Pooley & Anor v  Revenue & Customs [2006] UKSPC SPC00525 (29 March 2006)
SPC00525
Income tax – assessment – whether HMRC had power to raise assessments despite responses by taxpayers in negotiations – whether failure by taxpayers to provide proper stock valuations called accounts into question – basis of determining taxable profits in absence of reliable books and records

THE SPECIAL COMMISSIONERS

ROLAND POOLEY AND JOAN MARY POOLEY
Appellants

- and -

COMMISSIONERS FOR HER MAJESTY’S REVENUE AND CUSTOMS

Respondents

Special Commissioner:	DR DAVID WILLIAMS

Sitting in public in Peterborough on 15, 16 and 17 November 2005.

Mr S Fridlington, of Dexter and Sharpe, Chartered Certified Accountants, for the  Appellants

Mr D N Mason, Officer of Revenue and Customs, for the Respondents

© CROWN COPYRIGHT 2006

DECISION

1	This decision concerns a series of appeals about assessments of the personal income of Mr Roland Pooley, and of the business profits of the partnership carried on by him and his wife Mrs Joan Mary Pooley. The appeals start in the year of assessment 1985-86 and come forward from that to 1994-95. that is obviously in part a long time ago. But some of the contentions made for Mr and Mrs Pooley would take the beginning of the facts relevant to the case back a further twenty years. It is the culmination of a long history of unfortunate disagreement and misunderstanding between the two parties. I offered the parties the chance even at the last minute to settle. They did not take it. That is a pity. I do not in this decision fully agree with either party. As a result, I must make “best judgment” decisions that might be better decisions on the facts if they were the results of informed negotiation rather than judicial decision.  

2	The Respondents are now the Commissioners for Her Majesty’s Revenue and Customs. Throughout most of long series of events reviewed in this decision, the Respondents were the Commissioners of Inland Revenue (“Revenue”), and their officers were Inspectors of Taxes. It was agreed on all sides that I should continue to use the old titles in this appeal, as those are the titles that appear on almost all relevant documents.  

3	As this suggests, the determination of the income tax affairs of the appellants was a matter of contention between them and the Revenue for a very long time. Some of the years of assessment still in dispute were before self-assessment came into effect. They were therefore decided on different procedural rules to those that now apply. That was reflected in the submissions and questions during the hearing of the appeals. However, it is not necessary to go into the relevant procedures at any length in this decision as nothing turns on the procedural differences at different stages of this dispute.

4	The complexities of the case, at least as the Appellants saw it, caused this matter to be transferred from the General Commissioners to the Special Commissioners several years ago. Since the transfer there have been no less than three oral hearings for directions in the appeals, in June 2002, April 2003, and July 2005. At that final directions hearing I gave directions that the matter should proceed to a hearing without further undue delay. One of the reasons for delay was the serious ill health of Mr Pooley. This meant that he was unable to attend the full hearing, although it was held in a local venue rather than in London. Mrs Pooley was able to attend throughout. 

5	At the hearing I heard evidence on oath from Mrs Pooley and from Mr Bill Daubney, a partner in Dexter and Sharpe, the accountants who currently represent the Appellants. Letters were handed in from a former supplier to the Appellants and from a long standing friend. These were subject to objection as witness evidence, but on my suggestion it was agreed that they should be added to the papers but not treated as witness statements. The Commissioners were represented by Mr Mason, who was the senior Inspector of Taxes (now officer of Revenue and Customs) in the relevant tax area. Evidence on oath was given by Mr Bernard Thomas, for many years the local inspector of Taxes with responsibility for the enquiry into the tax affairs of the Appellants.  I was given a large bundle of documents on the basis that I should have access to the whole history of the correspondence between the parties. 
Issues in the appeals

6	I agreed with the parties at the final directions hearing the issues to be decided at the full hearing. Briefly, they were:
&bull; was there a settlement under section 54 of the Taxes Management Act 1970 of  any of the assessments said to be in dispute? 
&bull; Subject to section 54,  were all the assessments under appeal valid  assessments; and - linked to this  - which of those assessments were in-time  assessments? 
&bull; Subject to the assessments being valid, what were the proper assessments of  the partnership for the years in question (1987-88 to 1994-95)? It was accepted  that this also extended to any liability for National Insurance contributions.
&bull; Following from the above, or otherwise, what were the proper assessments of  Mr Pooley for the years in question from 1985-86.

7	At the start of the hearing, Mr Fridlington added two applications to the issues agreed at the final preliminary hearing. The first was an application that Mr and Mrs Pooley had no case to answer. The second was that the hearings, and/or the decisions under appeal at the hearings, were in breach of the European Convention on Human Rights and the Human Rights Act 1998. I must therefore deal with several procedural matters before I turn to the substantive question of the profits earned by the Appellants’ business.   

No case to answer

8	Mr Fridlington submitted that his clients or their advisers had answered all points raised by the Revenue some time ago. All issues for which there was any justification in opening an enquiry had also been dealt with some time ago. There were no further profits to be identified, and no income tax was due.  There was therefore no content to the appeals and no case to answer. 

9	I rejected at the hearing the application that, for those reasons, there was no case to answer. Mr Mason had anticipated the application, and drew my attention to IRC v White (1956) 36 TC 587. Upjohn J (later Lord Upjohn) ruled (at p 6oo) that:

“It is unfortunate that the Commissioner acceded to that submission [of no case to answer] because, in my judgment, a submission like that ought not to be entertained by the Commissioners. Such a practice, as was pointed out by the Court of Appeal in Alexander v Rayson [1936] 1 KB 169, at 178:
‘is highly inconvenient. For the judge in such cases is also the judge of fact, and we cannot think it right that the judge of fact should be asked to express any opinion upon the evidence until the evidence is completed.’
Accordingly – and I lay it down for their future guidance – the Commissioners when hearing cases of this sort where the onus is upon the Crown, ought not to listen to a submission of no case to answer. It must be met with the polite riposte: Do you or do you not elect to call any evidence in this case? If the taxpayer elects to call no evidence then, of course, he cannot complain if, having called no evidence, the Special Commissioners or, on appeal, this Court comes to the conclusion that the Crown has discharged the onus which is upon it, and it would be too late for him then to ask for leave to call evidence. 

10	Although there have been significant changes in the way income tax appeals are handled since that decision 50 years ago, I consider it is still relevant, and therefore binding on me. The essential reason why such an application is inappropriate is as applicable now as then. In these appeals the Revenue used its powers to make protective and/or estimated assessments. I deal below with the separate application contending that some of the assessments were invalid. That is a proper application to make and, if made, must be answered. Subject to that, it is for an appellant to show why a valid assessment cannot be made on the facts. That cannot be done by an assertion that there is no relevant evidence made, without reference to that evidence. And Upjohn j makes it clear that it does not apply either to out of time assessments, of which there are a number in these appeals

The Human Rights Act 1998

11	Mr Fridlington also sought support of his clients’ rights under the Human Rights Act 1998 and the European Convention on Human Rights. He did so by challenging the validity of the present proceedings under Article 6 paragraphs (1) to (3) of the European Convention on Human Rights. 

12	Even if it does apply in law – and that is at least open to question on an appeal about an income tax assessment - I could not see how the Appellants were assisted by Article 6 paragraphs (2) and (3) on the facts. I therefore put each of the substantive points in paragraphs (2) and (3) to Mr Fridlington at the hearing. He conceded that he could not call in aid on the facts any of the specific matters protected by those paragraphs on behalf of his clients. I consider that concession rightly made, and I therefore do not need to examine them further here. That being so, no point arises for decision about whether those paragraphs apply to these appeals as a matter of law.

13	The core rights protected by Article 6 paragraph (1) are that:

“In the determination of … civil rights and obligations … everyone is entitled to a fair and public hearing within a reasonable time by an independent and impartial tribunal established by law.”       

14	Mr Mason resisted Mr Fridlington’s application on the grounds that the proceedings were not criminal in nature and so Article 6 paragraphs (2) and (3) did not apply in any event. I have already indicated that I do not have to decide that point as it does not arise. He also contended that Article 6 paragraph (1) also did not apply following the majority decision of the Grand Chamber of the European Court of Human Rights in Ferrazzini v Italy, Application 44759/98, reported at [2001] STC 1314. In that case, the Court accepted by a majority that an appeal about the income tax issue in question in that case was not a “determination of civil rights and obligations”. That case had proceeded on the agreed basis that such an issue was not “criminal”. The effect of the Court’s decision was that it was not “civil” either. Mr Mason argued that this applied here as well.

15	Had I found it necessary to rule on the issue whether the proceedings before me were “civil”, and whether as a consequence the Human Rights Act 1998 obliged me to follow the Ferrazzini decision and exclude Article 6 from consideration on those grounds, or alternatively empowered me to look to the Ferrazzini decision for guidance but not to follow it, I would have directed much fuller argument on this important point than I heard. On the facts, save for one point, I did not see how a reference to Article 6 paragraph (1) assisted the Appellants in this case any further than paragraphs (2) and (3). The Appellants are protected under the common law of England and Wales by their rights to a fair hearing and an unbiased tribunal (usually called “natural justice”) without reference to the Convention. In my view those rights are co-extensive in proceedings such as those conducted by a Special Commissioner with the similar protections given by Article 6, paragraph 1. So those rights are to be applied by me in any event. The scope of Article 6 is wider in some ways – for example in the concept of “equality of arms” between public authorities and individuals – but I see no issue in this case that would assist the Appellants by reference to such matters. 

16	The only issue that I could see being brought into play by the European Convention on Human Rights but not by the common law is the question of unreasonable delay. I indicated at the hearing that I had formed no view about whether there was any unreasonable delay in the sense protected by the Convention. I also indicated that I could not take the point any further as a result of that hearing if the procedure followed was statutory procedure laid down by Act of Parliament. I have no authority under the Human Rights Act 1998 to challenge a procedure imposed in this way. That can only be done, if at all, by the judges of the higher courts. And, in addition, I have no powers as a Special Commissioner under the Human Rights Act 1998, or any other legislation, to provide any practical remedy for a breach of a protected right, even granted both that the right applies in law and that the facts show that it applies in fact. It is no remedy to a delay to allow an appeal because I must still make an assessment of the Appellants’ profits, and I cannot make that assessment by reference to extraneous issues such as compensation for delay. So I see no purpose in examining to what extent, if any, the delays in this case are unreasonable and, if so, how far that is the responsibility of one party rather than the other. 

17	I therefore did not accept that there was any substance in the application to apply Article 6 of the European Convention on Human Rights in so far as there was any initial objection to be taken to the proceedings. I do not therefore need to consider the cases cited by the parties on this issue.  The practical answer, as the Appellants are aware, is to refer any issue of unreasonable delay to the Adjudicator or Parliamentary Ombudsman. 

Section 54 agreements

18	Mr Fridlington’s next application, flagged up at the final preliminary hearing, was that there had been a section 54 agreement between the parties. I directed at that hearing that the Appellants produce any document that they contended either was or evidenced a section 54 agreement. None was produced, and Mr Fridlington accepted at the full hearing that there had been no concluded agreement. Much was, nonetheless, made for the Appellants about steps taken by them with a view to agreement and also the reasons why they were unable to finalise any such agreement. I find those contentions of little assistance.

19	Section 54 of the Taxes Management Act 1970 is a most valuable section. It was entirely appropriate that that procedure should have been put in play in these appeals.  Had there been a section 54 agreement, it would have ended the appeals to the extent of the agreement. At the end of the day, as I said in more formal language at the start of this decision, I am left to make a best guess at the proper outcome of these appeals. I say “guess” because there is no clear evidence offered by either side about the precise outcome of any of the partnership appeals. Neither side was prepared to defend the estimated assessments made or to replace them by specific, justified alternative figures. Both sides have done no more than to put their best estimates before me.  

20	It is therefore a considerable pity that the deterioration in the relationships between the Appellants and the Respondents was such that it became impossible for anyone to negotiate an agreed position, or to arbitrate or mediate to an acceptable common statement of position.  I do not seek to attribute blame for that. But I do note several serious attempts to settle by the Inland Revenue at various times. None of those, however, was finalised through the documentary procedure required by section 54. That being so, I can see no basis on which the Appellants can now contend, as Mr Fridlington attempted to contend on their behalf, that in effect I now ought to impose one of the settlements. I cannot do that. I must carry out the duties imposed on me by law. If that results in the Appellants bearing a higher level of assessment than that on offer by way of settlement at any earlier stage, I can do nothing about that at this stage. They were offered the chance to consider a settlement at the last minute, and they refused to take it.

The assessments under appeal

21	Behind these appeals is a history of enquiries, negotiations and disputes between Mr Pooley and the Revenue going back over a long period. The agreed bundle of documents presented at the hearing by the parties was large by reference to the issues under review. This was because the Appellants asked that I see the correspondence going back to the report of an in-depth investigation covering 1972-73 to 1979-80 presented at some stage to the Revenue Adjudicator. I was also referred to an Inspector’s note on investigations of business affairs for 1975-76 to 1981-82. It is without question that the outcome of those and other investigations left Mr Pooley with a strong sense that his rights had not been respected and that he had been taxed excessively and unfairly. But that is of no relevance to the outcome of the current appeals. I am not concerned with the proper determination of various assessments before 1985-86, and only to a very limited extent with the issues that formed the grounds for those reports and investigations. I do not therefore consider it necessary or even helpful to look in any detail at the earlier documents. Save as noted in this decision, I have restricted my consideration of the evidence to the assessments properly under appeal before me.  

22	The assessments that are under appeal by Mr Pooley alone are:

1985-86	Further assessment of £948 property income	
		
1988-89	Further assessment of £9,027	
		
1989-90	Further assessment of £20,368	

23	The 1985-86 assessment was agreed by the parties and they invited me to confirm their agreement without further discussion by way of decision. I accept that it has no effect on any other assessment under appeal, and therefore formally confirm it.

24	It was agreed by the parties that the 1988-89 assessment was made out of time and that the burden of proof of the assessment was therefore on the Revenue. It was agreed that the out of time assessments were made within 20 years of the relevant year.

25	The assessments that are under appeal by Mr and Mrs Pooley are all assessments of the profits of their partnership. They are:

1987-88	Further assessment of £4,000	
		
1988-89	Further assessment of £4,500	
		
1989-90	Estimated assessment of £18,000		
		
1990-91	Estimated assessment of  £20,000 	
		
1991-92	Estimated assessment of £25,000	
		
1992-93	Estimated assessment of £20,000	
		
1993-94	Estimated assessment of £30,000	
		
1994-95	Estimated assessment of £50,000	

26	It was agreed by the parties that the assessments for 1987-88 and for 1988-89 were out of time assessments. After initial disagreement, it was agreed that the other assessments, and in particular the 1989-90 assessment, were not out of time. It was agreed that all out of time assessments were made within 20 years of the relevant year. The procedure to deal with the fact that the burden of proof was on the Appellants for some assessments and on the Revenue for others was agreed during the hearing. I take it fully into account in this decision. 

27	It was also agreed by the parties at the hearing that the adjustments to be made to the net profit figures to take account of capital allowances were not in dispute, and I was not asked to consider them. But for good order, I should reserve that for decision by the Special Commissioner if it is not agreed by the parties in the light of this decision. Either party may apply for a formal decision on that aspect of the appeals.

28	There are also assessments for national insurance contributions due from Mr and Mrs Pooley on the amounts assessed or assessable in the various years by way of Class 4 contributions. No separate point was raised by either party about the liability to or the amount of those contributions. It was agreed that the relevant liability would be agreed by the parties in the light of my decisions on the income tax appeals. I therefore do not deal with those liabilities further in this decision. But the parties have liberty to apply to me for a formal determination of all or any of those liabilities if they are unable to agree or settle them.	

Validity of the assessments under appeal

29	I must next consider the contention raised at the final preliminary hearing that some of the assessments were not validly made.  I am glad to record that the parties were agreed at the full hearing about which of the assessments were, and which were not, made in time. I accept their agreement as the basis for dealing with that aspect of this decision. Aside from that issue, I see no substantive question about the validity of any of the assessments that should cause me not to proceed to determine these appeals. 

30	As Mr Fridlington questioned at the hearing the powers under which the Inspectors had made assessments, I asked Mr Mason to identify the powers on which the Revenue relied. He took me to section 29 of the Taxes Management Act 1970 and to the case law on the meaning of “discovered” in that section. He referred me to the well known definition of that term by Bray J in R v Kensington Income Tax Commissioners (1913) 6 TC 279 at 283:

	“it means, in my opinion, simply “comes to a conclusion” from the 	examination he makes and, if he likes, from any information he receives.” 

In my view, nothing in this case has suggested, even arguably, that the Revenue assessments were outside the power to discover. 

31	It is useful to link to that the power of a Special Commissioner to consider assessment made by discovery. The central provision under which I must decide these appeals is in section 50(6) of the Taxes Management Act 1970 (“the 1970 Act”). It provides:

	If, on an appeal, it appears to the majority of the Commissioners present at the 	hearing, by examination of the appellant on oath or affirmation, or by other 	evidence –

(a)	that the appellant is overcharged by a self-assessment;

(b)	that any amounts contained in a partnership statement are excessive; or

(c)	that the appellant is overcharged by an assessment other than a self-assessment,

the assessments or the amounts shall be reduced accordingly, but otherwise the assessment or statement shall stand good. 

32	The converse power is in section 50(7) of the 1970 Act and there is a subsidiary power in subsection (8):

	“(7)	If, on an appeal, it appears to the Commissioners –

	(a) that the appellant is undercharged to tax by a self-assessment;

	(b) that any amounts contained in a partnership statement are insufficient; or

	(c) that the appellant is undercharged by an assessment other than a self-	 	      assessment,

	the assessments or amounts shall be increased accordingly.

	(8)	Where, on an appeal (other than a self-assessment) which –

	(a) assesses an amount to tax which is chargeable to tax, and

	(b) charges tax on the amount assessed,

	it appears to the Commissioners as mentioned in subsection (6) or (7) above, 	they may, unless the circumstances of the case otherwise require, reduce or, as 	the case may be, increase only the amount assessed; and where any appeal is 	so determined the tax charged by the assessment shall be taken to have been 	reduced or increased accordingly.” 

33	The jurisdiction given me in these appeals is that imposed by section 50(6) and (7) read with subsection (8). Save for one point in one of the assessments of Mr Pooley, the dispute is about the amount of profits of the Appellant’s partnership business for assessment purposes. No question arises about the proper Schedule or Case under which any of the income should be taxed, or any other point of substantive law about identification of income or expenditure. My decision is therefore a decision taken under the power given me by section 50(8). 

34	The terms of that section reinforce a point made by Bray J in the Kensington case. It is for the appeal Commissioners to consider the evidence; the task of the Revenue is to make its best estimate of the proper sums to be assessed on whatever basis is available.  

35	Section 50 is also to be read with the other general provisions of the 1970 Act, and in particular section 114. That provides that want of form does not invalidate an assessment. Nor are they affected by reason of a mistaken defect or omission. Taking those provisions together, I see nothing of any substance concerning the appeals before me save for the central task of deciding if the amounts of the assessments are correct.

Time limits

36	As Mr Mason accepted, the one important procedural aspect of the appeals is that of the time limits. The normal time limit for making an assessment is laid down by section 34 of the 1970 Act. Before the introduction of self-assessment this used to be six years. The time limit is now five years after the 31st January next following the end of the relevant year of assessment. The earlier assessments under appeal are governed by the previous time limits, but the precise application of those limits is no longer in issue. 

37	When the time limit has expired, the Revenue can only make an assessment if it can bring the assessment within the extended time limits available under section 35 of the 1970 Act. To do this, the Revenue must show that the assessment is made: 

 “for the purpose of making good to the Crown a loss of income tax … attributable to his (the assessed person’s) fraudulent or negligent conduct or the fraudulent or negligent conduct of a person acting on his behalf”

38	Mr Mason also took me to the case law about the application of that section.
One of the contentions raised over a period of time by and for Mr and Mrs Pooley was that the Revenue owed them more money than they owed or could owe the Revenue. But that overpayment, assuming for present purposes that there was one, does not affect the years to which any of the assessments before me apply. Nonetheless it was argued that there was not “loss of income tax” to the Crown from Mr and Mrs Pooley.
I do not agree. Lord Widgery CJ, in R v General Commissioners of income Tax for Holborn (1974) 49 TC 656 followed earlier authority in confirming that the reference was to tax that had not been assessed but which should have been assessed. In substance, that brings the point back to the issue before me under section 50 of the 1970 Act, subject to the need for the Revenue to show that it is entitled to make out of time assessments under section 35.  

39	Section 35 applies to each of the out of time assessments as indicated above, but not to the other assessments. In the case of each of the main partnership assessments, my task is limited to seeing if I am satisfied on all the evidence that the estimated assessments overcharge or, if I so find, undercharge Mr and Mrs Pooley. If there is either, then I must determine the proper amount to be assessed by that assessment. With regard to the out of time assessments, I must examine whether fraud or neglect is shown before I consider any issue about amount. Subject to that, the assessments on Mr Pooley also stand to be adjusted if and to the extent that I do not accept the estimated assessments for the partnership for the same year. 

40	One other matter arises by particular reference to section 35. I heard evidence from the Appellants that at least part of the previous delays and failures in provision of returns and information was by a former accountant acting for them. To avoid any doubt, this was not a reference to either the present accountants or to Bullen Davey. But section 35 makes it clear that a taxpayer is responsible for the conduct of those acting for her or him. The assumption behind part of the approach of Mr and Mrs Pooley to their tax affairs appears to have been that the problems of that former accountant were not of their making and they were not to blame for them. If that was their approach, it is wrong. Parliament has expressly provided that the faults of the agent lie with those instructing the agent. They may have some remedies against that agent. The Revenue and the public do not. 

41	Having dealt with the many preliminary issues raised in these appeals, I must now turn to the central issue. What amounts of profits did the partnership make during the years in question?

The partnership business

42	Mr and Mrs Pooley have been married for many years. Mr Pooley is now 83.  Mrs Pooley is several years younger than her husband. Neither is now in good health, and Mr Pooley was unable to take an active part in the hearings for that reason.

43	Mrs Pooley helped her husband with his business activities from 1972, when he set up a business selling ladies outerwear from a centrally-positioned shop in a small market town. It was a smaller shop, and for much of the time it was staffed by Mrs Pooley with one assistant on duty with her. Sales took place only through the shop. There were no other shops and no other forms of sale. It is common ground that by the start of the 1986-87 year of assessment Mrs Pooley had become a partner in the business with her husband. The profits of the business were thereafter partnership profits payable equally to Mr and Mrs Pooley.  

44	The business was closed in December 1995. Both partners were then over state pensionable age.  The profits of the final period of the business from April 1995 to December 1995 are not in issue in this appeal, but I am asked to consider the taxable profits for the eight years of assessment up to and including the last full year of operation of the business. 

45	Mrs Pooley told me, and I accept, that she was responsible in the business for the buying of the items of clothing and outerwear and for their onward retail sale. Mr Pooley kept the business records and paid the bills. He had accounted for the takings and banked them. He had kept a record of cash from sales and had deducted various bills – for example money for the car and petty cash, as well as housekeeping – before banking the proceeds. He had also prepared the quarterly value added tax returns. An accountant checked those returns before submission, and also prepared annual accounts of the profits of the business and made the relevant income tax returns. The record keeping was not computerised, and all records were kept manually. The system of record-keeping and the set of books kept were in the form set by and kept by Mr Pooley. 

The returns made

46	Tax returns were made for Mr and Mrs Pooley by their then accountants, Bullen Davey, on 31 July 1991 for the years 1986-87, 1987-88, 1988-89, 1989-90, 1990-1 and 1991-92. At the same time the Revenue was supplied with the accounts of the partnership for the years to 30 April 1988, 1989, and 1990. The returns for the years that were subject to out of time assessments were therefore made several years late. Some additional information was offered relating only the Mr Pooley’s returns in August 1992. These were omissions from his returns. Again, those omissions were from the late made returns for the years that are now subject to out of time assessments. Accounts and tax computations for the years of account ending on 30 April 1991, 1992 and 1993 were submitted by Bullen Davey on 31 August 1993. The returns for the two years to 30 April 1994 and 1995, and for the final period to December 1995, were made by Dexter & Co on 19 August 1996. 

47	Mr Thomas, then an Inspector of Taxes in the relevant district, began an investigation into the income tax liability of both the partnership and Mr Pooley in September 1991 – that is, shortly after the multiple returns were  filed by the then accountants. That was later extended to all the years currently before me. Mr Thomas gave evidence before me about that enquiry, and provided me with a copy of the notes he took at the time of his investigations. 

The available evidence and records

48	I was shown little of the books and records of the business themselves. By contrast I saw good evidence of the accounts and returns that were prepared for the business and considerable secondary evidence about the various queries of the books, records and returns by the Revenue and the responses to those queries by and on behalf of Mr and Mrs Pooley. Mr Mason had warned the Appellants’ representatives in writing that the Special Commissioner might want to see the books and that he (Mr Mason) would expect them to be put in evidence. But he made no specific application to me, and I made no specific direction on this. I make my decision on the available evidence. I accept the evidence from Mrs Pooley and contemporary documents (including the notes made by Mr Thomas in 1992) that there were cash books and other records about bankings and petty cash. And I was shown photocopies of labels on dresses that I accept as genuine examples of price reduced items. But I also accept from Mr Thomas’s evidence that while he saw a substantial number of records during his enquires, he was not supplied with all the books and records he sought. No systematic attempt was made for the Appellants to satisfy me about the books and records. The approach taken for the Appellants was that all the necessary information had been given to the Revenue.  The evidence before me was essentially anecdotal only. 

49	It was submitted for the Appellants that the records were regarded as adequate on the various routine value added tax inspections of the business. But neither party could, despite a specific request by me, produce any direct evidence confirming that there were no outstanding issues as to the value added tax liability of the business at any stage or of any relevant views expressed by officers on any value added tax inspection. I consider that nothing useful can be concluded from any value added tax aspect to this case. 

50	Mrs Pooley explained in her evidence how the partnership kept track of stock.
There was a twice-annual cycle of purchases by the business, and other businesses, of ladies outerwear from producers and agents. She would have a series of visits to, or from, individuals suppliers or agents in the spring and autumn of each year. She placed orders for the partnership during each cycle with the suppliers or agents whose clothing they stocked. She had to check through the stock held by the business ahead of each of the cycles so that she knew what new stock to order. She also needed to check through in order to reduce the price on old stock and also remove stock from the racks that was damaged or otherwise no longer sellable through the shop. Sometimes this resulted in the price of stock being reduced several times before eventual sale or removal. Because she knew her stock well, she did not need to undertake a stock valuation on any other routine basis to know how the business was doing.   She agreed that she did not make a stock check at the end of the financial yard for the business (April each year). She did not need to because she would each year have made a check shortly before that for her spring buying decisions.

51	Mrs Pooley also gave evidence about how individual items were priced and how a note was kept of what was sold and at what price it was sold. The usual practice was that goods came from suppliers pre-priced, that is, the individual items were pre-labelled by the suppliers with the price at which it was assumed the items would be sold by the retailer. Suppliers of the goods sold by the Appellants were concerned to ensure that their items were sold through appropriate outlets, and that these outlets did not undercut each other. So the Appellants would normally sell at the suggested price.

52	The typical suggested price would be a price marked up from the price paid by the retailer to the supplier or agent by about 100 per cent. Most goods were sold at that price by the Appellants. When an item was sold, the label with stock details and price would be detached from the item by Mrs Pooley or the assistant, and kept by the till for Mr Pooley to record. I was shown photocopies of a few of these labels, but not the records kept by way of a daybook or otherwise of the items sold and the prices obtained. 

53	Mr Bill Daubney also gave evidence for the Appellants. He was the partner in Dexter and Sharpe responsible for the accounts and returns for Mr and Mrs Pooley for the final full two years and then the final period of the business. He accepted that he could not give direct evidence about the accounts of the years previous to that. He also accepted that it was difficult if not impossible to give a correct figure for the profit for a year if the figures for opening and closing stock were incorrect and the correct figures were not known. And he agreed that ideally there should be a stock take each year. However, he took the view that this caused a timing difference rather than a general overstatement or understatement of profits. The end result over a period of years would be the same. He was satisfied with the accuracy of the accounts, save for those issues, and he was satisfied that the clients had not concealed any profits.

Other evidence of profits

54	I do not consider that I can rely to any great extent on two other sources of information put before me. 

55	The first source of evidence on which I rely only to a limited extent is the evidence of the activities of the business before the years in question, save to note two points. I was asked both at the preliminary hearing and at the full hearing to take account of earlier evidence for two reasons. The first was to show the state of the records of the business and also that the taxpayers and their advisers had produced all that could reasonably be required of them by way of records. I have commented on the extent to which I think it right to refer to those records. But more generally I also do not consider that evidence of years not now in dispute is of much weight when looking at years that are in dispute. It is of the essence of the United Kingdom form of income tax that each year stands to be assessed by itself. The other, narrower, reason for looking at those records relates to the out of time assessments. I deal with that matter separately.

56	The two general observations I make are as follows. First, these records show that the business started some time before the first year relevant to these appeals. While there may be adjustments to be made for the final years under the “closing year” rules, there are no adjustments in the years with which I am concerned to be made for any opening years. Second, it is clear that the parties were in dispute before the years of assessment in question, and that the dispute in part reflected Revenue dissatisfaction about the books and records then kept by Mr and Mrs Pooley. I do not go beyond that observation to look at specific issues. I do so not least because various complaints made about the Revenue by the Appellants were put to the Revenue Adjudicator. I was not referred to the report but the Adjudicator, I am told, did not uphold any complaint. Nonetheless, it is clear that the Pooleys could not claim to be ignorant of the approach taken by the Revenue in looking at their business records, even if they did not agree with that approach.

57	The other source on which I put little weight is the collection of documents and schedules put together for the purposes of reaching an agreement during the repeated, but unfortunately abortive, attempts to settle the assessments in dispute.  The power of both parties to settle an income tax dispute under section 54 of the Taxes Management Act 1970 is essentially a contractual power. It gives the Revenue considerable discretion in deciding how best to reach a settlement.  I can see no basis in law for arguing that the Revenue should be held to any offer it makes during any attempt to reach a settlement unless the settlement is actually reached. All the attempts failed in these appeals. I reject those arguments for Mr and Mrs Pooley that sought to rely on documents produced during those negotiations as evidence of the proper assessments to be made by me. However, at the end of the hearing both Mr Mason and Mr Fridlington responded to my invitation to set out their final positions in the light of what each had heard during the course of the proceedings. I accept those submissions, and return to them below, although to some extent they drew on positions taken during previous settlement discussions.  

Were the accounts and returns satisfactory?

58		There are accounts in the papers for the years in question. These were produced in standard form for a small business by those acting for Mr and Mrs Pooley from time to time as their accountants. In fairness to the current accountants, I emphasise that they were not responsible for the accounts for most of the years in question. They were responsible only for the accounts for the final period in 1995 and for the two years of assessment before that final period. The accounts were in each case for the year ended 30 April.

The parties’ contentions
  
59	Mr Mason’s main challenge to each of those sets of accounts, based on Mr Thomas’s enquiries, was that there is no basis in fact for the figures in the accounts for opening and closing stock. The central issue was that there were no proper records of stock made, and no proper valuations for opening and closing stock. They should have kept proper records, and of stock in particular. They did not do so and as a result the accounts and returns were inaccurate. They were in substance back-worked from an estimated gross profit rate of 35 per cent and were not true accounts. In other words they worked backwards from a pre-determined answer to provide the evidence for it. The Revenue had not accepted them and had had, for timing reasons, to raise protective assessments to preserve its position based on its own best estimates of the true profits for the years under enquiry. He raised other questions about the accuracy of the accounts, for example about the inclusion of private expenditure together with business expenditure. But he did not pursue those points to the extent he pursued the issue of the figures for opening and closing stock. 
 
60	Mr Fridlington confirmed that he stood by the returns made by his firm for the Pooleys. With regard to the earlier years, he accepted that the stock figures were open to question, but in his view there was no evidence to show that, taken as a whole,  takings had been underdeclared. The stock values had been altered, with agreement of the Revenue, when settling the accounts of previous years not now in question. Those figures were then used for the sets of accounts now under appeal. Any error was therefore one based on agreement with the Revenue. 

61	Mr Fridlington also contested the Revenue allegation that the Pooleys had not produced adequate books and records. They had produced everything necessary a long time ago. All the information sought had been produced by 1994 at the latest. Taking those points together, his central contention was that the accounts submitted had not been broken. Neither directly nor by reference to the various indirect tests used had the Revenue shown that the original accounts were wrong. Attempts had been made to do this on a number of bases, including a review of his clients’ capital position, a means test, and by reference to the gross profit percentage ratio of the business. But none of these showed that the original accounts had underdeclared profits. Mr Thomas had misunderstood the nature of the Pooley’s business and how they handled the stock figures.  

My conclusions about the books and records 

62	 I am unable, on the basis of books and records produced to me, to accept that they establish a reliable level of profits for the partnership year on year. This is because I find that there is no direct reliable evidence of contemporary records of stock valuations, stock takes, or records from which to derive reliable stock values. 
Indeed, I was not shown any systematic record of stock or of its value either during the course of a year or at any specific date in a year. Nor was I satisfied by reference to any specific systematic records of the answers to other questions raised by the Revenue about outgoings such as petty cash. However, having heard from Mr Daubney, and subject to the issue of stock valuations, I accept the accounts produced by Dexter and Sharpe for the Appellants as satisfactory accounts for the two final years of assessment.

63	Save for that, my views of the profits of the business are based on the oral evidence of Mrs Pooley and of Mr Thomas, the inspector responsible for inspecting those records, together with the indirect evidence in the accounts and schedules produced by both parties.  Of course, as Mr Fridlington rightly stated, income tax law did not require specific forms of books or records be kept at that time. But I must, nonetheless, be persuaded on the basis of evidence that the estimated assessments now under appeal are wrong. And the burden of doing that is firmly on Mr Fridlington save for the out of time assessments. 

The out of time assessments

64	Was the Revenue entitled to make out of time assessments on the partnership and on Mr Pooley for the earlier years under appeal? Like every other aspect of this case, there was no agreement between the parties about even the starting point for a decision on this question. I have set out the issues that arise from section 35 of the 1970 Act earlier in this decision. So the question that now arises is whether Mr Mason satisfied me on the balance of probabilities that the out of time assessments were properly made. 

65	The assessments to which this applies are the three assessments against Mr Pooley, and the assessments against the partnership for 1987-88 (further assessment), and 1988- 89 (further assessment).

66	Mr Mason contended that the Revenue clearly had authority to go beyond the six year time limit. All assessments were within the further 20 year time limit.  No fraud was alleged in this case against either Mr Pooley or Mrs Pooley. But there was clear evidence of negligence by them or by their agents. That could be established readily. Mr Pooley, or his agents, had submitted all his returns years late. And there were omissions in each of them when originally made that had been identified by the agents themselves. The accounts presented for the partnership for the years in question were also late and were seriously incorrect. Further, the failure of both Mr and Mrs Pooley to keep any proper stock records was such as to throw the accounts submitted into question. The accounts and returns submitted were little better than guesses. The failure of the Appellants and their agents to provide better accounts or returns was in his view clear evidence of negligence.

67	Mr Fridlington submitted that his clients had not been at fault at that time. They had produced all the information needed to their agents or to the Revenue or both. Rather, it was the Revenue that was at fault then in withholding income tax overpaid in respect of earlier years to which the Appellants were entitled by way of a refund of an overpayment. The accounts had all be submitted in good faith. The appellants had done exactly what was expected of them. 

68	Having heard all the evidence, I accept Mr Mason’s submissions and am not persuaded by those of Mr Fridlington. I am not looking at the latest years of assessment but the years before 1990. I agree with the Revenue argument that it is clear that those earlier assessments were not only very late but also inaccurately. The corrections necessary to deal fully with Mr Pooley’s assessments were not in dispute. But they showed that the original returns were not only late but inaccurate in a way that indicated a careless approach to the collection of the necessary information for the returns. For example, it was agreed that property income was entirely omitted in the earliest of the assessments. That was an omission of a head of income of which Mr Pooley and his agents were or should have been aware as one liable to tax. I also accept that the earlier partnership assessments were again both very late and inadequate. It was accepted that the stock figures were little better than informed guesses made long after the event, but that had not been explained to the Revenue nor any other attempt been made to get more reliable figures for the accounts and returns. The conduct of the agents, if not of the Pooleys themselves, in preparing and submitting those returns was in my view below an acceptable level to such an extent that it was, on the balance of probabilities, if not wilful conduct then clearly careless, or negligent, conduct. The Appellants are responsible in law for that, not the Revenue.   

69	I therefore accept the out of time assessments as validly made on the partnership.

70	The same factors apply to the validity of the out of time assessments on Mr Pooley as those on the partnership. There were clear accepted errors in them and the returns were made significantly late. Those assessments must also stand. 

71	I review whether they were made in the right figures along with the other assessments.
 
Evidence of the profits 

72	The parties presented evidence about the proper amounts of profit for each year thematically rather than year by year.   I approach the assessments on the basis that I do not accept the accounts and returns produced by the Appellants because I do not accept, on the balance of probabilities, that I have been shown that the figures for opening and closing stock are correct.  To that extent, the Revenue are fully justified in having made enquiries into all the relevant years and also to have made at least some protective assessments for those years in the absence of a settlement. Questions were also raised about the adequacy of the records of expenditure in the accounts. However, these objections were not pursued to the same extent by the Revenue and I am prepared for current purposes (subject to the issue of capital allowances which is to be handled separately) to accept the figures for expenses in the accounts and returns. 

73	The non-acceptance of the accounts and returns does not thereby establish that those protective assessments were correct. My approach to the assessments is dictated, as I have set out above, by section 50 of the Taxes Management Act 1970, and I must therefore look to any other evidence that is available.

74	During the course of the long negotiations between the parties, and latterly at the direction of the Special Commissioner, several indirect approaches were used to seek to identify the net profit of the business. These included approaching the needs of the Appellants by way of a means test, by way of an estimate of the overall capital of the Appellants and its increases and decreases, and by way of calculating the profits of the business by reference to the appropriate gross profit margin of the business.   

75	Both parties addressed me on the issues involved in establishing the profits of the business. I also invited both parties to restate their positions at the end of the hearing, in the light of all the evidence heard from both sides and any indications from me during the course of the hearing. It is in my view more useful to take the considered views of both parties after they had heard the case fully for the other side as the departure point from which to reach my decision rather than rehearsed the full submissions made.  

76	Mr Fridlington’s final position was that it had not been shown that the Appellants had concealed any taxable profits. He accepted that they may have allowed profits to shift from one year to another by reference to unreliable opening and closing stock figures. But he adopted evidence from his partner and pointed out that the final stock figure at the end of 1995 was clearly zero, that stock figures before the current period had been agreed with the Revenue, and that therefore any errors in any individual year on stock figures would cancel out over the life of the business. He maintained that any attempt to correct the figures for individual years by reference to capital or to means-testing was wrong. He was pleased that during argument the Revenue had accepted the position on capital statements. But he would accept correction of the assessments by reference to an appropriate gross profit margin. In his view the evidence he had heard from both Mr Thomas and Mrs Pooley suggested that a gross profit margin of somewhere in the region of 39 per cent or 40 per cent would reflect the overall position.

77	Mr Mason’s final position was that the profits for the earlier years under appeal were undoubtedly too low. The additional assessments were soundly made. And he did not accept that the Appellants had shown that the additional assessments were wrong. He vehemently rebutted the allegations that Mr Thomas or any other officer had acted in bad faith at any stage in the proceedings. There were sound reasons for all the assessments being made. But he was prepared to accept that the later years of assessment were subject to protective assessments that were to some extent guesses and that these may need reconsideration. As a general approach, he thought that could be done by reference to an appropriate gross profit margin. He would suggest that that figure ought to be 43% based on all the evidence he had seen and the analyses of the figures in the papers. 

Setting a gross profit margin

78	I have accepted that the individual accounts and returns are unreliable because of the stock figures, and note that the Appellants do not really dispute that. But I also accept that the final estimated assessments are, while made in good faith, little better than guesses, and equally note that Mr Mason did not really dispute that. So this is not in my view a case where I can simply conclude that the Appellants have not satisfied the burden of proof on them under section 50 and allow the assessments to stand under subsection (6). 

79	I test that by the final full year in particular. That is the return for 1994-95, based on the previous year’s accounts. The business was being wound down for a variety of reasons, not least the Appellants’ ages and health. The stock was being wound down, and that would inevitably cause the profits to dip. But the estimated assessment was ratcheted up from an estimated £30,000 for the previous year to an estimated £50,000 for that year. And that is substantially higher than either any return or any estimate for any previous year. Given that the business is that of a small clothes shop, although one selling quality goods to the upper part of the market, I have difficulty in seeing any sound basis for that assessment. It has the flavour of an assessment to force an appeal rather than one entirely grounded in the evidence. 

80	I have some sympathy with the argument for the Appellants that stock errors in this particular single-site small retail business may generate timing errors that to some extent are self-cancelling over time rather than errors that generate understatements of profit. (My sympathy in terms of the determination of each separate appeal must be severely tempered by the requirement of which the accountants, if not their clients, were fully aware that flow from income tax being an annual tax).  I also accept from Mrs Pooley’s evidence that her approach in setting the retail prices was usually to use the suggested price from the supplier or agent that was based on a cost-plus, or mark-up, basis from the price at which she purchased the goods. That mark-up usually broadly approached 100%. 

81	I also accept that not all goods were sold at the original asking price, and that a few goods were disposed of otherwise than by sale or were stolen. I also accept that the pricing policy of the business was largely dictated by outside influences with regard to the full sale price to be realised on the sale of an item. But while I was shown individual examples of labels from goods sold at a reduced price, I have not seen any reliable evidence on which I could take an overall view of the extent of price reductions, write-offs or stock losses or of the overall level of mark up from purchase price to sale price. Nonetheless, the nature of the partnership business and the pricing regime actually used by the Pooleys suggest that the use of a gross profit margin analysis will provide both an optimal, and a fair, approximation to annual profits in this case.

82	The gross profit margin is the measurement of gross profit by reference to the turnover, or proceeds of sale, of  goods sold and the purchase price or cost of the goods purchased, expressed as a percentage. This has the value of being a general financial management tool for any business, and is also one where there are published figures of average gross profit margins for particular kinds of business. In this case it is also a direct reflection of the approach taken to setting the retail prices of the goods by reference to a mark up from the purchase prices. Further, there was evidence from Mrs Pooley, and no clear contrary evidence, that the level of mark ups of the business was externally generated and broadly the same year on year. And neither she nor Mr Thomas gave any evidence of any significant changes in the business year on year that would affect the gross profit margin. Rather, the evidence would suggest that there might be a slow drift down in the gross profit margin as the competitivity of the store and of its stock declined. So I would expect there to be some broad consistency, with perhaps a downward trend, in the gross profit margins of this business year on year.

83	Mr Fridlington submitted some limited evidence of gross profit margins for the retail clothing trade generally. However, I agree with Mr Mason that, without a more detailed exploration and analysis of the issues and the available data, that evidence was not particularly persuasive. Rather more persuasive was the analysis of the actual gross profit margins for the business as reflected in the accounts submitted and in the analyses of the figures undertaken by the Revenue during negotiations with the Appellants.  But, again, I do not know to what extent those were back-worked by the then accountants from other data so cannot rely on the history of the margins recorded.
  
84	It is therefore useful to look at the positions taken by both those acting for the Appellants and those representing the Revenue at the end of the hearing, as against positions taken at various earlier stages in the assessments and appeals. I have reflected these in the table in the Appendix to this decision. 	The information in the table in the Appendix is drawn from data in the papers that was presented by the Revenue to those then representing the Appellants some time ago, with some calculations (in particular the running totals) added by me.  

85	The patterns shown in the Appendix are to some extent counter-intuitive. They show the declared profits of the business holding up very well towards the close of the business. That is contrary to the evidence I heard from Mrs Pooley, and not seriously questioned by the evidence of Mr Thomas, about the increasing difficulty in making a good profit from the business. That difficulty arose from the business location, from the growth in competition locally and in terms of the products being marketed, and from the age of the Appellants themselves. But the assessments assume, as do the later accounts, an increased gross profit margin for the business that rose from the region of 35 per cent up to and including 1989-90 to an unlikely 65 per cent in 1993-94. 

86	The totals also emphasise the extent to which the Revenue resorted to figures that were little better than guesses – or were intended to force an appeal - for, in particular, the last two full years of assessment. The further analysis by the Revenue based on its own approach to mark-ups, expenses, and gross profit ratios reflected in its preparation of the tables in the papers itself suggests that its later estimated assessments are serious overstatements. I cannot, in the light of that, simply allow all the existing assessments to stand. 

87	I have set out in the Appendix various figures related to the gross profit margin. Those figures show that an overall determination of profits at 43 per cent would impose tax at an overall level roughly equivalent to the returns made by the Appellants. That was Mr Mason’s final position, although he did not seek to support it in that way. The figures found in the table by applying a 40 per cent margin table are those that would follow from the mid-range of the margins suggested by Mr Fridlington. They produce a significantly lower figure than both the Appellants’ own returns and those of the Revenue’s analysis most favourable to the Appellants. 

88	It is difficult to judge the best figure for the gross profit margin in the abstract in this way. But I note that the pattern of returns suggest that the 35 per cent being shown during the earlier years was too low. And if Mrs Pooley’s evidence about mark ups is accepted, then the starting point is a mark up of the order of 100 per cent or, in converse form, a margin of the order of up to 50 per cent. However, given that not all stock was sold at that figure, and that Mrs Pooley also gave unquantified evidence of sales of items at lower mark ups, any figure much above 45 per cent is clearly going to be too high. I would, for the reasons given above, also expect more year on year consistency than the accounts actually show. 

89	Nonetheless, I consider that the gross profit margin basis of analysis is the form of analysis that is most probably going to generate a sound figure on which to base the profits of the business in this case, both year on year and by reference to individual years. Further, for the reasons given, and as a matter of the practical necessities of a decision of this sort, I consider that it is appropriate to set one gross profit margin for the entire period. What margin? There is an obvious temptation to “split the difference” between the two parties’ final figures. I reject it. I think the fairest answer to achieve a year on year result that reflects the evidence but deals with the acceptance by the Appellants that the existing accounts suffer from errors of timing rather than levels of profitability is to accept the final position on which Mr Mason rested his submissions, namely a 43 per cent gross profit margin, as stated in column K in the Appendix. 

90	That approach has an unusual outcome. It would require that the out of time estimated assessments for 1987-88 and 1988-89 be increased, and that the assessments for 1989-90 and 1990-91 also be increased. But later assessments would be decreased. And the final assessment under appeal, for 1994-95, would be decreased by nearly 90 per cent. 

91	I therefore do not consider that I should accept the 43 per cent gross profit margin as applying without more to all the assessments. The first two years assessments are out of time assessments by way of further assessments on a previous assessment made final. The burden of proof of these is on the Revenue, not the Appellants. Applying both section 35 and section 50 of the Taxes Management Act, my view is that the estimated assessments should be confirmed to stand without adjustment. I consider them to have been made with best judgment at the time of assessment, and that subsequent considerations, including the long term gross profit margin, do not upset those figures when assessed in the light of the probabilities from the evidence.  

92	For the later years I decide that the figures produced by the application of a 43 per cent gross profit margin to the declared turnover for each of the years is the best approach. Based on the analysis adopted and followed in the appendix, that produces the figures in column K of the appendix. 

93	As a check against the overall position of the partnership established by those decisions, I find that the total taxable profits for the years covered by my decisions comes to £133,476.  That compares with the total shown under the various columns in the appendix. Of course, income tax is an annual tax so in a strict sense the totals are irrelevant. But in my view it is a useful check in a case of this sort where the chief problem is the shifting of income by relation to time. I note that this produces a total of assessments that is less than the total as returned by the Appellants. But it also shifts the profits figures on which the assessments are to be based back in time, to the detriment of the Appellants when interest is calculated. Given the basis on which the accounts were prepared, I consider that is the result that one might expect from a better analysis of all the evidence. 

My decision

94	For the above reasons, I confirm the further assessments against the partnership of Mr and Mrs Pooley for the years 1987-88 and 1988-89, and I dismiss their appeals against those assessments.

95	For the above reasons, I formally determine by reference to section 50(6) and (7) of the Taxes Management Act 1970 the assessments of the business profits of the partnership of Mr and Mrs Pooley for the subsequent years in the following sums:

1989-90	£16,451	
		
1990-91	£19,496	
		
1991-92	£16,934	
		
1992-93	£13,716	
		
1993-94	£7,178	
		
1994-95	£5,097	

96	These assessments are subject to adjustments to be agreed between the parties for capital allowances for each respective period. They are also to be subject to any adjustment to be made in respect of 1993-94 and 1994-95 because these are the closing years of the business. They are also to be used as the assessments on which any assessments to liability to National Insurance contributions on Mr Pooley and Mrs Pooley are to be made. However, although I heard no argument on the point, I draw the attention of the parties to the need to check whether, and when, the ages of Mr and Mrs Pooley became relevant to a cessation of liability to contributions.  

97	Turning to the assessments made on Mr Pooley alone, I formally confirm the assessment of additional income on him of £548 for the year 1985-86.

98	As I have confirmed the assessment on the partnership for 1988-89, I also confirm the assessment on Mr Pooley for that year, and dismiss his appeal against that assessment.

99	I allow the appeal against the assessment for 1989-90 and direct the Commissioners to reassess Mr Pooley for that year on the basis of the assessment on the partnership determined by me in this decision. That is to take account both of the agreed adjustments to be made by the parties as noted above, and also the agreed corrections of errors of which both parties notified me at the hearing.

100	Both parties are at liberty to make application to me, jointly or separately, to clarify any aspect of this decision in so far as it leaves the precise figure to be assessed unclear, and to ask for a formal determination on the questions of capital allowances, National Insurance contributions, or other adjustments agreed but not quantified, or to be agreed, by the parties. 

101	Costs are only awarded by a Special Commissioner if it is determined that the behaviour of a party is wholly unreasonable. I do not consider that the conduct of the Revenue or its officers was shown at any stage to have been wholly unreasonable in connection with the hearing. I was not asked by the Commissioners to consider an application for costs against the Appellants. I make no order for costs.    

 			         DAVID WILLIAMS
SPECIAL COMMISSIONER

RELEASE DATE: 8 March 2006

SC  3110/97
SC 3111/97

Appendix

R And J M Pooley v HMRC	Appendix to decision by the Special Commissioner 

Notes: 
1	Figures drawn or calculated from figures in tables in Bundle B at 818, 821, and 1034 
2:	Figures do not take account of some minor adjustments such as capital allowances that were not in dispute at the hearing
3:	Gross profit ratios (GPR) calculated from gross profits to previous 30 April on data in document 818 not challenged at hearing and not repeated here
4:	“Revenue position on reanalysis” is the “net profit” figure presented on document 818 following the reanalysis to determine better figures for opening 	stock, closing stock and cost of sales, and therefore for gross profits and GPR, on stated Revenue assumptions
5:	“Revenue position if 43% GPR” is drawn directly from document 821
6:	“Pooley position if 40% GPR” represents application of 40 per cent GPR to above figures as suggested at hearing

A.
Year of assessment
	B.
In time?	C.
Gross profits to previous 30 April	D.
Net profit reported	E.
Original assessment (not under appeal)	F.
Additional assessment
(under appeal)	G.
Estimated full assessments (under appeal)	H.
Revenue position on reanalysis of accounts	J.
GPR based on accounts submitted	K.
Revenue  position if 43% GPR	L.
Pooley position if 40% GPR	
1987-88	No	32543	17161	15699	4000	[19699]	23424	34.4	26432	23208	
1988-89	No	34497	14531	17237	4500	[21737]	19025	35.0	22217	19319	
1989-90	Yes	36930	11935			18000	17206	35.0	19162	16451	
1990-91	Yes	33843	23917			20000	19815	44.6	22388	19496	
1991-92	Yes	31619	22172			25000	17168	45.6	19732	16934	
1992-93	Yes	42966	18589			20000	13589	46.1	16102	13716	
1993-94	Yes	42536	22233			30000	6836	65.0	8982	7178	
1994-95	Yes	36683	13512			50000	5614	48.2	5614	5097	
Close	N/a	-	-			-	-	-	-	-	
TOTALS			144050			204436	122677		140629	104465