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Cite as: [2009] UKVAT V20983

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Mr Singh & Mrs Kaur (t/a "Superdish") v Revenue & Customs [2009] UKVAT V20983 (20 March 2009)

20983

Value Added Tax - Alleged under-declaration of turnover of fish and chip "take-away" - Application of the ascertained turn-over of one short period to calculate the assumed true turn-over over several years - Burden of proof - Appeal dismissed

LONDON TRIBUNAL CENTRE

MR SINGH & MRS KAUR T/A "SUPERDISH" Appellants

and –

THE COMMISSIONERS FOR HER MAJESTY'S REVENUE & CUSTOMS Respondents

Tribunal: HOWARD M NOWLAN (Chairman)

KEN S GODDARD, MBE

Sitting in public in London on 11 February 2009

Kevin Andrew of VAT Consultants Ltd for the Appellants

Mrs Pauline Crinnion of the Solicitor's Office of HMRC for the Respondents

© CROWN COPYRIGHT 2009

DECISION

Introduction

This was the second of two somewhat related appeals in both of which the Respondents were contending that the turnover of the Appellants' fish and chip take-away shop and restaurant in Broadstairs Kent had been understated. The evidence relied on to substantiate very substantial contended increases in turnover was not particularly extensive and we felt some sympathy for Mrs. Kuar, one of the two Appellants who alone gave evidence on their behalf. However we felt it impossible to accept, (on the first point that we must address) that HMRC's officer had not exercised her "best judgment" in making the assessments that she had made. On the second issue of whether the Appellant satisfied the burden of proof to persuade us that we should nevertheless make some adjustment or reduction in the amount of the assessments, there was virtually no reliable evidence on which we could make such adjustments. Accordingly, and with some misgivings because we suspected that the genuine turnover of the business had been declining over the relevant months covered by the assessments, we felt compelled to dismiss the Appeal.

The evidence

Evidence was given by Mrs. Kuar, who was one of the two partners in the business, and by Mrs. Julie Barnes, a senior officer with HMRC.

HMRC's investigations in relation to the turnover of the Appellants' fish and chip "take-away", "Superdish", began with an unannounced visit made by Mrs. Barnes and another officer on 4 October 2001. This visit led to the first assessments in which the turnover in previous periods, back to the date when the Appellants purchased the business, was all increased because it was alleged that the declared turnover had been substantially under-stated. Although the first assessments were the subject of a different appeal, all the facts in relation to the first visit, and the subsequent discoveries, and adjustments made, are relevant in relation to this, the second, appeal.

When the till-roll was examined on 4 October by the two officers, they removed it because it appeared that the recorded takings on the relevant till roll were in the region of double the takings that were regularly being returned in the Appellants' VAT returns. When the officers returned to the premises in the afternoon they had a discussion with the Appellants who admitted that they had been suppressing their turnover for VAT purposes. They said that when they had purchased the shop, the vendor had said that the weekly turnover was in the region of £2000 but that he had been declaring between £800 and £900 a week. The Appellants had accordingly decided to do likewise, but they claimed that turnover had only risen from a weekly figure of about £1300 to between £1800 and £2000 in July 2001. Examination of the till-roll indicated, however, that the turnover for the previous week had been £2310.78, or £2229.92 if Sunday takings were excluded.

It emerged in due course that the Appellants could not establish what the true takeover had been in the preceding periods, ever since the Appellants had acquired the business in 1999, since all the till rolls had been destroyed. In order to calculate a suppression ratio therefore, Mrs. Barnes needed to judge what the "declared" turnover would have been for the period including the early October week for which she had an accurate till record, had the officers not made their visit and put the Appellants on notice that the figures were being scrutinised. Obviously figures had not actually been returned for that period at that point. And she could not compare the declared turnover of the previous VAT period or periods with the till rolls for those periods because all the till rolls had all been destroyed. In order thus to calculate a suppression ratio, Mrs. Barnes took the turnover for equivalent October weeks that had actually been declared in the returns in the previous year, assumed growth in sales of 13%, which she said was generous and the Appellants claimed was not generous, and then calculated a suppression rate by comparing the adjusted declared turnover of the previous year's equivalent weeks with the true turnover shown on the till roll that she had taken away.

Having calculated a suppression ratio of approximately 59%, she then made assessments for all periods involved with the first assessments, and beyond an additional tax payment of £4,400, that the Appellants had paid virtually immediately, the further assessments for all periods were for approximately £19,000. We understand that immediately before the hearing commenced at the VAT Tribunal, the Appellants (advised at the time by counsel) agreed a settlement with HMRC, in which the suppression ratio was reduced to 53% and in which £15,000 rather than £19,000 was paid. It was said before us that Mrs Kaur considered that this settlement exaggerated the true turnover but that she and her partner had to accept it, since without the till rolls or any other evidence of actual turnover, they were not in a position to dispute the assessment. They did however sign a declaration, drafted by HMRC, admitting to false returns and the suppression of turnover.

Whilst the turnover of the business was declared at a weekly figure of approximately £2,000 for a period after the first appeal, Mrs. Barnes noted that the turnover had subsequently somewhat dropped back, not to its previous low level but certainly below the £2,000 figure. She accordingly sent four officers to visit the premises on Friday, 10 October 2003 to observe the meals that people ordered, and that they themselves ordered, as test meals. Two officers were present between 12.23 p.m. and 1.07 p.m., a third between 4.50 p.m. and 5.02 p.m. and fourth officer between 5.25 p.m. and 5.50 p.m. According to the menu, the business was open on that day from 11.30 a.m. to 2.00 p.m. and from 4.30 p.m. to 10.30 p.m.

The officers who made each of the visits all recorded in their witness statements that they could not see the display on the till because the till was obscured by pickle jars. It was alleged by the Appellants that it was possible to move elsewhere so that the till display could be seen but as the officers were endeavouring not to look conspicuous, and the till display could not be seen without moving in a rather obvious direction, they did not see the display.

Mrs. Barnes herself then visited the premises and uplifted the till rolls for the period that covered 10 October 2003. When the details on the till rolls were compared with the notes that the officers had made, it was concluded that while the lunchtime observations broadly tallied with the till roll, it appeared that the late afternoon observations recorded purchases that appeared not to correspond with the till rolls, and the conclusion reached was that turnover was again being suppressed. On this occasion there was no disparity between the till rolls that had now been retained and the declared figures on the various recent VAT returns (as had been firmly believed to be the case in relation to the periods covered by the first assessments). Instead, the contention was that not all the turnover was being rung up on the till, and on other occasions although something was rung up on the till, customers would be unable to check whether the till was recording the right amounts, so that the supposition was that the Appellants might have been keying low figures into the till, even though something was being recorded on to the till roll.

Mrs. Barnes said that she drew the conclusion from the two "site visits" that the till rolls were not recording turnover accurately, and that it was again appropriate to ask the Appellants to explain the disparities between the figures on the till rolls and the officers' observations. When she considered that she had not been given any satisfactory explanation for the alleged disparities, she made assessments for the periods from 11/01 to 02/04, the total assessments being for approximately £21,000, with a misdirection penalty on top. The way in which she had calculated her adjustments is why the till roll that she removed on 4 October 2001 remains significant. Since she considered that that till roll, and the suppression ratio derived from it, was the only reliable indication of turnover and suppression that she could obtain, she assumed that the turnover in each of the VAT periods covered by the assessments that are the subject of this second appeal, running from the end of 2001 to early 2004, was equal to the turnover that she calculated to be the "true turnover" in the corresponding periods covered by the previous appeal, reduced in due course to reflect the 53% rather than the 59% suppression ratio struck in the settlement of that appeal. It follows thus that the assumed "true turnover" for the various VAT periods ending at the end of February in each of the years that are now the subject of these assessments (in other words the periods 02/02, 02/03 and 02/04) are always the same (and so on for each of the periods ending at the end of May, etc) , so that the amount of the adjustment in the various assessments varies because the declared turnover for those periods has always been different. The assessments thus make up the balance to the assumed "true turnover".

Mrs. Kaur's evidence

Mrs. Kaur described the operation of the till to us because a great deal was to depend on whether the till roll for 10 October 2003 did or did not correspond with the notes that the four officers had made during their visits.

Although the till itself was the same till that had been in use when Mrs. Barnes made her initial visit on 4 October 2001, the till had been re-programmed. At all times the till only produced one till roll for the proprietor and did not produce "tear-off" counterfoils for the customer. Back in 2001 the relevant programme operated by enabling the operator to key in the price for the various items purchased, say £2.00, £1.50 and 0.80p, and then when the till was opened, the till would indicate on its illuminated read-out the relevant total figure of £4.30. The printed roll itself would record however the three individual items, then the total, and it would also record the time at which the till was activated, and a sequential number for the particular bill.

When the till was operated in October 2003, although it was then found that the retained till rolls indeed corresponded with the figures given in the VAT Returns, the information contained on the rolls was different. Allegedly so as to save space when storing the till rolls, the till rolls only indicated the calculated total on each occasion when the till was opened. Accordingly if, rather oddly, the person operating the till in the case of the example in the previous paragraph keyed in each item separately and opened the till on three occasions, then the till would record the three separate items. If on the other hand the till was only opened once, when all three items had been keyed in, the only information on the till roll would be the single figure of £4.30. Very significantly, however, the till roll no longer recorded sequential numbers for each activation of the drawer, and, more relevantly, it did not record the time at which the till had been opened.

Mrs. Kaur explained two further points to us. First, if the operator made an error in keying-in the individual items, and noticed this before opening the drawer, it was then possible to correct the error. Thus for example if in the case of the example in paragraph 11 above, the operator wrongly keyed-in the figure of £1.00 instead of 80p. for the third item, it was possible to correct this by keying-in "minus 20p.", whereupon on this one occasion the till roll print-out would record the "minus 20p", as well as the total of £4.30. If on the other hand the drawer had been opened before the error was noted, then the total would of course read £4.50, and that could not be changed. The only expedient then was to key in 20p less than the proper amount for the next entry on the till roll, so as to reverse the error.

We were shown the till roll printout for 10 October. This indicated that the till had been opened on 79 occasions, and that there was no example of a "minus" entry having been entered in order to reverse an error noted before the drawer was opened.

The conclusions that Mrs. Barnes reached when she compared the relevant till roll with the recorded findings of the four officers was that, during the lunch-time observation made by the two officers together, it appeared that everything was recorded correctly. Since there were two officers together they managed to make quite an accurate record of the amounts that they believed were being paid (either by listening to the request for the money when the customer paid, or by looking at the menu and calculating what the price for the ordered meal should be), and there was a broad correlation between the till roll that we were shown and the notes of orders and prices made by the officers. Specifically, the first three items that they noted appeared exactly correctly as the 7^th, 8^th and 9^th entries. Equally clearly, when each officer paid for his meal at the respective prices of £5.25 and £5.50, they each noted that the till was opened to record each bill, and the 22^nd and 23^rd items on the till roll record the correct takings for the two officers.

There were still some minor oddities in the lunch-time recording. On 3 and later on 4 occasions the till was activated, and the sum total of the items recorded on each of the 3 occasions, and then on each of the 4 occasions tallied roughly with meals that the officers had heard people order. The individual till figures did not quite tally with the meals ordered, however, but the totals were roughly the same, which is why Mrs. Barnes accepted that the lunchtime figures, whilst being a bit confusing, looked to be broadly correct.

We were told that during the lunch period, the till was operated by a man, whereas it was operated by a woman during the two afternoon observations.

The recording of the afternoon observations, and our conclusions of fact in relation to them

Any endeavour to reconcile the till read-outs with the observations of the officers during the two afternoon periods is an extremely confusing matter.

It was impossible to identify several of the orders that the officers recorded during the two afternoon observations, with the entries on the till roll. It was contended on behalf of the Appellants that, notwithstanding this, if one played around with the figures, it was possible to add up various adjacent items on the till roll so as to equal, and thus match, the figures that the officers had overheard, or that they themselves had ordered.

We do not accept this explanation. It was suggested to us for instance, when the third officer had placed an order for which the charge was £8.35, that we should assume that this order was the one recorded as the 27^th entry on the till roll. This item however was for £8.00, and not £8.35 so that it was suggested that the reduction of 35p was designed to reverse some earlier error. This explanation was however only a rationalisation suggested some years after the figures had been recorded, and it appeared very improbable that the £8.00 entry in fact recorded the payment by the first officer in the afternoon for his £8.35 meal. The reason for this is that, since the lunch-time charges to the two officers a few minutes before 1.07 p.m. were quite clearly the 22^nd and 23^rd items on the till roll, then if item 27 was the charge for the first afternoon officer's meal, only three charges had been rung-up between 1.07 p.m. and 2.00 p.m. when the business closed, and during the period from 4.30 p.m. to 4.50 p.m. when the third officer entered the premises.

Two contentious charges that could not be found on the till rolls were orders that the last officer heard for £19, and £11.40. According to the Appellant's contentions, the till rolls did reflect these two orders. So far as the order for £19 was concerned, it was pointed out that entries numbered 31 to 36 totalled £19.00, and that the order must have been for several people so that the till was opened 6 times. We find this totally unconvincing. Beyond the fact that the relevant 6 entries total only £18.30, and they total £19.30 if entry 30 is included as well, it is far from clear why the till would have been opened 6 or 7 times in order to record one order.

The next order that the second afternoon officer heard was for £11.40, for which there was again no till entry. Allegedly items 42 and 43 represented this order, and indeed they totalled £11.39. That does not explain however why there were 5 recorded items on the till roll between the figures that the Appellants claimed represented the £19 and £11.40 orders that the officer recorded. Admittedly the officer's note is vague, and it does not specifically say that the sequence in which the recorded orders were listed in the note was the sequence in which they were actually placed. It is a very reasonable assumption that they were however, and the officer made no mention of 5 operations of the till between the items for £19 and £11.40.

The fourth officer paid £4.50 for his meal, and not surprisingly his note indicates that the till was rung up once to record this charge. We are asked to believe that items 55 and 56 for £2.50 and £2.00 represent this charge, when obviously the till was opened twice for those two charges.

Most significantly, the Appellant's defence claims that the fourth officer was present in the shop whilst items 54 to 65 were rung up. It then claims that the total charges on the till for those items was equal to the total charges that the officer heard. This rationalisation altogether fails to note that if the officer was, as claimed, present when the till was rung up for the 54^th to 65^th occasions, then it emerges that he paid for his test meal at the 2^nd and 3^rd of the relevant entries out of 12 entries, whereas his note indicates that he paid as he left. This claim also appears to lose sight of the fact that it was this fourth officer who recorded the orders for the meals that cost £19 and £11.40 respectively, referred to in paragraphs 21 and 22 above. However they were respectively entries 31 to 36 and 42 and 43, and if the fourth officer was present from order 31 until his own claimed test orders at 55 and 56, then the recorded items on the till are vastly greater than those that the officer witnessed.

Our finding of fact is that the attempted re-rationalisation of the recorded till orders for the afternoon meals makes absolutely no sense, and is a poor attempt to explain why very little on the afternoon till recording tallies with what the officers recorded.

We accept that the Appellants are right to point out that the detail of the afternoon recording was not as good as the lunch-time recording when two officers were on the premises together. This is in part because they were trying not to appear conspicuous, whilst recording matters on their own, and of course none of the officers could see the till figures because of the pickle jars. We conclude that even though the afternoon records leave much to be desired, this does not explain why numerous items do not appear on the till roll, and we conclude that the Appellants attempt to explain matters away fails.

Our overall decision

We conclude that Mrs. Barnes was right to conclude that the afternoon observations did vindicate her suspicion that the Appellants were failing to ring-up items correctly on the till at all times. We support this conclusion by observing that:-

• the disparities between the till entries, and the orders that the officers observed has not remotely been explained and it suggests that some orders were either not rung-up at all or if they were rung-up then the items entered into the till were for much lower amounts than those that the officers heard;

• it is highly significant and suspicious that the till was re-programmed to omit reference to sub-total items, and to the time at which the till was rung-up, these being the vital missing items that so confuse matters;

• we are not convinced that the till was re-programmed to minimise the space that slightly longer till rolls would take up; and

• the feature that four officers who very much wanted to see the figures rung-up on the till could not see those figures, and that pickle jars were in the way, and that the location of the till and the jars had been changed since the 2001 site visit all suggest that there was a deliberate attempt to ensure that customers could not see how much had been rung up on the till.

There seems in other words to be every indication that, having concluded that till rolls would have to be retained, and that the figures on the till rolls would have to match the figures in the VAT returns, the Appellants deliberately adopted the alternative device of under-recording on the till at least at certain times of day, or when the till was being operated by certain people.

Mrs. Barnes only treated the result of this October 2003 observation as providing confirmation of her suspicion that turnover was being under-recorded. She did not, and manifestly could not, calculate the level of "suppression" from the observation that had been made, and thus she concluded that she had no alternative but to take the 53% suppression figure that resulted from this slight negotiation down of the figure derived from the accurate till roll taken on 4 October 2001 as the one and only reliable figure of true turnover that she could obtain. Thereafter by assuming, during a period when trade was generally fairly buoyant (between periods 11/01 to 02/04), that it was reasonable to assume that the turnover of the relevant business would have remained level, she calculated the assessments in the manner indicated in paragraph 9 above.

When the Appellant's representative realised towards the end of the hearing that the level of the assessments was almost entirely dependent on the figures that had been used in relation to the first Appeal, it was suggested that those figures had over-stated the suppression because between the years 2000 and 2001 turnover was appreciating by much more than the 13% that Mrs. Barnes herself assumed. The significance of this point is of course that, as Mrs. Barnes did not have a declared figure of takings for the period for which she had the one and only accurate till roll, she had to assume that the figure that would have been declared would have been 13% higher than the equivalent figure for the same period in the previous year, and the higher that percentage figure (in producing the adjusted "declared" turnover for the period 11/02), the less the suppression ratio from the true turnover revealed on the print-out seized on 4 October 2001.

Somewhat to our regret, we conclude that the Appellants face a real difficulty that they cannot surmount in challenging these figures, in that once they accept that their declared figures in the period prior to October 2001 were all fake, there is no particular ground under which they can establish that their fake figures indicate that true turnover was actually increasing, as they contend. Rather more relevantly, we somewhat suspect that Mrs. Barnes may have been less generous in her other assumption, namely that monthly turnover, March 2002 compared to March 2003, April 2002 compared to April 2003, remained flat. We slightly suspect that it may have dropped, and we say this because the Appellants were apparently trying to sell the business for countless months before eventually succeeding in doing so. This however is only a hunch. Once we conclude, as we do, that the declared figures of turnover and the figures on the till rolls were all suppressing turnover, the Appellants are left in the invidious position of finding it logically impossible to advance other supposedly "genuine" turnover figures that might demonstrate that the genuine turnover was actually falling, so that Mrs. Barnes' suppression calculations will be leading to somewhat excessive assessments.

The critical questions for us are whether the Appellants have satisfied us either that Mrs. Barnes failed to exercise best judgment, and even if they have failed in this, whether they have nevertheless persuaded us on the balance of probabilities that the evidence indicates that the assessments are still somewhat excessive. We conclude that she did exercise best judgment, and since there is absolutely no evidence on which we can reach any judgment as to whether true turnover was in fact falling during the period covered by the assessments, we decide that we cannot adjust the assessments.

This Appeal is accordingly dismissed.

HOWARD M NOWLAN

CHAIRMAN

RELEASED: 20 March 2009

LON 2005/0771