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United Kingdom VAT & Duties Tribunals Decisions
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Cite as:  UKVAT V19546
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Hurst & Anor v Revenue & Customs  UKVAT V19546 (10 April 2006)
VAT ASSESSMENT: Appellants proprietors of three fish and chip shops — Respondents assessment for unpaid VAT based on suppression of sales which was denied by the Appellants — convincing evidence of under declaration of VAT — the quantum assessed based on reliable information - Respondents assessed the correct amount of tax — the assessment for 03/96 made on 17 March 1999 within the three year time cap (Courts PLC considered) — Appeal dismissed
MANCHESTER TRIBUNAL CENTRE
MR MICHAEL HURST AND MRS MARY HURST Appellants
- and -
HER MAJESTY'S REVENUE and CUSTOMS Respondents
Tribunal: Michael Tildesley OBE (Chairman)
Susan Stott FCA CTA
Sitting in public in Manchester on 21 and 22 November 2005; 13 February 2006
Richard Barlow, Counsel instructed by McCormicks, Solicitors for the Appellant
Jonathan Cannan, Counsel instructed by the Acting Solicitor for HM Revenue & Customs, for the Respondents
© CROWN COPYRIGHT 2006
"The basis of the assessment is not best judgement. The figures used were not audited and had been prepared for the bank as projections based on most favourable trading conditions. The figures did not reflect the actuality".
The Issues in Dispute
(1) Did the Appellants make an under-declaration of VAT due for the periods 03/96 to 12/97?
(2) If there was an under declaration of VAT which was not admitted by the Appellants, what was the correct amount of VAT due for the periods 03/96 to 12/97?
(1) Was the assessment for unpaid VAT for the period 3/96 made outside the three year cap imposed by section 77 of the VAT Act 1994?
1 January 1992 to 31 December 1992: Park Fisheries
1 January 1993 to 30 June 1995: Park Fisheries and Mother Hubbards
1 July 1995 to 31 December 1997: Park Fisheries, Mother Hubbards and Olivers
"The above accounts have been prepared for management purposes only and as such have not been audited"
|Period||Declared Sales (£) Output Tax x 47/7||Declared Output Tax (£)||Suppression Rate||Under declared tax
|4 per cent allowance for zero-rating (£)|
|Management Accounts to July 1995||£244,606 (Annual sales)||£4,703 (average weekly turnover)|
|Management Accounts to July 1996||£254,861 (Annual sales)||£4,901 (average weekly turnover)|
|Management Accounts to July 1997||£238,669 (Annual sales)||£4,590 (average weekly turnover)|
|Sales Brochure||£4,500 to £5,000 (average weekly turnover)|
|Management Accounts to July 1996||£344,971 (Annual Sales)||£6,634 (average weekly turnover)|
|Management Accounts to July 1997||£368,461 (Annual Sales)||£7,086 (average weekly turnover)|
|Sales Brochure||£7,000 (average weekly turnover)|
|Extracts from the Appellants daily gross takings given to Mr Oller||£84,890.42 (sales for 13 week period from 11.8.97 to 3.11.97||£6,530(average weekly turnover)|
|Sheet of takings found in Ernest Wilson files believed to relate to Olivers and in Mr Hurst's handwriting||£119,291 (sales for 17 week period from 8.6.97 to 28.9.97||£7,017 (average weekly turnover)|
The Respondents relied on the weekly turnover figure £10,000 disclosed in the sales brochure produced by Ernest Wilson. The Respondents did not have the management accounts for Mother Hubbards. Mrs Jones' analysis of the till rolls for the week ending 22 February 1998 indicated that the takings from Mother Hubbards represented 50 per cent of the total takings from the three businesses, which gave some support for the weekly turnover figure of £10,000 when compared with the combined weekly turnover for Park Fisheries and Olivers. Mother Hubbards also had significantly more capacity in respect of restaurant seating and pan fryers than the other two restaurants.
The Assessment for 03/96
The Appellants' Evidence
Findings of Fact and Reasons for Our Decision
Issue One: Did the Appellants make an under-declaration of VAT due for the periods 03/96 to 12/97?
"the information necessary to prepare the management accounts in your possession was available from their accounting records".
|Total of Sales for 03/92 to 12/92 = £206,969 (Park Fisheries)||Total of Sales for 03/93 to 12/93 = £443,249 (Park Fisheries & Mother Hubbards)||Percentage increase in sales = 114% Increase in average weekly takings = £4,543|
|Total of Sales for 09/94 to 06/95 = £449,262 (Park Fisheries & Mother Hubbards)||Total of Sales for 09/95 to 06/96 = £502,293 (Olivers, Park Fisheries & Mother Hubbards)||Percentage increase in sales = 12%. Increase in average weekly takings = £1,020|
Summary of Our Findings of Fact on Issue One
(1) Mr Hurst chose not to produce evidence of till rolls and daily gross takings for the periods in question to the Respondents and the Tribunal. The most likely explanation for the Appellants' failure to provide these documents was that they had something to hide.
(2) The Appellants' accountants prepared the management accounts for Park Fisheries and Olivers from information contained in the accounting records for the businesses in question. The management accounts were annual accounts not monthly projections and were based on reliable information.
(3) Mr Hurst prevaricated with his explanations for the origin of the turnover figures in the sales brochures and gave Mrs Jones copies of brochures without the turnover figures which undermined his credibility as a truthful witness and demonstrated that he had something to hide.
(4) Ernest Wilson would not allow turnover figures to be published in its brochures without some foundation in fact.
(5) The thirteen week extract of daily gross takings was representative of the weekly takings achieved by Olivers during the period of assessment. The extracts supported the Respondents' contention that Olivers' took on average £7,000 a week in sales.
(6) The hand written notes supplied by Ernest Wilson gave added weight to the Respondents' assessment that the average weekly takings for Olivers was £7,000 and further undermined the Appellants' assertion that they did not under declare the VAT due.
(7) Mr Hurst omitted some potato and bread cake purchases from the purchase records which was a chronic symptom of a deliberate suppression of sales by the Appellants.
(8) The Appellants' fish and chip shops had the capacity to generate the level of sales to justify the Respondents' assessment for unpaid VAT. We consider that PriceWaterhouseCoopers did not pay sufficient regard to the facts when arriving at its conclusions in its report.
(9) We were not persuaded by the evidence that the Appellants' state of financial indebtedness was an indication that they did not make the level of sales presupposed in the Respondents' assessment.
(10) The analysis of the VAT returns demonstrated that the Appellants were systematically under-declaring the sales in their returns.
Issue Two: What was the correct amount of VAT due for the periods 03/96 to 12/97?
Summary of Our Findings of Fact on Issue Two
(1) The figures for sales in the management accounts for Park Fisheries and Olivers, and in the other documents relating to Olivers were accurate and reliable. Mrs Jones was entitled to rely upon this information to formulate her assessment of the VAT owed by the Appellants.
(2) The weekly turnover figure of £10,000 for Mother Hubbards was reliable and safe to use as the basis for Mrs Jones' assessment.
(3) Mrs Jones' methodology for calculating the respective suppression rates of 76 per cent, 92 per cent and 118 per cent was based on sound reasoned principles including fairness to the Appellants.
(4) The February data was not representative of the takings made during the period of assessment and did not undermine the 118 per cent suppression rate.
(5) The information relied upon by Mrs Jones was comprehensive which held together to form an accurate trading picture of the Appellants' businesses during the whole period of the assessment.
Issue Three: Was the assessment for unpaid VAT for the period 3/96 made outside the three year cap imposed by section 77 of the VAT Act 1994?
(1) Mrs Jones sent a letter to the Appellants dated 16 March 1999 which enclosed a schedule of arrears of VAT together with supporting schedules setting out the method of calculation of the arrears. Mrs Jones stated that the letter enclosed an assessment of under declared tax. The schedule of arrears bore two date stamps. The first was the 10 March 1999 which was signed by Mrs Jones and A Norris, the check officer who was responsible for inputting the arrears onto the computer. The second was the 17 March 1999 which contained the words "Surveyor 6 HM Customs and Excise VAT Office, 87 Mannigham Lane, Bradford, West Yorkshire BD1 3DD. The stamp of the surveyor was necessary because of the large amount of the assessment and at the time civil action was being contemplated. The amount of arrears recorded on the schedule for 31.03.96 was £20,521.16.
(2) Mrs Jones prepared a VAT 641 on the 10 March 1999 which was signed by herself on the 10 March 1999, A Norris on 15 March 1999, and J Kinghorn, the Surveyor, on 17 March 1999 who had also initialled the inhibitor for the misdeclaration penalty. The amount of arrears recorded on the VAT 641for 03/96 was £20,521. The VAT arrears figure entered on the VAT 641 was always rounded down to the nearest pound. The purpose of the VAT 641 was to generate the computer produced assessment notification to the Appellants.
(3) The computer programme rejected the 10 March VAT 641 because it contained details of arrears more than six years old. Mrs Jones made a copy VAT 641 dated the 7 April 1999 which lumped together the arrears of more than six years old. This VAT 641 was signed by A Norris but not by J Kinghorn as he had already signed the VAT 641 on 10 March 1999. The 7 April VAT 641 generated the computer produced assessment notice dated 19 April 1999 which demanded VAT in the sum of £20,521 for the 03/96 period.
"The distinction between the assessment itself and the notification of the assessment to the taxpayer is, of course, clear on the face of section 73…. However, the distinction between the decision to assess and the assessment itself is not one which is expressly drawn by section 73; nor in my judgment does section 73 require such a distinction to be drawn. At one extreme, a mere decision to assess which is not reflected in action plainly cannot itself amount to an assessment. An assessment, after all, has to be capable of being notified to the taxpayer, and on notification it creates a debt: hence a mere executory decision to assess can have no statutory consequences. At the other extreme, where the steps taken by the Commissioners, objectively viewed, constitute the making of an assessment, in my judgment section 73 leaves no room for an issue as to whether the Commissioners decided to make – which is another way of saying intended to make the assessment which (objectively) they made" (para.97 per Lord Justice Jonathan Parker).
"… the question whether an assessment has been made is an objective question, to be resolved by reference to what the Commissioners have in fact done" (para.99 per Lord Justice Jonathan Parker).
" In my judgment, given that the making of an assessment is an internal matter for the Commissioners, in respect of which there is no prescribed statutory procedure, it is simply not possible to arrive at a formula which will determine in every case whether or not an assessment has been made" (para.107 per Lord Justice Jonathan Parker).
" In the instant case, it is common ground that there was a departure from the standard internal procedures for making and notifying an assessment in that VAT 461 was never sent for processing but was retained on Mr Gurd's file. However, it does not follow that no assessment was made. As to that I accept Mr Parker's submission that the departure from the standard internal procedures occurred only after the assessment has been made, and I reject Mr Cordera's submission that the process of assessment in the instant case was not complete until the VAT 641 had been processed and a VAT 655 generated. In my judgment the computer checks, and the concomitant possibility of the computer rejecting the VAT 641, cannot be said to impact in any way on the statutory requirement of best judgment which must lie at the heart of the assessment process. Nor can I discern any sensible reason why the mere generation of a VAT 655 should be regarded as part of the assessment process. In my judgment these were purely ministerial functions … I am accordingly in full agreement with the judge in the instant case the assessment was complete on the signing of the VAT 641 dated 16 December 1999". (para.108 per Lord Justice Jonathan Parker).
(1) The Appellants deliberately under-declared the VAT on the supplies from their three fish and chip shops by suppressing the declared sales figures in their VAT returns for the periods 03/96 to 12/97
(2) Mrs Jones exercised best judgment in arriving at her assessment and the amount of tax due under the assessment was correct.
(3) The making of the assessment for 03/96 was completed on 17 March 1999 which was within the three year time limit imposed by section 77 of the VAT Act 1994.
Release Date: 10 April 2006