[2011] UKFTT 189 (TC)
TC01058
Appeal number:
TC/2009/16182
Appeal
against compulsory VAT registration – appeal against assessments arising from
VAT registration - appeal dismissed
FIRST-TIER TRIBUNAL
TAX
KHAN
TANDOORI II &
KHAN
TANDOORI (NW) LTD Appellant
-
and -
THE
COMMISSIONERS FOR HER MAJESTY’S
REVENUE
AND CUSTOMS Respondents
TRIBUNAL:
Ms. J. Blewitt (Judge)
Ms.
S. Stott (Member)
Sitting in public at Manchester on 23 February 2011
Mr. K. Shahabuddin and Mr. I.
Shahabuddin for the Appellant
Mr. B. Haley, instructed by
the General Counsel and Solicitor to HM Revenue and Customs, for the
Respondents
© CROWN COPYRIGHT
2011
DECISION
1. This
is an appeal by the Appellant against the decisions of HMRC contained within letters
to the Appellant dated 3 July 2008 and 3 August 2009, and subsequently
confirmed in a letter dated 8 September 2008 for the compulsory registration
for Value Added Tax in respect Mr Mamunr Rashid Khan and Khan Tandoori (NW)
Limited with effect from 1 December 2002 to 30 November 2005 and 1 December
2005 respectively, and assessments arising in lieu of VAT returns.
2. The
Appellant appealed by Notice of Appeal dated 8 October 2009. The Grounds of
Appeal are contained in a letter of the same date annexed to the Notice of
Appeal. In summary, there are three principle areas of dispute:
(a)
whether meal book slips examined by HMRC relate to one days takings or,
as the Appellant contends, two to three days takings;
(b)
the accuracy of estimates prepared by HMRC in respect of chicken and
meat sales for the period September 2006 to July 2007; and
(c)
The accuracy of estimates prepared by HMRC in respect of wastage/fat
trimmed.
Background and Undisputed Facts
3. The
Appellant owned and ran a takeaway business at 315 Brodie Avenue, Allerton, Liverpool until 21 November 2009. The status of the business changed from sole proprietor
to Limited Company on 1 December 2005.
4. Mr
Duxbury, an assurance officer of HMRC, and his colleague Ms Dickinson made an
unannounced visit to the Appellant’s premises on the evening of 2 February 2008
to determine the extent of the evening’s sales and compare with the previous
Saturday’s trade.
5. The
Appellant, who has suffered ill health for a number of years, was not present,
having left early due to feeling poorly. The Appellant’s brother was running
the takeaway in his absence. The Appellant’s brother informed the HMRC officers
that there were two full time staff and one part time. He stated that there was
no till operated at the premises; instead a cash drawer was used. The
Appellant’s brother stated that the Appellant had taken the cash takings for
the evening with him when he left. The HMRC officers examined a duplicate
numbered receipt book which had numbers 1 to 22 torn out. Numbers 23 to 64 were
still contained within the book and had orders noted on them. Mr Duxbury left
his contact details and requested that the Appellant telephone him.
6. The
Appellant duly telephoned Mr Duxbury and a convenient time to visit the
Appellant’s premises was arranged. On 19 February 2008 Mr Duxbury attended the
Appellant’s place of business and was given the receipt book referred to at
paragraph 5 above by the Appellant.
7. Using
values contained within the receipt book, combined with estimates where no values
could be identified, Mr Duxbury conducted an analysis of takings for 2 February
2008, which he estimated as Ł639.95.
8. On
27 February 2008 Mr Duxbury uplifted records from the Appellant’s accountants
which showed that the takings for 2 February 2008 had been declared as Ł302.00.
Further concerns arose as a result of irregular purchase patterns and turnover.
9. As
a result of Mr Duxbury’s investigations, the effective date of registration was
calculated by uplifting the turnover for the year ended 31 March 2003 and
applying the percentage increase of 111% determined from the calculations in
respect of the visit on 2 February 2008 and adding together the monthly
averages until the VAT threshold of Ł55,000 was breached. On this basis, the
turnover to 31 October 2002 was calculated as Ł58,451 and having applied the 30
day allowance for registration a date for registration of 1 December 2002 was
arrived at.
10. As a result of
the Appellant’s compulsory registration as a sole proprietor for the period 1
December 2002 to 30 November 2005, and in lieu of a VAT return for this period,
the Appellant was assessed in the sum of Ł41,400. The limited company was
registered for VAT with effect from 1 December 2005 and no returns have been
submitted. In lieu of the returns, the limited company was assessed in the sum
of Ł10,200.
Evidence
11. We were provided
with witness statements from the Appellant Mr Mamunr Khan, the Appellant’s
brother Mr Aminur Khan, Mr John Duxbury of HMRC and Ms Beryl Blades, an Appeals
and Reviews Officer with HMRC. We heard oral evidence from all of the witnesses
save for Ms Blades.
12. Mr Duxbury
presented as a credible witness. He confirmed that he had visited the
Appellant’s business premises on 2 February 2008 with his colleague, Ms
Dickinson. Mr Duxbury stated that a numbered duplicate meal bill book was being
used to record orders and that he specifically asked the Appellant’s brother about
the book. We accepted Mr Duxbury’s clear recollection that the Appellant’s
brother had stated to him that the meal bill orders were torn out of the book
at the end of each evening. Mr Duxbury stated that numbers 1 to 22 had already
been torn out and that on the evening of the visit, at about 22.20, numbers 23
to 64 contained orders, some with a sales value and others without.
13. At the hearing,
Mr Duxbury produced his written note of the visit which had not been included
within the bundle. The note recorded for 2 February 2008 corroborated Mr
Duxbury’s oral evidence to us that he had confirmed with the Appellant’s
brother that the meal bill orders contained within the book were for the orders
on 2 February 2010.
14. We accepted Mr
Duxbury’s evidence that the Appellant had also confirmed, in a telephone call
on 8 February 2008 at 15.55, that the meal bill book contained the orders for 2
February 2008. This oral evidence was corroborated by a note of the telephone
conversation annexed to Mr Duxbury’s statement. We rejected the contention by
the Appellant that Mr Duxbury could not prove that the meal bills related to
the takings for 2 February 2008 as they contained no dates and there had been
no takings at the premises during the visit. We accepted that Mr Duxbury had
been told orally by both the Appellant and his brother, on separate occasions,
that the meal bills did relate to the day’s takings and that the Appellant’s
brother had told Mr Duxbury that there were no takings for the evening at the
premises when the visit was made.
15. Mr Duxbury explained
the analysis of the meal bill book which he had conducted following receipt of
the book on 19 February 2008. He explained that where meal details were not
contained on the pages, he had used estimates based on the minimum prices on
the Appellant’s menu. Mr Duxbury stated that when he later examined the
Appellant’s records and found the declared takings to be Ł302, he believed that
the figure for the evening’s takings should have been higher on the basis of
the meal bill book. We accepted Mr Duxbury’s evidence in this regard and found
that his analysis of the meal bill book had been fair and as accurate as an
estimation could be in such circumstances.
16. Mr Duxbury took
us through the “Business Economics Exercise” he had undertaken, which he
described as an “indicator or estimation of turnover”. He stated that the
estimated sales figure had been calculated from the limited purchase invoices
supplied by the Appellant by marking up raw purchases and comparing the figure
arrived at against the declared sales. The estimated sales figure calculated by
Mr Duxbury for the period September 2006 to July 2007 was Ł129,697. Although it
was conceded that a figure for wastage had not been deducted, Mr Duxbury stated
that the there appeared to be missing purchases, for example no purchases for
rice or meat for several weeks at a time (there being no evidence of bulk
buying within the records) and only one purchase of ten chickens for tandoori
chicken dishes over the course of one year. Mr Duxbury also noted that there
were large purchases of meat for main meals which indicated to him that the
business traded significantly above the declared turnover.
17. In cross
examination Mr Duxbury was referred to the letters of Ms Blades of HMRC, who
had reviewed and upheld the decision to register the Appellant for VAT on 23
April 2009 and 3 August 2009. It was put to Mr Duxbury that Ms Blades had
accepted the figures asserted by the Appellant in respect of waste and cost of
meat purchases. Mr Duxbury, properly in our view, declined to comment on the
decision making process of his colleague but referred us to a letter from Ms Blades
to the Appellant dated 8 July 2009 and annexed to her statement, which stated:
“You state that your client’s chicken purchases were in
20kg amounts rather than the 30kg in Mr Duxbury’s calculations and that the
meat purchased was also higher in price. Taking your figures into
consideration...taking both of these into consideration still puts your client
above the registration limits...”
18. We accepted Mr
Duxbury’s evidence that the “Business Economics Exercise” was used solely as an
indicator in assessing the level of the Appellant’s turnover. We found as a
fact that Mr Duxbury had been as accurate as possible in conducting this
exercise and had based his calculations on the limited records provided by the
Appellant. We found as a fact that the correspondence from Ms Blades to the
Appellant’s representative did not assist the Appellant; the point being that
even when calculations were based on figures (unsupported by any evidence)
provided by the Appellant, the VAT threshold was still crossed.
19. No issue was
taken with the way in which HMRC had calculated the date of registration for
VAT and consequently we accepted that the Appellant had been registered in
accordance with the relevant legislation.
20. We then heard oral
evidence from the Appellant’s brother, Aminur Khan. Mr Khan confirmed that he
had told Mr Duxbury that his brother had taken the day’s takings with him when
he left at approximately 20.30/21.00. Mr Khan was adamant that he had not told
Mr Duxbury that the meal bill book related to the evenings takings and stated
that when he had shown Mr Duxbury the book, he had stated it covered 3 or 4
nights.
21. We noted that
this oral evidence was inconsistent with Mr Aminur Khan’s witness statement
dated 24 August 2010 which had annexed to it a statement addressed to the
Appellant’s representatives, dated 3 July 2009 which stated:
“I would like to confirm that I never told HM Revenue and
Customs officer Mr John Duxbury that the duplicate book slips 23 – 64 were for
the takings for that evening only. So far I remember, I told him that these
were the takings for 2 – 3 days.”
And we found as a fact that this indicated the unreliable
nature of Mr Aminur Khan’s evidence.
22. In cross
examination Mr Aminur Khan went on to state that he did not know the usual
practice of his brother in ripping out pages of the meal bill book and that he
did not know whether the takeaway had been busy prior to his arrival and
therefore could not say with any certainty that the meal bills contained within
the book were not from that evening’s takings.
23. He accepted that
he did not have much involvement with his brother’s business, other than
helping out on odd occasions when his brother was ill, and that he was never
responsible for cashing up at the end of an evening, but would leave any
takings in the money drawer for his brother to deal with the following day.
24. We found Mr Aminur
Khan’s evidence to be vague and inconsistent as compared with the clear and
cogent evidence of Mr Duxbury and for that reason we preferred Mr Duxbury’s
evidence.
25. We then heard
from the Appellant. The Appellant told us that he would record the takings each
evening by counting the cash at the end of the night and recording it on a
piece of paper and then onto a summary sheet. The Appellant said that the cash
was then kept in a hidden safe in the takeaway. We noted that this was
inconsistent with the information provided by the Appellant’s brother to Mr
Duxbury on 2 February 2008, and recorded in Mr Duxbury’s note of the visit, and
also the oral evidence of Mr Aminur Khan that the Appellant had taken the cash
with him. We also noted the discrepancy in Mr Aminur Khan’s witness statement
dated 24 August 2010 which stated that he did not know the where the money was
kept. A further account had been given by the Appellant in his telephone call
to Mr Duxbury on 8 February 2008, the contents of which were noted and
exhibited by Mr Duxbury, in which the Appellant had stated “the money was next
to the till/drawer.”
26. The Appellant
explained that the meal bill book was mainly used to assist the chefs as to the
meals ordered. He stated that the book was quite large and the duplicate pages
would often cause problems by flipping back due to their volume, a problem
which he remedied by tearing out the pages although there was no pattern to the
frequency with which he did this. Under cross examination the Appellant could
not explain why the duplicate pages of 23 to 64, which made up a significant
part of the meal bill book, had not been torn out if such problems regularly
occurred.
27. The Appellant
stated that he was 100% certain that he had not told Mr Duxbury that the meal
bill book pages 23 – 64 related to the takings for 2 February 2008 and that he
believed he had said they covered 2 to 3 days takings. We noted the
Appellant’s witness statement dated 24 August 2010 which had annexed to it a
statement addressed to the Appellant’s representatives, dated 3 July 2009 which
stated:
“I would like to confirm that I never told HM Revenue and
Customs officer Mr John Duxbury that the duplicate book slips 23 – 64 were for
the takings for that evening only. So far I remember on the 8 February 2008 I
told him over the telephone that these were the takings for 2 – 3 days.”
28. The Appellant’s
witness statement also made reference to the telephone call made by the
Appellant to Mr Duxbury on 8 February 2008 and repeats the Appellant’s
assertion that he clarified for Mr Duxbury that the meal bill book related to
orders for 2 to 3 days.
29. We did not
accept that the Appellant’s evidence was accurate. We found that the statement
dated 3 July 2009 contained a degree of uncertainty and that there were
inconsistencies in the Appellant’s account of where the money was kept. Having
heard oral evidence from both Mr Duxbury and the Appellant, we preferred the
evidence of Mr Duxbury which was corroborated by a note of the telephone
conversation.
30. The Appellant
stated that since receiving Mr Duxbury’s analysis he had made his own
calculations and that 8 to 10 ounces of meat was used for each meal and that he
would sometimes give a free dish to regular customers, which had not been taken
into account by Mr Duxbury. We noted that this calculation was made after the
evening of 2 February 2008 and that on the Appellant’s own evidence the chefs
were responsible for preparing meals while he took orders, made deliveries and
cashed up. We found as a fact that we could not be certain that the Appellant’s
evidence accurately represented the situation on the evening of HMRC’s
unannounced visit. Even allowing for a margin of error on the part of Mr
Duxbury, who accepted his calculations were an estimate, we noted that the
calculations made by Ms Blades referred to at paragraph 17 above took into
account the assertions by the Appellant and that the VAT threshold was still
crossed.
31. The Appellant
said that there was approximately 15% wastage and that staff consumption was in
the region of 4 to 5 %. No evidence was produced to support these assertions
and therefore we found as a fact that these figures could not be relied upon.
We noted that Ms Blades had allowed 10% wastage and 5% staff consumption in her
letter to the Appellant dated 3 August 2009 and that the VAT threshold was still
crossed.
Submissions
32. The Appellant’s
representatives provided a helpful summary of their submissions at the end of the
hearing.
33. It is submitted
that the assumption that the meal bill book related to 2 February 2008 is
incorrect. Having heard evidence from Mr Duxbury, the Appellant and the
Appellant’s brother and for the reasons set out above, we preferred the
evidence of Mr Duxbury and therefore reject this submission.
34. The Appellant
contends that the meal order book cannot be used as a basis of calculation as
the pages are undated, some have no price and because the pages are used to
assist the kitchen not to record sales. We find as a fact that Mr Duxbury made
a fair analysis on the evidence available to him. We took the view that the
values attached to meals where no value was contained on the order was
calculated using best judgement and that in the absence of any other evidence
available to him, Mr Duxbury’s estimate was fair and accurate. We therefore reject
the submission that the uplift of 111% is an incorrect estimate.
35. We do not accept
that Mr Duxbury was wrong to base his calculations on 42 orders over the course
of 2 February 2008. It was accepted by Mr Duxbury that only one order was
placed during HMRC’s visit to the premises, but we accept his evidence that he
was told by both the Appellant and the Appellant’s brother that the meal order
book pages contained in the book related to orders on 2 February 2008. The
submission that Mr Duxbury’s calculation is not supported by cash found at the
premises is, in our view, misconceived as the Appellant’s brother had confirmed
that the takings had been taken by his brother. Mr Duxbury could not take into
account evidence which was not available to him.
36. We reject the
submission that the Appellant’s takings sheet supports the assertion that the
sales were made over a 2 to 3 day period. The takings sheet shows a total of
Ł680.70 for the period 31 January to 2 February 2008. Mr Duxbury’s estimate of
sales using the meal bill book was Ł639.95. The Appellant gave evidence that
there was no pattern to tearing out pages from the meal bill book and therefore
could not say with any certainty the days to which the pages contained in the
book related. The Appellant’s brother gave inconsistent evidence stating in his
witness statement that the book contained 2 to 3 days sales and in oral
evidence 3 to 4 days sales. The Appellant also gave evidence that not all
orders were recorded in the book, which was primarily used to assist the chefs.
We therefore find that even on the Appellant’s evidence, it could not be said
that the takings sheet supports the proposition that he meal bill book reflected
the sales specifically for 31 January to 2 February 2008.
37. We accept that
the Appellant offered Mr Duxbury the opportunity to visit the premises again
and that this offer was not taken up. There was no obligation on Mr Duxbury to
re-visit the premises and we do not accept that this invalidates his analysis
and conclusions.
38. The Appellant
asserts that Ms Blades, in reviewing Mr Duxbury’s calculations, accepted that
errors had been made and reduced the turnover estimation from Ł127,297 to
Ł62,485. We do not accept this to be the case. It is clear from Ms Blades
correspondence with the Appellant’s representatives that she was solely
reviewing the issue of compulsory VAT registration. In doing so, Ms Blades
fairly took into account the assertions by the Appellant as to wastage, staff
consumption and portion size, but found that the VAT threshold was still
crossed. We do not accept that Ms Blades’ evidence went any further than to
uphold the decision that the Appellant should be registered for VAT.
39. It is contended
that using the figures asserted by the Appellant, that the VAT threshold is not
crossed. We do not accept this submission; there was no documentary evidence
from the Appellant in support of the figures asserted and we did not accept the
oral evidence of the Appellant as reliable or accurate.
40. The Appellant
contends that no assessment was received prior to demands for payment in
respect of the Limited Company on 29 May 2009 and in respect of the sole trader
on 24 June 2009. The Appellant submits that no formal assessment or calculation
has been provided and that if the flat rate scheme of 12% is applied to the
figures, a turnover below the VAT threshold is reached. We do not accept this
submission. There is no legislative provision requiring the notification of
such assessments. We note the letter from HMRC to the Appellant dated 25
September 2008 which clearly notifies the Appellant of his requirement to be
VAT registered and the assessment payable by him and find that this was
sufficient to enable the Appellant to be fully aware of his situation. We do
not accept the Appellant’s submission in respect of the flat rate scheme as
applicable to the Appellant as he had not registered for VAT or the flat rate
scheme at the relevant time.
41. The Appellant
argues that the assessments are out of time under the VAT Act 1994 and that
HMRC have failed to follow their own guidance CH51820 which states that an
assessment relating to an accounting period of more than 2 years should be
raised within 12 months from the date of evidence. We do not accept this
submission. Section 83 VAT Act 1994 states:
...an appeal shall lie to a tribunal
with respect to any of the following matters...
(p) (i)...in respect
of a period for which the appellant has made a return under this Act..
There is therefore no provision to appeal the assessments
as no returns were made by the Appellant. We do not accept the Appellant’s
argument that the assessments are out of time and that HMRC have breached their
own policy. The Notice CH51820 referred to by the Appellant exists as guidance
and therefore even if breached, in our view this would not be fatal to HMRC’s
case. In any event, the guidance relates to assessments raised following an
error discovered in a taxpayer’s VAT records. This does not apply to the
Appellant as there were no VAT records submitted and therefore no discovery
made. We find that HMRC have acted properly in respect of the assessments.
Decision
42. We dismiss the
appeal.
43. This document
contains full findings of fact and reasons for the decision. Any party
dissatisfied with this decision has a right to apply for permission to appeal
against it pursuant to Rule 39 of the Tribunal Procedure (First-tier Tribunal)
(Tax Chamber) Rules 2009. The application must be received by this Tribunal
not later than 56 days after this decision is sent to that party. The parties
are referred to “Guidance to accompany a Decision from the First-tier Tribunal
(Tax Chamber)” which accompanies and forms part of this decision notice.
TRIBUNAL JUDGE
RELEASE DATE: 17 March 2011
