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Cite as: [2009] UKFTT 128 (TC)

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McCowan & Anor (t/a Crystal Windows) v Revenue & Customs [2009] UKFTT 128 (TC) (10 June 2009)
Best judgment
    [2009] UKFTT 128 (TC)
    Appeal number: EDN/07/108
    Value Added Tax – Under-declarations – calculation of assessments "to best of judgement" – Section 73 VATA 1994 – Appeal Refused.
    - and -
    Sitting in public in Edinburgh on Tuesday 26 May 2009.
    No appearance for the Appellant
    Mr Andrew Scott, Shepherd + Wedderburn LLP, instructed by the General Counsel and Solicitor to HM Revenue and Customs for the Respondents

  1. The Appellant was not present or represented at the Hearing. Mr Williams sent a fax to the Tribunal office bearing to have been sent shortly after midnight on the morning of the Hearing. This seeks a further adjournment on the basis that a new accountant instructed by him has not produced necessary information. There was no forewarning of this application either to the Tribunal or the Respondents although this Hearing date was set on 25 February 2009. An earlier Hearing set for 25 February 2009 was adjourned at the Appellant's request as its accountant, Mrs Agnes McClymont could not attend as she had a hospital appointment. No medical certificate or other such evidence was produced.
  2. Mr Scott for the Respondents objected strenuously to any further adjournment. In addition to the matters noted in the preceding paragraph the attitude of Mr Williams throughout the enquiry and in the course of the appeal had been far from co-operative and had led to delays earlier, he said. The taxpayer's agents had withdrawn from acting too. Relative correspondence in the Respondents' Documents was referred to.
  3. We considered the Respondents' stance well-founded in all of the circumstances. Accordingly and having regard to the interests of justice we proceeded to hear the appeal in the absence of the Appellant all in terms of Rule 26. In arriving at this decision the Tribunal took account of the following delays and lack of co-operation on the part of the Appellant. Following assurance visits to the Appellant by the Respondents' officer, William Dixon, on 16 December 2002 and 7 January 2003, the Officer issued verbal followed by written Rulings as to the keeping of proper records. On a duly intimated visit by Mr Dixon on 7 February 2007 Mr Williams said that he was too busy to attend. A further meeting was arranged for 8 February. At that meeting it became apparent that the Appellant had failed to comply with the Respondents' earlier issued guidance Rulings. On 12 February 2007 the Appellant was notified in writing to produce missing bank statements and copies of annual accounts. On 6 March 2007 a reminder letter was issued and in the absence of any reply a further reminder was issued on 3 April 2007. On 27 April 2007 the Respondents received from the Appellant bank statements and annual accounts. Surprisingly on 18 May the Respondents received a letter dated 4 May from A N Ferrington, a Senior VAT Consultant who intimated he was now representing the Appellant, seeking until 8 June 2007 to produce a full response to the Respondents' requests. The Respondents agreed to this but on 21 May Mr Ferrington intimated that he would be unable to meet the time limits. On 1 August 2007 the Respondents intimated that they were unable to allow any further delay and proceeded to issue assessments. Mr Ferrington appealed these assessments to the Tribunal on 10 August 2007. On 24 October 2007 the Respondents wrote to the Appellant and Mr Ferrington requesting evidence to support the assertion that assessments were excessive. On 30 October Mr Ferrington faxed the Respondents indicating that a full response would be received by 7 November. On 8 November 2007 Mr Ferrington wrote to say that a major problem had been encountered. The Appellant had been robbed and the safes containing the bank statements, cheque books and cash books had been stolen, he indicated. On 7 January 2008 the Respondents wrote to Mr Ferrington to ascertain whether the Appellant was in a position to provide further information to prepare revised returns. Mr Ferrington requested a delay until 28 February 2008 to provide this information. On 18 March 2008 the Respondents sought an update of the position. On 29 May 2008 Mr Ferrington stated (somewhat surprisingly) that he did not have the Appellant's permission to submit revised returns and sought an extension of 2 months to do so. The Respondents wrote to the Appellant and Mr Ferrington on 2 June, 17 October and 21 November 2008 seeking the returns which had been promised, but no further correspondence from the Appellant or Mr Ferrington has been received.
  4. The Law
  5. Section 73 VATA 1994 provides:
  6. "(1) where a person has failed to make any returns required under this Act … or to keep any documents and afford the facilities necessary to verify such returns or where it appears to the Commissioners that such returns are incomplete or incorrect, they may assess the amount of VAT due from him to the best of their judgement and notify it to him".
  7. Reference was made by Mr Scott to the decision in Rahman (no 2) [2003] STC150. The Tribunal noted also Pegasus Birds [2004] EWCA Civ 1015.
  8. The Facts
  9. The Witness Statements of 2 of the Respondents' officers, William Dixon and Fiona Marshall, were not objected to. In the event Mr Scott also led oral evidence from William Dixon, which helpfully set out the course of the Respondents' enquiries and the basis on which the assessments were issued. There are two disputed assessments on the Appellant for VAT viz Doc 18 (from July 2004 to December 2006) and Doc 19 (April to June 2004) for respectively £38,448 and £3,622 plus interest.
  10. Mr Dixon explained that throughout his enquiries Mr Williams (who effectively ran the firm's business throughout the relevant period) was less than helpful. There were difficulties in reconciling the various business records and computations produced. Ultimately Mr Dixon followed a cash reconciliation procedure taking account of sums deposited in the bank and also cash received. This method was explained to Mr Williams. No alternative figures (other than those in the Returns) or manner of calculation were put forward by Mr Williams. He had acknowledged that in addition to sums deposited in the bank, further cash had been received and wages had been funded out of cash. (Suppl Doc 1). Mr Dixon made his calculations as shown in Doc 17. The supplies made were all liable to the standard rate of VAT. We considered Mr Dixon to be a credible witness who had made conscientious efforts to calculate a fair estimate of turnover, and on the basis of his testimony (including his recollection of discussions with Mr Williams) and the documentary evidence available we made the following –
  11. Findings-in-Fact
  12. The Appellant was registered as a partnership for VAT purposes as a supplier of windows and doors with effect from 30 June 2001 (see Docs 2 and 3). The partners are David McCowan and Frank Williams. The details of the registration have not been altered to date. (Doc 5 issued by the Respondents to Mr Williams was not replied to).
  13. The Appellant has supplied mainly replacement double-glazed windows and does not undertake any "new build" work. Its supplies are accordingly standard rated.
  14. At a VAT assurance visit in December 2002 the Respondents' officer, William Dixon, stressed to Mr Williams the need to maintain satisfactory business records. These had not been maintained.
  15. Mr Dixon again visited the Appellant's premises in February 2007 where he met again Mr Williams. The extended audit report is produced (Doc 32). Satisfactory records were not available. Such accounts as were produced were inaccurate and unsatisfactory and certain of these seemed to have been drawn up on the basis of the VAT Returns. Mr Dixon concluded that a "cash reconciliation" was the most satisfactory solution for calculating the likely turnover of the business and consequent VAT liability.
  16. A conservatory business bearing to be in name of his wife was in fact run by Mr Williams in conjunction with the double-glazing business at the same address (Suppl Doc 6). He admitted this to William Dixon.
  17. Mr Dixon issued an assessment in August 2007 on the basis of a cash reconciliation calculation (Doc 17). This was produced by adding to business bank lodgements, cash receipts as recorded in a records book and cash received out of which all wage payments and personal drawings, totalling £1,270 weekly were made, all as Mr Williams had advised. This produced a VAT inclusive figure from which the VAT element was calculated. Further adjustments were made for in particular disallowed input tax and conservatory profits.
  18. Copies of the additional assessments made in respect of the periods from July 2004 to December 2006 for £38,448 and from April to June 2004 for £3,622 are produced (Docs 18 and 19). These assessments are the subject of this Appeal.
  19. The cash reconciliation and consequent additional assessments were prepared to the best judgement of Mr Dixon and the Respondents on the basis of the information and documentation available. In the whole circumstances they represent a reasonable and logical calculation on that information. The Appellant has not produced any evidence or information which reasonably would question the calculation.
  20. Decision
  21. The primary issue for consideration is whether the assessments made (Docs 17, 18 & 19) are to "best of judgement" for purposes of Section 73 VATA. In the circumstances of this case we consider that they were, having regard to the criteria set out in the decisions in Rahman (no 2) and more recently in Pegasus Birds. We consider that both assessments were made to best of judgement and on any view could not be faulted as speculative or capricious. It is, of course, for the Appellant to demonstrate that the Respondents' assessments are inaccurate. This the Appellant has failed to do.
  22. It seems that the information produced by Mr Williams was at best incomplete. Certain of the accounts produced appeared to have been prepared simply by reference to the VAT returns. The methodology of the cash reconciliation adopted by Mr Dixon appears to follow a straightforward logic and, moreover, is based on information given by Mr Williams himself. At Doc 17 Mr Dixon has projected gross turnover by adding to the bank deposits cash receipts recorded in the business books and the wages which were paid out of additional cash funds. This basis seems entirely justified particularly as it is based on information volunteered by Mr Williams. The gross turnover is a VAT inclusive figure and the appropriate fraction of that is taken to show the 17½% VAT due in the second last column. It seems from the available information that all sales were standard rated.
  23. The further adjustments for VAT due shown on Doc 17 all seem justifiable on the basis of the evidence given to us.
  24. The manner of calculation was explained to Mr Williams. He has not challenged this on any particular basis nor has he attempted to justify any other figure. Indeed, no reliable alternative means of calculation seems to be available.
  25. Accordingly we consider that these assessments are reasonable and logical and prepared to best of judgement, so satisfying Section 73.
  26. An alternative assessment was issued on Mr Williams as an individual (Doc 21). Mr Scott described this as "protective" and part was out of time. Accordingly he moved us to uphold the assessments on the firm. We consider that this approach is correct. The registration for the Crystal Windows business remains in the partnership and has consciously not been changed by Mr Williams. He is, of course, liable jointly and severally for each entire assessment.
  27. Costs
  28. Exceptionally Mr Scott invited us to award costs in favour of the Respondents. He reminded us of the lengthy history of this case and the attitude of Mr Williams. There had been lengthy delays and a lack of co-operation apparently on his part. Mr Dixon had experienced similar difficulties in the course of his investigations.
  29. We agreed with Mr Scott and we think it appropriate that an award of expenses be made to the Respondents. Failing agreement these would fall to be taxed in accordance with the Tribunal Rules.
    RELEASE DATE: 10 JUNE 2009

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