then obviously this Tribunal would have had regard to that evidence. No such information was adduced and, therefore, this Tribunal has no alterative but to find against the Appellants and to dismiss the Appeal.

The Tribunal finds that in the circumstances of the analyses which the Respondents have done, that the 49.56% apportionment is fair and reasonable, and that the Respondents in making that assessment took into account all relevant facts and did not take into account anything which was irrelevant.

Accordingly the Appeal is DISMISSED.

No order as to costs.

Ian Huddleston

Chairman 7 October 2008