Hurst & Anor v  Revenue & Customs [2006] UKVAT V19546 (10 April 2006)

                                                                                                                 19546

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

DECISION

The Appeal
1.	The Appellants were appealing against amended assessments for unpaid VAT, which  were notified to the Appellants on 20 July 2001.
2.	The Respondents reduced the assessments on review on 5 July 2001 to £149,764 plus interest for the periods 03/96 to 12/97 inclusive. The reason for the reduction was that the Respondents withdrew the assessments for the periods 03/92 to 12/95 because they were outside the three year time cap.
3.	The grounds of Appeal as stated in the Notice of Appeal dated 2 August 2001 were:
“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
4.	The Appellants traded as a partnership under the business name of “Park Fisheries”.  The Appellants carried on business as proprietors of three fish and chip restaurants and takeaways.  The restaurants were known as Park Fisheries, Cleckheaton, Mother Hubbards, Oldham and Olivers, Low Moor Bradford. The Appellants submitted a single VAT return for the three restaurants under the business name of “Park Fisheries”.
5.	The Respondents formed the view that the Appellants were not declaring the true level of the takings from their businesses in the VAT returns resulting in an underpayment of VAT. Their view was based on the Appellant’s apparent failure to keep comprehensive VAT records and inconsistencies between the declared takings in the VAT returns and the takings stated in other documents of the Appellants. The other documents included sale brochures for the three restaurants, management accounts for Park Fisheries and Olivers and statements of weekly turnover figures. 
6.	From the information contained in the other documents the Respondents calculated a shortfall of 118 per cent in the VAT declared by the Appellants. The Respondents applied the percentage of 118 to the VAT declared in the Appellants’ returns for the periods in question to identify the amount of under declared tax. Two different percentages of 92 and 66 were applied to the VAT declared in the last two periods of 09/97 and 12/97 to reflect a decline in business takings. The amount of under declared tax was then adjusted by allowing four per cent for zero-rating to produce the assessment of  £149,764. 
7.	The Appellants contended that there had been no under declaration of VAT for the periods in question. In their view the Respondents based their assessment for unpaid VAT on information which was not designed for the purposes of providing precise figures for turnover. The management accounts were prepared to give a more positive reflection of the Appellants’ business to the banks upon which they depended for their business finance. The sale brochures supplied an indicative figure for turnover to prospective purchasers. The Appellants submitted that the level of suppression alleged by the Respondents was totally unrealistic particularly when equated with the number of extra meals that each outlet would have to sell to meet the weekly turnover suggested by the Respondents.
8.	The Appellants’ Notice of Appeal predated the Court of Appeal decision in Pegasus Birds Ltd v Commissioners of HM Customs and Excise [2004] EWCA Civ 1015.  The Appellants at the hearing did not challenge the assessment on the basis of best judgement as now envisaged by the Pegasus Birds decision which required advance notice of the specific grounds contesting best judgement. Instead the Appellants’ Appeal was based on the two following questions which identified the disputed issues to be decided: 
(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?
9.	The Appellants raised an additional ground of Appeal which was restricted to the period 03/96. They contended that the assessment of the amount of unpaid VAT notified to the Appellant on 19 April 1999 was made on 7 April 1999 which was outside the three year cap imposed by section 77 of the VAT Act 1994. The Respondents, on the other hand, submitted that the assessment was made when Mrs Jones, the assessing officer, exercised her judgment and decided to make the assessment, which was on 17 March 1999 within the three year cap of section 77. Thus the disputed issue to be decided:
(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?
The Evidence
10.	We heard evidence from Michael Hurst for the Appellants and Mrs S A Jones, HM Revenue and Customs Higher Executive Officer for the Respondents. Mr Hurst was a partner with his wife responsible for the running of the three fish and chip shops. Mrs Jones was the officer who had the overall responsibility for the investigation of the Appellant’s VAT affairs and made the VAT assessments which were the subject of this Appeal.
11.	We received in evidence a bundle of documents. 
12.	The Appellants objected to the witness statements of Michael Simon Oller,  Kenneth Webb,  John Charles Robert Hutchinson and Martin Barrett which  were not, therefore, read at the hearing as evidence of the facts stated therein.   
The Background
13.	 The Appellants first purchased Park Fisheries in 1988 for £465,000. They subsequently let the business to a third party, then sold it outright after which the Appellants repurchased it in 1991 for £340,000 and sold it again to a third party in May 1999 for £190,000.
14.	The Appellants bought their second business, Olivers, also in 1988 for £450,000, which was initially leased to a third party. The Appellants took over the business in 1995 when the lessees became bankrupt, paying £150,000 for the lease. The Appellants sold the business to Mr Oller in February 1998 for £335,000.
15.	At the end of 1992 the Appellants purchased a third business, Mother Hubbards for £420,000.  In November 1999 Mother Hubbards was leased to a third party for a term of 21 years with an annual rent of £35,000. The Appellants retained the head lease with a term of 72 years.
16.	Around 1997 the Appellants instructed Ernest Wilson & Co Limited, a member of The National Association of  Estates Agents specialising in the sale of businesses, and stock assessment, to sell the three businesses.
17.	Between 17 February 1992 and 31 December 1997 the Appellants trading pattern changed as the second and third business outlets were purchased:
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 
18.	The three business were fish and chip restaurants with outsales departments. Olivers and Mother Hubbards were open seven days a week  with varying opening hours; 11.30am to 11.30pm for Olivers and 11.30am to 9pm for Mother Hubbards.  The evidence regarding the opening hours of Park Fisheries was contradictory, however, on balance we were satisfied that it was open seven days a week, 11.30am to 11.30pm.
19.	Park Fisheries was located in the centre of Cleckheaton, having the benefit of passing trade with local trade from residents and shoppers. The restaurant seated 58 with a four pan counter range in the outsales department.
20.	Olivers was located adjacent to a dual carriageway at Low Moor Bradford. The sales brochure produced by Ernest Wilson described the business as occupying a prime and extremely busy site. The business had its own car park and restaurant seating 60 persons with a fully fitted kitchen. The premises had the benefit of a justice’s licence to sell alcohol with restaurant meals. The outsales department was described as spacious with a three pan island range.
21.	Mother Hubbards was advertised by Ernest Wilson as the “Jewel in the Crown” situated on a very busy main road through a densely populated residential area in Oldham. The premises were purpose built surrounded by its own car park with a fully licensed restaurant seating 170 and a large outsales department with a six pan island range. 
22.	Olivers and Mother Hubbards as well sold Sunday lunches which was not restricted to fish and chips in the restaurants.
23.	Staff employed by the Appellants ran each of the businesses. Mrs Hurst was responsible for cashing up the takings at the end of each day for the three businesses.
Respondents’ Evidence
24.	Mrs Jones decided to conduct an investigation of the Appellants’ VAT affairs following a meeting with her colleague Mr Battye who expressed his concerns about whether the Appellants’ VAT returns reflected the true level of the takings from the three fish and chip shops. 
25.	Mr Battye found that the Appellants’ VAT records were unsatisfactory, in that the Appellants had not retained till rolls and records of daily takings. On 21 October 1997 he wrote to the Appellants advising them that the VAT records were inadequate and that certain records, such as till total slips, daily record of takings, and restaurant meal slips must be retained.
26.	The Appellants’ VAT file contained an earlier letter dated 10 February 1993 from another officer of HM Revenue and Customs, Mr Linkletter, informing the Appellants that they must keep the till rolls and records of daily gross takings.
27.	On 6 February 1998 Mrs Jones together with five colleagues in groups of two made simultaneous unannounced visits to the Appellant’s three fish and chip shops. There the officers observed till operations and cashing up procedures. Mrs Jones uplifted the available business records and made arrangements for the Appellants to provide further records and audit rolls. The Appellants provided the additional information on the 18 February 1998. Mrs Jones, however, found that some records were still missing for the period 2 February 1998 to 15 February 1998. 
28.	The Appellants have not provided Mrs Jones with till rolls and records of daily gross takings covering the periods of the disputed assessment. Mrs Jones has only seen till rolls and records of daily gross takings for February 1998 and onwards except for those provided by Mr Oller, the purchaser of  Olivers. 
29.	Prior to the unannounced visits to the Appellants’ premises, Mrs Jones obtained the sales brochures for each of the premises prepared by Ernest Wilson. These brochures contained details of the turnover figures for the businesses. After the visits Mr Hurst supplied Mrs Jones with copies of the sales brochures where the turnover figures had been replaced with the words: “turnover on application to the vendor”. Mrs Jones formed the view that the sales brochures had been changed as a result of her interest in the Appellants’ VAT affairs.
30.	 On the 3 March 1998 Mrs Jones and her colleagues visited the offices of Ernest Wilson where they obtained documents relating to the sale of the three businesses including the instructions for sale. Mrs Jones found within the documentation a hand written note setting out figures for weekly sales and costs. Mrs Jones was convinced that this document related to Olivers and had been prepared by the Appellants. Mrs Jones also discovered a letter dated 8 August 1997 from Edwards Veeder, the Appellants’ accountants, to Barclays Bank which referred to management accounts prepared from the accounting records for each of the businesses.
31.	 Mrs Jones obtained from Barclays Bank sets of management accounts for Park Fisheries for the accounting years with July end for 1995, 1996 and 1997 and for Olivers, 1996 and 1997. The management accounts provided details of sales, cost of sales, gross profit, expenses and operating profit. The accounts were not signed but had the name and address of the Appellants’ accountant in bold on each of the accounts together with the wording:
“The above accounts have been prepared for management purposes only and as such have not been audited”
32.	Mr Oller supplied Mrs Jones with weekly sales figures for Olivers from 11 August 1997 to 3 November 1997 provided to Mr Oller by the Appellants in connection with his proposed purchase of Olivers. The information also included hand written details of daily takings which Mr Hurst accepted had been compiled by his wife.
33.	Mrs Jones investigated the Appellants’ purchases and found that they omitted purchases of bread cakes and some purchases of potatoes from their records. Mr Hurst volunteered the information about the potatoes. Mrs Jones contacted the Appellants’ fish suppliers but was unable to confirm the level of fish supplied because the  suppliers records contained no sales particulars other than cash sales. Mrs Jones considered further investigations of the Appellants’ purchases were not worthy of pursuit. However, she rejected the Appellants’ contention that the discrepancies were insignificant. She was of the view that the Appellants omissions were part of a general picture of sales suppression.  
The Assessment
34.	The table below sets out the Appellants’ declared sales and output tax for the period from 03/92 to 12/97 and the Respondents’ assessment for 03/96 to 12/97 with method of calculation.

Period	Declared Sales (£) Output Tax x 47/7	Declared Output Tax (£)	Suppression Rate 	Under declared tax
(£)	4 per cent allowance for zero-rating (£)	
31/03/92	27,584.64	4,108.35				
30/06/92	57,271.18	8,529.75				
30/09/92	59,790.85	8,905.02				
31/12/92	62,323.01	9,282.15				
31/03/93	119,224.97	17,756.91				

30/06/93	114,861.29	17,107.00				
30/09/93	113,084.75	16,842.41				
31/12/93	96,078.74	14,309.60				
31/03/94	117,655.71	17,524.68				
30/06/94	125,082.98	18,629.38				
30/09/94	118,358.02	17,627.79				
31/12/94	109,522.02	16,311.79				
31/03/95	112,953.02	16,822.79				
30/06/95	108,434.98	16,149.89				
30/09/95	126,870.05	18,895.54				
31/12/95	115,677.00	17,228.49				
31/03/96	126,084.28	18,778.51	X 118%	22,158.64	20,521.16	
30/06/96	133,662.16	19,907.13	X 118%	23,490.41	21,754.51	
30/09/96	131,793.97	19,628.89	X 118%	23,162.09	21,450.45	
31/12/96	120,011.48	17,874.05	X 118%	21,091.38	19,532.76	
31/03/97	134,936.53	20,096.93	X 118%	23,714.38	21,961.93	
30/06/97	129,082.48	19,225.05	X 118%	22,685.56	21,009.13	
30/09/97	116,613.64	17,367.98	X 92%	15,978.54	14,644.68	
31/12/97	100,600.01	14,983.06	X 66%	9,882.82	8,893.94	
      
35.	 Mrs Jones considered two methods for calculating the assessment for unpaid VAT against the Appellants. The first method involved taking two years of the sales figures disclosed in the 1996 and 1997 management accounts for Park Fisheries and Olivers, and adding that to the advertised turnover in the sales brochure for Mother Hubbards projected over a two year period which produced a sum for tax inclusive sales for a period of two years. From this sum Mrs Jones deducted the tax inclusive sales declared by the Appellants for the two years ending 30 June 1997, which enabled her to compute the tax shortfall and a suppression rate of 121 per cent. The second method involved the calculation of the tax inclusive sales for the one year period to July 1997 which produced a suppression rate of 118 per cent.
36.	Mrs Jones applied the lower suppression rate of 118 per cent to the output tax declared by the Appellants for each of the periods from 03/96 to 06/97 to produce a figure for the under declared tax. Mrs Jones then deducted the value of zero rated sales, estimated at four per cent of the total sales, from the under declared tax to arrive at the assessment for the respective period.
37.	Mrs Jones applied different suppression rates from the 118 per cent rate for the last two assessment periods (09/97 and 12/97), namely 92 per cent and 66 per cent respectively. Following the unannounced visit on the Appellants’ businesses on 6 February 1998, she concluded from the till roll information that the Appellants suppressed 42 per cent of their sales for the week ending 8 February 1998. Mrs Jones formed the view that suppression had taken place because the Appellants failed to provide her with a complete set of till rolls for the week in question despite requests for the till rolls. She calculated the 42 per cent by dividing the projected sales for the week with the value declared on the till rolls provided for that week (£12,389.86/ £8,669.56). She chose to use the value declared on the till rolls as the denominator rather than the value declared by the Appellants in their VAT return, which was higher at £9,485. The use of £9,485 as the denominator would have resulted in a suppression rate of 30 per cent. 
38.	Mrs Jones concluded from the available evidence that the turnover for the Appellants’ businesses declined from the period ending 06/97. She considered that the fairest way to reflect this was to apply a stepped suppression rate for the periods 09/97 and 12/97. Thus she computed a stepped rate of 26 per cent by taking 42 per cent from 118 per cent which equalled 76 per cent divided by three representing the number of accounting periods from 06/97 to 03/98. She then applied the stepped rate to 09/97 producing 92 per cent suppression rate (118 –26) and to 12/97 resulting in a 76 per cent suppression rate (92 – 26).
39.	Mrs Jones did not consider that the 42 per cent suppression rate for the week ending 8 February 1998 undermined her 118 per cent suppression rate for the earlier periods. Mrs Jones had confidence in the basis for the 118 per cent  rate as it was  derived from the turnover disclosed in a number of sources, the management accounts, the sales brochures, and the Appellants’ own daily gross takings, which showed a consistent turnover for the periods in question.  
40.	 The turnover which formed the basis for the 118 per cent suppression rate was computed from the following sources for the respective businesses:
Park Fisheries
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)	
  Olivers
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)	

Mother Hubbards
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.
41.	Mrs Jones analysed the till rolls for the week ending 22 February 1998  which produced lower turnovers for each of the three premises, £6,702 Mother Hubbards,  £2,704 Park Fisheries, and £3094 Olivers than that disclosed in the sales brochures. Mrs Jones considered that these smaller turnovers reflected the decline in trade noticeable from June 1997. In her view they did not affect her conclusions about the higher turnover for the periods up to June 1997 because they were based on reliable evidence. 
42.	Mrs Jones accepted that she did not take account of  the eventual sales price of the businesses and its relationship with the estimated turnover when making her assessment of the unpaid VAT due from the Appellants.
43.	 Mrs Jones considered that the three businesses had the capacity to yield the assessed turnovers. The businesses were open for long hours, seven days a week. The premises were well equipped and capable of supporting a large number of sales. The restaurants provided  meals other than fish and chips with two of the restaurants licensed to sell alcohol. She formed a different impression from Mr Hurst of the number of staff employed at the businesses. She considered that the staff complement was more than three persons at each of the premises. Mrs Jones did not research the wages paid to staff during the assessment period.
The Assessment for 03/96
44.	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.
45.	Mrs Jones also 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 641 for 03/96  was £20,521. Mrs Jones explained that 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.
46.	The computer programme rejected the information on the 10 March VAT 641 because it contained details of arrears more than six years old. This required Mrs Jones to produce 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.
47.	Mrs Jones’ letter dated 16 March 1999 mentioned that the question of dishonesty was still being considered. Mrs Jones accepted in cross-examination that she was under no pressure to get the assessment out because at the time she was working to a 20 year time limit. Mrs Jones considered that her work regarding the assessment was completed when she filled out VAT 641. The assessment was decided  on 17 March 1999 when the VAT 641 had been signed by the checking officer and  the counter signing officer.
The Appellants’ Evidence
48.	Mr Hurst stated that he was in considerable debt and was desperate to sell the businesses. His state of indebtedness to the bank at 30 June 1997 was in the region of £800,000. He  received a number of advances from the bank during the period of the assessment to reduce the overdraft on his current account. Mr Hurst explained that he was under considerable pressure from the bank. Mr Hurst feared that he would lose his businesses and his home which at the time was valued at £2.5 million.
49.	Mr Hurst said that he prepared the management accounts for Park Fisheries and Olivers because the bank required them on a monthly basis. Mr Hurst could not remember when he prepared the management accounts. He also stated that he would have prepared management accounts for Mother Hubbards, although the Tribunal saw no such accounts.
50.	Mr Hurst stated that the figures disclosed in the management accounts bore no relationship with the actual turnover for the businesses. He simply plucked the figures out of the air so that he could present a reasonable trading profile to the bank which would enable him to carry on his businesses until they were sold. Mr Hurst accepted in cross examination that he probably deceived the bank by providing made up management accounts but he had to do this to get out of the situation. Mr Hurst had a wife and children to support.
51.	Mr Hurst’s accountants did not prepare the management accounts. However, Mr Hurst put his accountants’ name and address on the accounts together with the health warning that the accounts had not been audited because he was told to do so by his accountants. 
52.	 Mr Hurst stated that the turnover figures in the sales brochures for the three businesses were not the true figures. He considered that they had been lifted from the particulars in the original sales brochures when Mr Hurst purchased the businesses. Mr Hurst informed the Tribunal that Ernest Wilson would put anything down in the brochures to sell the businesses. He went onto say that he instructed Ernest Wilson to put whatever figures the agents wanted in the brochure. Mr Hurst, however, admitted that he signed the written instructions to Ernest Wilson which contained details of the turnover figures for each of the businesses.
53.	Mr Hurst did not recognise the handwritten note found in  Ernest Wilson’s files which set out 17 weeks of takings, which the Respondents believed had been written by Mr Hurst and related to Olivers.
54.	Mr Hurst stated that Park Fisheries was a waste of time, taking about £1,000 per week in the winter with possibly £2,000 weekly in the summer. Mother Hubbards took nothing, about £2,200 to £3,000 per week. Although Mother Hubbards had the best potential it was on a busy road and faced fierce competition from MacDonalds and Kentucky Fried Chicken.
55.	Mr Hurst accepted that the 13 weeks of takings provided to Mr Oller, the proposed purchaser of  Olivers was accurate. However, he pointed out that the figure of £7,000 weekly takings was achieved in August which was the busiest time for fish and chips as the children were off school. He said that Olivers would only take £2,000 a week during the winter months. Respondents’ Counsel asked Mr Hurst to explain why the Appellants’ VAT returns showed no wide seasonal variations in trade. Mr Hurst said that there was no seasonal trade for Park Fisheries, whilst Olivers’ takings suffered peaks and troughs. Mr Hurst would limit the impact of the troughs by offering deals on fish and chip suppers.
56.	Mr Hurst considered that the takings recorded for February 1998 following the visit of Mrs Jones reflected the true position of the businesses. He and his wife had not defrauded VAT. There had been no suppression of sales in the VAT returns.
57.	Mr Hurst said that he kept all the documents required of him by the Respondents. He experienced regular VAT visits without  problem until Mrs Jones’ visit when his world collapsed. Mr Hurst could not recall receiving the letter of 2 October 1997 from Mr Battye advising him that the Appellants’ VAT records were inadequate. Mr Hurst insisted that the Respondents had all his business documents and till rolls and was surprised that Mrs Jones did not have the green exercise book which contained the details of the daily gross takings. However, Mr Hurst accepted under cross-examination that the till rolls prior to the unannounced visit had been destroyed. The till rolls for all three businesses had been kept in black plastic bags at Park Fisheries The Fire Service had inspected the premises and told Mr Hurst to destroy the contents of the black plastic bags because they constituted a fire hazard. Mr Hurst had no annual accounts for his businesses.
58.	Mr Hurst accepted that he did not have receipts for all his potato sales  because he purchased some of his potato supplies from  traders in St James market who did not give receipts for their sales. Mr Hurst could not see the relevance of the delivery notes for the bread cakes. He agreed that Barretts who supplied bread cakes to the businesses did not appear in the Appellants’ purchase records.
59.	The Appellants relied upon a report by PriceWaterhouseCoopers which they commissioned to challenge the Respondents’ assessment. PriceWaterhouseCoopers estimated that the level of suppression alleged by the Respondents amounted to £1,388 each day. This would have meant that the three businesses would have to sell an additional 694 fish and chip meals daily on the assumption that the average cost of a fish and chip meal was £2.  PriceWaterhouseCoopers considered that the magnitude of the alleged suppression was totally unrealistic and unreasonable with no foundation in fact.
60.	Mr Hurst gave evidence that the Appellants’ businesses did not have the capacity to cook the additional meals. The Appellants only employed three members of staff at each outlet. He estimated that it would take six minutes to cook ten pieces of fish.
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?
61.	 The onus was on the Appellants to satisfy us on the balance of probabilities that they did not make under declarations of VAT for the periods 03/96 to 12/97. 
62.	Mr Hurst did not produce evidence of till rolls or daily gross takings to corroborate the entries made in the Appellants’ VAT returns. He said that the till rolls relevant to the periods of the assessment had been destroyed on the advice of the fire service because they were a fire hazard. Mr Hurst offered no explanation why he chose to destroy the till rolls rather than transferring them to another place where they would not constitute a fire hazard. Mr Hurst provided no documentary evidence to corroborate the fire service advice. He said that the daily gross takings book had been given to the Respondents, but Mrs Jones was adamant that she had not seen the book. 
63.	The Appellants had been in business on their own account selling fish and chips since 1992 and registered for VAT from 17 February 1992. Mr Hurst stated that the VAT visits prior to the unannounced visits by Mrs Jones were no big deal. Mr Hurst’s assertion was contradicted by the Respondents’ letters of 10 February 1993 and 2 October 1997 which emphasised the importance of retaining till rolls and a written record of daily gross takings. Mr Hurst stated that he had not seen the October 1997 letter despite a copy being sent to his accountants. The letters, however, indicated that the VAT Officers had discussed with Mr Hurst their findings on the inadequacy of the Appellants’ VAT records.
64.	We find that the Appellants were fully aware of the requirement to keep till rolls and written records of the daily gross takings. We are satisfied that they did not give to the Respondents details of the daily gross takings for all three businesses covering the period of assessment. We find Mr Hurst’s explanation that he destroyed the till rolls on the advice of the fire service wholly unsatisfactory and not credible. We conclude from our findings of fact that 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. We are satisfied that the most likely explanation for the Appellants’ failure to provide these documents was that they had something to hide.  
65.	The Respondents managed to obtain from the Appellants’ bank, estate agents and the purchaser for Olivers documents containing details of the turnover for the Appellants’ businesses which showed that the turnover was considerably higher than that declared in the Appellants’ VAT returns.
66.	In respect of the management accounts for Park Fisheries and Olivers, Mr Hurst sought to persuade us that he prepared the accounts and  plucked the figures out of the air. He put the name and address of his accountants on the documents because he was told to so by his accountants. The name of his accountants had been spelt incorrectly on the accounts by missing the “s” from Edwards and in some cases transposing the final “e” in Veeder for an “a”. The management accounts consisted of projections and contained a health warning that they had not been audited. The documents had been prepared for the purpose of satisfying the bank on a monthly basis that its loan would be met. Mr Hurst accepted that he probably deceived the banks.
67.	We note that Mr Hurst has not called evidence from his accountants to support his version of the events. We are surprised that Chartered Accountants would allow the name and address of the firm to be inserted on the management accounts without satisfying themselves that the details of the management accounts had some foundation in the accounting records for the business. We note that the Appellants’ accountants wrote to Barclays Bank on the 8 August 1997 stating that
“the information necessary to prepare the management accounts in your possession was available from their accounting records”.
68.	The management accounts have been prepared on annual basis in accordance with the accounting year of the business with a July end. The accounts contained details of sales, costs of sales, expenses and profits. In our view they did not fit Mr Hurst’s description of monthly projections. The health warning of the accounts not being audited was standard accountancy practice where annual accounts have not been subject to audit.
69.	We conclude that the Appellants’ accountants prepared the management accounts for Park Fisheries and Olivers from information contained in the accounting records for the businesses in question, despite the spelling mistakes of the accountant’s name which were relatively minor. We have reached this conclusion because we consider it highly improbable that Chartered Accountants would allow their name to go on a document for which they had not been responsible. Further their letter to Barclays Bank suggested they were involved with the preparation of the management accounts. We are satisfied that they were annual accounts not monthly projections and were based on reliable information.
70.	Mr Hurst gave different explanations for the turnover figures appearing in the sales brochures. He initially suggested that they were taken from the original sales brochures when the Appellants purchased the businesses. Under cross examination Mr Hurst stated that he had not seen the particulars and left it to his estate agents to put what figures they wanted. Under further cross examination Mr Hurst accepted that he must have told his agents the turnover figures. The last explanation was supported by the notes of instruction kept by the estate agents and signed by Mr Hurst in respect of the proposed sale of the three businesses. The instructions stated the value of the annual turnover for each of the businesses which were later incorporated in the sales brochures.
71.	 Mrs Jones gave evidence that Mr Hurst provided her with copies of the sales brochures which did not include the details of the annual turnover for each of the businesses. Mr Hurst would not have been aware that Mrs Jones already had in her possession sales brochures which incorporated the turnover figures. We accept Mrs Jones’ evidence on this point.
72.	We find that 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. We are satisfied that our findings undermined Mr Hurst’s credibility as a truthful witness and supported our conclusion that he had something to hide.   
73.	 We note that Ernest Wilson & Co Ltd was a member of the National Association of Estate Agents and advertised itself as “The North’s Leading Business Agent”.  We consider that Ernest Wilson would not allow turnover figures to be published in its brochures without some foundation in fact.
74.	We were provided with extracts from the Appellants’ daily gross takings in respect of Olivers for a thirteen week period from 11 August 1997 to 3 November 1997 which showed average takings of £6,530. The extracts came into the Respondents’ possession from Mr Oller, the purchaser of the business from the Appellants. Mr Hurst accepted that the daily gross takings recorded in the extracts were accurate. He suggested, however, in examination in chief that Olivers may achieve £7,000 a week in the summer but only £2,000 a week in winter. Under cross-examination he changed his evidence by agreeing that Olivers was a more steady shop coping with the troughs in trade by offering deals on the fish and chip suppers.
75.	We are satisfied that the extracts were 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.
76.	The Respondents obtained from Ernest Wilson a hand written note containing details of takings and expenditure which  they said recorded 17 weeks of takings from Olivers ending on 28 September 1997 with average weekly sales of £7,017. The document postulated net annual sales of £312,208 which was down £56,253. When these two sums were added together it corresponded exactly with the annual sales of £368,461 recorded in Olivers’ management  accounts for the year ended July 1997.  Mr Hurst was recorded as receiving £1,140 per week under average weekly costs.
77.	Appellant’s counsel submitted that the provenance of the hand written note was in doubt. Respondents’ counsel contested the submission. The onus was upon the Appellants to explain the hand written note because it had originated from the Appellants’ agents. Mr Hurst stated that he did not recognise the document.
78.	 We consider that the Respondents’ contention has considerable force. We did not believe Mr Hurst. His excuse that he did not recognise the document was lame. Mr Hurst could have enquired of his agents about its origin and brought evidence of his enquiries to the tribunal.  The fact that he did not suggests to us that he knew that such enquiries would be pointless because the document originated from him.
79.	We find that the contents of the handwritten note had striking similarities with the thirteen week extract of daily gross takings, the accuracy of which was accepted by Mr Hurst. Further the relationship between the contents of the note and Olivers’ management accounts for the year ended July 1997 mutually reinforced the evidential credibility of both documents. We are satisfied that the hand written notes 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. 
80.	Appellants’ counsel emphasised  the inability of the Respondents to show that the Appellants had engaged in a systematic under-declaration of purchases which in his view went hand-in-hand with a systematic suppression of sales. The under declaration of purchases would have covered the Appellants’ tracks if they had suppressed sales. Thus the failure of the Respondents to establish the link between purchases and sales supported the Appellants’ contention of no under declaration of VAT.
81.	Counsel’s submission was at odds with the evidence. Mr Hurst admitted that the Appellants’ purchase records did not include potatoes bought at St James Market and bread cakes from Barretts. The Respondents were prevented from pursuing their investigation of the Appellants’ fish purchases because the fish suppliers recorded their supplies as cash sales.
82.	We accept Mr Hurst’s evidence that he omitted some potato and bread cake purchases from the purchase records. We prefer Mrs Jones’ interpretation of the evidence  that the incomplete purchase records were a cause for concern and a chronic symptom of  a deliberate suppression of sales.
83.	The Appellants placed reliance on the conclusions of the PriceWaterhouseCoopers report which stated that the Respondents’ assessment was totally unrealistic and unreasonable with no foundation in fact. According to Mr Hurst the shops did not have the capacity in terms of staff and fryers to generate the level of sales necessary to justify the assessments.
84.	The evidence in our view contradicted the report findings and Mr Hurst’s assertion. The analysis of the 06/92, 09/92 and 12/92 VAT returns submitted by the Appellants which related solely to Park Fisheries showed that the shop supported average weekly sales of £4,600, the level at which the Respondents pitched their assessment. The thirteen week extract of daily gross takings for Olivers which was accepted as accurate by Mr Hurst recorded weekly sales in excess of £7,000 with one week reaching £8,525. The Respondents based their assessment for Olivers on weekly sales of £7,000.  Mother Hubbards’ restaurant had triple the number of covers found in Park Fisheries and Olivers and six pan fryers compared with the four in Park Fisheries and the three in Olivers.  The PriceWaterhouseCoopers’ report based their assessment on fish and chip meals retailing at £2, which overlooked other revenue generating aspects of the Appellants’ businesses. Two of the restaurants were licensed to sell alcohol. The restaurants offered Sunday lunches which did not consist of fish and chip meals. The shops were open seven days a week with lengthy hours of trading.
85.	 We find that 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 the report.
86.	 Appellants’ counsel proposed an alternative argument about the unrealistic nature of the Respondents’ assessment, namely the Appellants would not have been in the state of financial indebtedness if they had received the revenues presupposed in the assessments. The Respondents accepted that the Appellants’ bank statements showed  the Appellants’ net indebtedness of £800,000 as at 30 June 1997. 
87.	The Appellants, however, did not give probative evidence to back up the proposition. Mr Hurst referred to their perilous financial position stating that the businesses and his family home were mortgaged to the hilt. He produced no documentary evidence to support his assertions. We received no detailed evidence of the causes of the indebtedness. We did not know whether the Appellants’ state of financial impecuniosity was due to lack of resources or financial mismanagement. We were not told about the number of current and savings accounts held by the Appellants. Three different banks were mentioned during the course of the hearing: Barclays Bank, Royal Bank of Scotland and Yorkshire Bank. The Appellants brought to the Tribunal their bank statements which had not been previously seen by the Respondents. We were invited to examine the bank statements. We saw no merit in ploughing through batches of bank statements without guidance about what we should be looking for. We did ask the parties’ representatives to consider the statements and reach an agreement about their contents which amounted to a net indebtedness of £800,000 and that current account indebtedness was reduced by increasing the loan indebtedness.
88.	We consider that the responsibility rested with the Appellants to provide persuasive evidence in a cogent form to support their proposition about the link between their indebtedness and the unrealistic nature of the Respondents’ assessment. The Appellants failed to give persuasive evidence about the link. We, therefore, find that as at 30 June 1997 the Appellants’ net indebtedness as stated on the bank statements produced to the Tribunal was £800,000. We are not persuaded on 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.
89.	 We considered the Appellants’ VAT returns against the dates when they assumed responsibility for additional businesses. The details of those returns were set out in tabular form in paragraph 34 above. We multiplied the VAT declared by 47/7 to arrive at the figure for declared sales.
90.	 The Appellants assumed responsibility for Mother Hubbards on 1 January 1993, prior to that date the Appellants was operating solely from Park Fisheries. 
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	

91.	The Appellants assumed responsibility for Olivers on 1 July 1995, prior to that date they were operating from Park Fisheries and Mother Hubbards.
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	

92.	The above analysis of the Appellants’ VAT returns showed that in the year following the take over of Mother Hubbards  the Appellants’ declared sales for Mother Hubbards and Park Fisheries increased by 114 per cent or £4,543 in weekly takings compared with the previous year’s declared sales for Park Fisheries. Mother Hubbards had twice the capacity of Park Fisheries.
93.	  In the year following the take over of Olivers  the Appellants declared sales for Olivers, Mother Hubbards and Park Fisheries increased by 12 per cent or £1,020 in weekly takings compared with the previous year’s declared sales for Park Fisheries and Mother Hubbards. The average weekly takings for Olivers were in the region of £7,000.
94.	The above analysis of the Appellants’ VAT returns demonstrated that the increase in total declared sales on the take over of additional businesses did not reflect the sales potential of those businesses, particularly in the case of Olivers where the increase was minimal. The most likely explanation for the minimal increases in declared sales was that the Appellants were under-declaring the VAT due. We, therefore, find from our analysis of the VAT returns that the Appellants were systematically under-declaring the sales in their returns.
Summary of Our Findings of Fact on Issue One
95.	We have found the following facts:
(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.
96.	We hold on our findings of fact when looked at as whole that 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. We are also satisfied that Mr Hurst was not a truthful witness. 
Issue Two: What was the correct amount of VAT due for the periods 03/96 to 12/97?
97.	The Appellants’ position was they had not under-declared the VAT on the supplies from their three fish and chips. We have decided otherwise. The Appellants, therefore, produced no alternative assessment for us to consider. Instead the Appellants attacked the quantum of the assessment on grounds that it was too high when compared with the sales figures disclosed in the February 1998 till rolls. Further they highlighted the difficulties of extending snapshots of sales figures to other periods. We will consider the Appellants’ arguments after examining the basis of the Respondents’ assessment.   
98.	Mrs Jones’ assessment was compiled from a number of sources: the management accounts for Park Fisheries and Olivers; handwritten note of Olivers’ weekly takings, a thirteen week extract of daily gross takings for Olivers kept by the Appellants and turnovers disclosed in the sales brochures.
99.	We have found under Issue One that the management accounts for Park Fisheries and Olivers were in reality annual accounts based upon reliable accounting information for the businesses. The management accounts covered the period of assessment up to July 1997. We are satisfied that the sales figures declared in the management accounts for Park Fisheries and Olivers were accurate. We consider that Mrs Jones was entitled to rely on these sales figures to calculate the assessments for Park Fisheries and Olivers based on average weekly takings of £4,589.79 (Park Fisheries) and £7,085.79 (Olivers).
100.	The weekly takings of £7,085.79 for Olivers were also supported by two other documents which we have found under Issue One to be an accurate account of the value of sales realised by Olivers. The hand written note showed average weekly takings of £7,017 for a seventeen week period within the period of assessment. The thirteen week extract of daily gross takings between 17 August 1997 to 19 November 1997 revealed average weekly takings of £6,530.  Mrs Jones allowed for the decline in weekly takings from £7,000 to £6,500 by reducing the suppression rate from 118 per cent in 06/97 to 66 per cent in 12/97.
101.	There were no management accounts for Mother Hubbards. Mrs Jones instead used the weekly turnover figure of £10,000 disclosed in the sales brochure for Mother Hubbards. The Respondents argued that there were close similarities between the weekly turnover figures disclosed in the management accounts and the sales brochures for Park Fisheries and Olivers, from which they concluded that the turnover figures in the sales brochures including Mother Hubbards were reliable. We have decided under Issue One that Ernest Wilson would not allow turnover figures to be published in its brochures without some foundation in fact. We also have dismissed Mr Hurst’s assertion that the sales figures in the management accounts and the turnover in the sales brochures were fictional. In these circumstances we are satisfied with Mrs Jones’ conclusion that the weekly turnover figure of £10,000 for Mother Hubbards was reliable and safe to use as the basis for their assessment.
102.	We would also add that further support for the £10,000 figure for Mother Hubbards was found in the relative capacities of the three fish and chips shops. Mother Hubbards restaurant had seating for 170 compared with the combined total of 118 for Olivers and Park Fisheries. Mother Hubbards had six pan fryers compared with the seven combined for the other two shops. The comparison of the relative capacities of the three shops would suggest that Mother Hubbards’ sales figures should equate with the joint total sales of Olivers and Park Fisheries, which was supported by the analysis of the till rolls of the three businesses for the week ending 22 February 1998. 
103.	Mrs Jones used the sales figures in the management accounts for Olivers and Park Fisheries and the turnover in the Mother Hubbards’ sales brochure to calculate the value of the Appellants’ sales for one year and two years respectively.  From that calculation she was able to derive two percentage rates measuring the Appellants’ VAT suppression. She chose the lowest suppression rate of 118 per cent  which was derived from the one year total of sales. The suppression rate was then applied to the output tax declared by the Appellants for each of the quarterly periods starting 03/96 to 06/97 to produce the amount of under-declared tax for each of the periods in question. Mrs Jones then estimated the percentage of zero rated sales using the number of bread cakes bought during two sample periods. Her estimate for zero-rated sales worked out at four per cent which was then deducted from the value of under-declared tax for the respective period to produce the assessed unpaid for each of the periods in question.
104.	Mrs Jones identified a lower suppression rate of 42 per cent from her analysis of the till rolls for the three businesses in respect of the week ending 8 February 1998. She calculated the 42 per cent by first estimating the value of the missing till rolls which was then added to value of the produced till rolls to give the value of the total sales for that week. The 42 per cent suppression rate was arrived at by dividing total sales with the value of the sales for the produced till rolls. During the hearing we identified an alternative method, namely, dividing the total sales by the output tax declared for that week which produced a 30 per cent suppression rate.
105.	The 42 per cent suppression rate did not directly affect Mrs Jones’ assessment because it related to a period outside the assessment. Mrs Jones, however, identified from the information available to her that the fish and chip shops had suffered a decline in trade from July 1997. She, therefore, decided to apply a stepped suppression rate of 92 per cent and 66 per cent for the last two periods of the assessment to reflect the decline in trade. The stepped rate was calculated from the original suppression rate of 118 per cent and the 42 per cent rate derived from the February till rolls.
106.	We have scrutinised Mrs Jones’ methods for calculating the respective suppression rates. We considered substituting the 30 per cent suppression rate for the 42 per cent rate. We decided on balance to uphold Mrs Jones’ approach because it attempted to measure the actual level of suppression that occurred at the time of the unannounced visit. Also the incorporation of the 30 per cent suppression rate in the stepped back calculations would have had a marginal impact on Mrs Jones’ assessment, probably reducing it by £1,000.
107.	We are satisfied that Mrs Jones’ methodology for calculating the respective suppression rates of 66 per cent, 92 per cent and 118 per cent was based on sound reasoned principles including fairness to the Appellants.
108.	The Appellants contended that the 42 per cent suppression rate for the February till takings undermined the 118 per cent suppression rate applied by Mrs Jones to the periods 03/96 to 06/97. We disagree with the Appellants’ contention. The 118 per cent was derived from reliable information contained in the management accounts for Park Fisheries and Olivers, other documents relating to Olivers and the sales brochure Mother Hubbards. That information related directly to the value of the sales transacted during the periods 03/96 to 06/97 and in the case of the management accounts covered the whole period in question.  
109.	The February data, on the other hand, related to one week which was outside the period of assessment. Also at that time the Appellants were aware that they were under investigation and their businesses were in a state of flux with one of the businesses about to be sold. We conclude that 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. 
110.	  Mrs Jones, however, did not totally disregard the February data because she took it into account in computing a lower suppression rate for the last two quarters of the period of assessment.  Mrs Jones concluded from the information available to her that the Appellants’ businesses experienced a decline in the amount of takings from July 1997 which limited the scope for suppression of the sales figures. We consider that Mrs Jones’ actions in this regard demonstrated her adherence to the statutory requirement of best judgment.  
111.	Appellants’ counsel submitted that the information relied upon by Mrs Jones was in reality snapshots of the Appellants’ businesses and was, therefore, suspect in forming an overall view of the businesses. We do not share counsels’ assessment of the information upon which she relied. The management accounts for Olivers and Park Fisheries covered the whole period of the assessment except for the last two quarters. The thirteen week extract of daily gross takings and the hand written note for Olivers embraced parts of 06/97 and 12/97 and the whole of 09/97. The turnover figures in the sales brochures had relevance to the whole period of the assessment including the later quarterly periods when the businesses were actively marketed for sale. We are satisfied that 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.
Summary of Our Findings of Fact on Issue Two
112.	 We have found the following facts 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.
113.	The Appellants’ case was that they did not make under declarations of VAT due during the period of assessment. We have found this to be untrue. The Appellants, therefore, did not provide us with alternative computations of the VAT due. Instead they contended that the evidential basis for the quantum of the assessment was suspect and not representative of the whole period of the assessment.
114.	We have found that Mrs Jones’ assessment was based on reliable and accurate information taken from a number of sources covering the whole period of the assessment. She took account of the February 1998 takings and the decline in the Appellants’ trading position since 1 July 1997. Her methodology for calculating the different suppression rates was based upon sound and reasoned principles including fairness to the Appellants. Mrs Jones  based her assessment fairly upon all the available information. Her assessment was not arrived at arbitrarily. We are, therefore, satisfied that she exercised best judgment in arriving at her assessment and that the amount of tax due under the assessment was correct.
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? 
115.	Section 77(1)(a) of the VAT Act 1994 imposes a three year time limit on the making of assessments for unpaid VAT. The Appellants contended that the 03/96 assessment was made outside the three year time limit, which was disputed by the Respondents.
116.	At the resumed hearing on the 13 February 2006 the Respondents submitted in evidence which was not opposed by the Appellants the original schedule of arrears of VAT accompanying Mrs Jones letter of 16 March 1999 and a copy of VAT 641 signed by Mrs Jones on 10 March 1999 and countersigned by various officers on the 15 March and 17 March 1999.
117.	We find the following facts on Issue Three:
(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.
118.	The Court of Appeal decision in Courts plc v Customs and Excise Commissioners [2005] STC 27 sets out the legal position for the making of an assessment. We refer to the following extracts from the judgment which identified the salient parts of the decision:
“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).
119.	The Court of Appeal decision recited the Respondents’ internal guidance on the making of assessment. Essentially the guidance stated that as a general rule the “made” date is when the VAT 641 computer input document has been completed which involved quantification and documentation of the amount involved together with the appropriate signatures of the maker and checker and dated. The guidance allowed two exceptions to the general rule referred to as example one and two. Example one applied to the situation where an amount has been quantified, documented, checked, signed and dated on a separate schedule ready for transfer onto a VAT 641. In such a case the assessment was made at the time the action was completed with respect to the schedule and not the VAT 641. 
120.	The VAT 655 is the computer generated notice of assessment.
121.	The arguments of the parties have shifted during the course of the hearing. At the initial two day hearing in November 2005 the Respondents relied on the schedule dated 10 March 1999 attaching to Mrs Jones letter of 16 March 1999 as the date for making the assessment. In the Respondents’ view the process adopted was in line with example one in the general guidance cited in paragraph 119 above. The Appellants, on the other hand, contended that the date of making the assessment was the date of the VAT 641 which was the 7 April 1999 outside the three year time limit. The VAT 641 was the relevant document because it assessed the VAT owed for 03/96 at £20,521 which was the amount notified to the Appellants on VAT 655 and different from the amount on the 10 March 1999 schedule at £20,521.16. 
122.	It was apparent from Mrs Jones’ evidence at the November hearing that there was another VAT 641 in existence relating to the assessment. This VAT 641 dated 10 March 1999 and countersigned on 17 March 1999 was found and produced at the February hearing. At the February hearing the Respondents  relied on the date of the counter signatory on the new VAT 641, 17 March 1999, as the relevant date of completion of the making of the assessment.  The Appellants, however, submitted that the earlier VAT 641 was not a valid assessment because it was based on the schedule of arrears dated 10 March 1999 which included the sixteen pence in the assessment for 03/96. The Appellants contended that Mrs Jones made the conscious decision to assess £20,521 when she completed the VAT 641 on 7 April 1999 which generated the assessment notice. The Appellants did not consider the sixteen pence to be de minimus, the issue was whether the actual amount in fact assessed was assessed in time.
123.	We are satisfied on our findings of fact considered objectively that Mrs Jones exercised her best judgment on the 10 March when she prepared the various schedules setting out the arrears and methods of calculation and transferred the arrears figures rounded down to the nearest pound to the VAT 641. The making of the assessment was completed on 17 March 1999 when Mr Kinghorn, the surveyor, signed the VAT 641. This VAT 641 contained the actual amount of VAT assessed against the Appellants at £20,521 which was included in the notice of the assessment issued on 19 April 1999.  The fact that the computer programme rejected the VAT 641 dated 10 March 1999 after the completion of the making of the assessment did not impact in any way on the statutory requirement of best judgment which must lie at the heart of the assessment process.  In our view the findings of fact correspond exactly with the circumstances outlined Lord Justice Jonathan Parker’s judgment in Courts PLC at para. 108 and highlighted in paragraph 118 of this decision. The VAT 641 dated 7 April 1999 was effectively a duplicate of the earlier VAT 641 dated 10 March 1999. because it contained the same information except that the assessments for 01/92 to 3/93 were lumped together and it required no counter signature of the surveyor.
124.	We, therefore, find that 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.
Our Decision
125.	We have made the following decisions on the three issues in dispute:
(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. 
126.	We, therefore, dismiss the Appellants’ appeal and uphold the assessment of £149,764 plus interest for the periods 03/96 to 12/97 inclusive. We make no order for costs.
Annendum
127.	At the November hearing the Tribunal comprised three members, Mr Tildesley, Miss Stott and Mr Whitehead. In the period between the November and February hearing Mr Whitehead sat with Mr Barlow, Appellants Counsel, on another VAT and Duties Tribunal. Mr Whitehead was, therefore, disqualified from hearing the Appeal by virtue of the decision in Lawal v Northern Spirit Limited [2003] UKHL 35.  On 13 February 2006 the Tribunal reconstituted itself as a tribunal of two and dealt with the Appeal. The facts were fully disclosed to the parties and no objections were made to the reconstitution of the Tribunal. Mr Whitehead took no part at all in the Tribunals’ adjudication of the Appeal 

 

MICHAEL TILDESLEY
CHAIRMAN
Release Date: 10 April 2006

MAN/01/0796