ASSESSMENT – Bonus payments received by Appellant – Whether  accounted for – Whether best judgment – Appeal dismissed

LONDON TRIBUNAL CENTRE

	THE HUNTSMAN HOTEL	Appellant

	- and -

	THE COMMISSIONERS OF CUSTOMS AND EXCISE	Respondents

				Tribunal:	MISS J C GORT  (Chairman)

Sitting in public in Bristol on 16 July 2003

Mr A C Moles, a partner in the Appellant business, for the Appellant

Miss Rebecca Haynes, counsel, instructed by the Solicitor for the Customs and Excise, for the Respondents

© CROWN COPYRIGHT 2003

DECISION

1.	This is an appeal against a decision of the Commissioners notified to the Appellant by a notice of assessment dated 11 October 2000 to raise an assessment in the sum of £2,896.  By a notice of amendment of assessment dated 21 March 2001 the assessment was reduced to the sum of £1,757.  

2.	The only issue before the Tribunal was whether or not the Appellant had accounted for value added tax on bonus payments it had received from Consortium Hotels and Inns Ltd.  

The facts

3.	The Tribunal heard evidence from Mr A C Moles a partner in the Appellant business and from Miss D L Fracchiola, an officer of Customs and Excise.  

4.	The Appellant carries on business as a public house and restaurant.  It was a partnership which was registered for value added tax with effect from 1 July 1986.  There had been no previous disputes with the Respondents as to value added tax. 

5.	On 17 August 2000 Miss Fracchiola visited the Appellant and examined the books and records.  She was unable to identify whether value added tax had been accounted for on the bonus payments received by the Appellant from Consortium Hotels and Inns Ltd.

6.	The officer, on 18 August 2000, wrote to Consortium Hotels and Inns Ltd requesting details of the bonus payments made to the Appellant and by a letter dated 25 August 2000 they provided to her a schedule of the payments they claimed to have made on a monthly basis between July 1997 and December 1999.  This schedule showed that payments had been made each month in amounts varying between a minimum of £98.62 in January 1999 to a maximum of £584.93 in December 1999.

7.	These bonus payments were made in respect of the barrelage supplied to the Appellant.  Prior to July 1997, instead of paying a bonus, Consortium had allowed the Appellant a discount on each order.  Mr Moles was very unhappy about the change in the procedure, but at about this time his wife, who was also a partner in the business, had a stroke.  His son, who was the manager of the business, was involved in a difficult divorce and was off work for long periods, and Mr Moles was unable to devote as much time to the business as he would normally do.  He did not therefore take steps to change the new arrangement, which was one to which he had never agreed.  Subsequently, however, Consortium did revert to the original discount method.

8.	The schedule of payments makes no reference to value added tax.  It was accepted by Mr Moles in evidence that the statements he received from Consortium had in fact contained a note to the effect that the sums were VAT inclusive. This note was said to be in very small writing and he had not been aware of it at the time.

9.	Mr Moles’ procedure for doing his accounts had been set up for him many years previously by Touche Ross & Co, accountants.  He had always followed the same procedure, but at the time the procedure was set up, he was not receiving the bonus payments in question.

10.	The Appellant’s daily gross takings book shows seven columns setting out on the left hand side the date followed by the total, then `bars’, `restaurant’, `bar food’, `hotel rooms’ and `telephone’. The restaurant column has a figure which appears only once a week whereas the columns for the total, the bar and bar food show daily entries. The hotel rooms and telephone show figures which, presumably, relate to amounts as they arose.  

11.	It was Mr Moles’ evidence that he would do a reconciliation each month, totalling the money banked and the amount of cash spent, and his takings were worked out on that basis.  He could not specifically remember accounting for the bonus payments, however, it was his opinion that he must have accounted for them because all moneys paid in were accounted for on a monthly basis.  He had no recollection of specifically including the totals for the bonus payments, but he did remember that he did not receive a regular cheque from Consortium in respect of them.  On many occasions he had to telephone Consortium to ask for the payment.  He did not consider that the schedule produced by them reflected the amounts they had paid over each month, but he was not in a position to state when and how much money had been paid.

12.	Miss Fracchiola had written to Mr Moles and his partners on 11 September 2000 in respect of her visit of 17 August 2000.  In that letter she referred to various items in the Appellant’s VAT returns which she considered to be incorrect.  In particular she stated:

“It was noted that an adjustment for SWALEC was made for £3418.36 VAT in the period ending 6/00, as VAT had been calculated at 5% and not 17.5% on your domestic electricity which is also used for business usage.  An example of a domestic invoice is now required from SWALEC in confirmation of the VAT charged.

In the period ending 12/97 per Invoice No.25 in November 1997 it was noted that VAT of £1,139.04 was claimed on a fitted bedroom described in the books and records as being for a family room, as this was not for business purposes no VAT is allowable.”

13.	Following further correspondence between the parties by a letter which contained the notice of assessment dated 11 October 2000 the assessment was issued in the sum of £2,896.  By this letter Miss Fracchiola continued to maintain that the fitted bedroom was used by the family and was not for business use.

14.	By a letter dated 16 October 2000 Mr Moles wrote to Miss Fracchiola explaining that the fitted bedroom was for use by customers and enclosing evidence from the Wales Tourist Board to show that the description “family room” was commonly used in the hotel industry.  By a letter dated 1 December 2000 a senior officer of Customs and Excise wrote to the Appellant stating that the assessment would be amended in respect of the input tax disallowed on the “family room”.  This was subsequently done and the assessment was reduced by £1,139.  

15.	Mr Moles very properly accepted that at the time in question his bookkeeping had not been of the best.  But he described things as being “in turmoil” at that time.  He accepted that he ought to have accounted for the bonus payments separately but he had never thought of it at the time.  

16.	In her evidence Miss Fracchiola had referred to a “normal trading pattern” in the business.  It was her opinion that if Mr Moles had accounted for value added tax on the bonus payments, then the only place they could have appeared would have been in the weekly figure for the restaurant.  She concluded they had not been because that would have left figures which would have been very low for the trade.  She analysed three months of the Appellant’s figures for the period February, March and April 1999.  She did not take account of the significant variation in the figures from Consortium, nor did she attempt to compare the pattern in Consortium’s figures with the pattern in the Appellant’s trade.  For example the figure for December 1998 for Consortium is £527.84, for January 1999 (as stated above) it is £98.62 and for February 1999 it is £322.26.  It is noticeable that the three months which she did compare, namely February, March and April 1999 all show rather similar amounts, the figures for March and April being £344.48 and £448.66 respectively.

17.	It was Mr Moles’ view that the Consortium figures could not be right since the very low figure shown for January 1999 would have been in respect of the trading over December 1998, and December was traditionally a very busy month.  

The legislation

18.	Section 73(1) of the Value Added Tax Act 1994 states:

(1)	Where a person has failed to make any returns required under this Act (or under any provision repealed by this Act, or to keep any documents and afford the facilities necessary to verify such returns or where it appears to the commissioners that such returns are incomplete or incorrect, they may assess the amount of VAT due from him to the best of their judgment and notify it to him. 

19	The Value Added Tax Regulations 1995 provides as follows:

31-(1)	Every taxable person shall, for the purpose of accounting for VAT, keep the following records –

(a)	his business and accounting records,
(b)	his VAT account, 
( c)	copies of all VAT invoices issued by him, 
(d)	all VAT invoices received by him
…

32-(1)	Every taxable person shall keep and maintain, in accordance with this regulation, an account to be known as the VAT account.  

The Appellant’s case

20.	Mr Moles accepted that he could not produce any documentation to show that the bonus payments had been accounted for.  He relied on the fact that it was his method to total up all payments received and include those in his figures.  He pointed to the fact that he had had no disagreements or difficulties with Customs and Excise until Miss Fracchiola visited.  He pointed to the errors she had made in respect of  the electricity and the family room.  He had a strong feeling that he had not been treated fairly.  

The Respondents’ case

21.	The Respondents relied on the Value Added Tax Regulations 31 and 32, and section 73(1) of the Value Added Tax Act 1994.  It was submitted that the Appellant’s returns were incomplete or incorrect and therefore they were entitled to assess the amount of value added tax due from him to the best of their judgment and notify it to him.

22.	In this case the Appellant had an explanation as to why his business was not run as well as it could be, but that did not entitle him to impugn the assessment.  The Respondents in the circumstances had a discretion whether or not to issue an assessment.  

Reasons for decision

23.	It is unfortunate for the Appellant that the time of maximum disruption to the partners in the business coincided with the decision by Consortium to change their method from allowing a discount to the Appellant to sending out bonus payments.

24.	The Appellant’s records do not specifically show that the bonus payments were accounted for.  It would have been open to the Commissioners to take account of the previous record of the business, and to accept Mr Moles’ word that he had accounted for those payments, but they did not do so.  They were perfectly entitled to require him to comply with the provisions of the Act and to have kept a proper record.  This he had not done.  The issuing of an assessment is a matter of discretion for the Commissioners and in the present case it cannot be said that no reasonable body of commissioners could have acted as they did, in that they failed to take account of relevant matters or took irrelevant matters into account, and the Tribunal is not able to interfere with that discretion.

25.	In all the circumstances this appeal is dismissed.  No order for costs. 

MISS J C GORT
CHAIRMAN

RELEASED:

LON/01/359