VAT – assessment – whether to best judgment – whether quantum an indication – agreed reductions negotiated after initial hearing – extent of allowance for unused tickets

LONDON TRIBUNAL CENTRE

	LISANI HUSSEIN TRADING AS OMAR DRY CLEANERS	Appellant

	- and -

	THE COMMISSIONERS OF CUSTOMS AND EXCISE	Respondents

			Tribunal:	JOHN CLARK (Chairman)
					RAY BATTERSBY

Sitting in public in London on 24, 25 February, 20 October 2003

Mr M Kemal of M. Kemal & Co, Accountants, for the Appellant

Mr Clive Palmart for the Respondents

© CROWN COPYRIGHT 2003

DECISION

1.	There are two issues in this appeal. The first is whether the disputed assessment was made to the Commissioners’ best judgment. The second is, if it was so made, whether the amount of the assessment is appropriate having regard to the information provided to the Commissioners by the Appellant or on his behalf.
2.	This appeal was originally listed for hearing over two days. At the end of the second day, it became apparent that there were various matters that needed to be resolved between the parties, and it was thought that the dispute between them might be fully settled following discussion. We therefore adjourned the appeal without setting a further hearing date. The discussions took place. On 21 March 2003 Mr Palmart on behalf of the Commissioners wrote to the General Office at the Tribunal explaining that one area of dispute remained, and asking which of two options this Tribunal wished to adopt. The choice was between setting a further hearing date for the parties to make their submissions orally, or the parties providing submissions in writing. For reasons that remain shrouded in mystery, it took a month for this letter to be referred to a full-time chairman (Dr Brice). Her view was that this should be referred to the present Chairman. Again for reasons that remain unexplained, it took a further month for this to be done. Given this loss of time, listing the appeal for a further day’s hearing proved an extremely difficult exercise, mainly due to Mr Palmart’s imminent departure from his post with the Commissioners. (He has since moved to another post with them.) The resulting delay in resolving this appeal is unfortunate, although it has not caused us undue difficulty in reconsidering the matters put before us during the initial two days.
The law

3.	Section 73(1) of the VAT Act 1994 (“VATA 1994”) provides:
“(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.”

The facts

4.	The evidence provided to us consisted of the Commissioners’ bundle of documents, and the oral evidence given by Mr Lisani Hussein (“the Appellant”), by the Appellant’s Accountant Mr M. Kemal, and by Mr R.E.R. Piper, a Senior VAT Officer, for the Commissioners. The bundle contained a Statement of Case supplied by Mr Kemal on behalf of the Appellant, with supporting documents, and the Commissioners’ Statement of Case and other documents, including the Officer’s Notes.
5.	The Appellant’s business is located in Walworth Road, London SE17. It is a small, family-run dry cleaning business. The Form VAT 1 showing the Appellant’s application for registration was dated 21 February 1997, and indicated that the business had been transferred as a going concern on 2 January 1997, the previous owner being a company. No indication of the previous VAT registration number was given. However, the Appellant stated that he had been in business for 21 years, and we have taken this as being in relation to one or more other registrations, either personally or working together with his wife.
6.	On 10 September 2001 Mr Piper went to the Appellant’s premises to make a test purchase by depositing an item for cleaning. He had selected the Appellant’s business for examination because the level of takings appeared to be fairly low. He made various observations. He returned on 17 September 2001 to collect the item, and (as far as he was able to do so, given the location of the racks of dry cleaning awaiting collection) made further observations relating to the tickets on display.
7.	Following this sample transaction, Mr Piper wrote a letter to the Appellant proposing a visit to the premises. As far as he was concerned, this would be a routine visit. There was a dispute as to whether he had told Mr Kemal that he did not need to attend. In any event, Mr Kemal did not attend. Mr Piper carried out the visit to the Appellant’s premises on 3 October 2001. He arrived at 11 a.m., but did not record his time of departure. He thought that this would have been at about 4 p.m., but could not be definite about this. The average interview would normally take about one hour, and going through three to four years of records could take three to four hours. He had not recorded times, as this was not particularly important. The importance was in the contents of the information. Mr Piper kept notes of matters considered at the visit. He had prepared a series of headings in the notebook in advance of the visit, and had added his comments during the visit. The records that the Appellant had provided were far from satisfactory; Mr Piper described them as “fairly incomplete”. In relation to sales records, he would normally have expected to see evidence of individual transactions, either a till roll or copies of paid tickets, as well as a Z reading. In the Appellant’s case, there were no records of the individual transactions carried out. When questioned, the Appellant had said that tickets were not rung into the till during the day at the time of payment; they were added up and rounded at the end of the day as a single figure and a Z reading. Mr Piper carried out various other checks, as mentioned in his subsequent letter to Mr Kemal.
8.	This letter, dated 12 October 2001, indicated Mr Piper’s view that takings had been substantially misdeclared since registration had taken place at the instigation of his colleagues. (We return to the question of the registration of the business later in this decision.) In support of this view, he drew attention to the following checks of the Appellant’s records carried out during the visit:
(1)	Ticket number analysis; after totalling the numbers before and after the till was re-set, the summary showed 19,803 in 751 days, or 184 per week, and on the basis of an average ticket value (see (3) below) of £14.54, this produced expected takings of £2,675 per week, or £34,775 per quarter.
(2)	Grand Total: until the till had been re-set, this had been included on Z readings. Between 11 June 1997 and 7 April 2001 the expected takings were therefore £546,651.63, as compared with the takings of £208,141 actually declared.
(3)	Average ticket price: a ticket issued on 11 June 1997 had been numbered 71,498 and one on 7 April 2001 had been 109,084. Accordingly, 37,586 tickets were issued for an amount of £546,651.63, equating to £14.54 per ticket. Although each time a Z reading was taken, a ticket number was issued, slightly inflating the total number of tickets, the slightly lower number of tickets issued would slightly increase the average ticket value. For the purposes of these calculations, this had therefore been ignored.
(4)	Uncollected cleaning: by examining the earliest and latest ticket numbers on items deposited in the week to 2 October 2001, he concluded that 262 tickets had been issued during that week. The average value of the 99 items remaining uncollected was £14.13 per ticket. At this value, 262 tickets represented an estimated total of £3,702.06. The average declared takings for the four weeks ended 29 September 2001 had been £1,387.50.
(5)	Collected cleaning: taking into account the ticket numbers on items awaiting collection and the dates on those tickets, this was the type of staggered level of collection that it would be reasonable to expect, indicating no fundamental error in ticketing.
(6)	Z readings: examples of garments deposited and collected in two recent weeks taken from Z readings (the collected figures having been entered as one amount from the end of day Cash rather than individual amounts during the day) showed major differences. For the week ended 30 June 2001 the total deposited was £1,1918.24, and the total collected was £901. For the week ended 14 July 2001 the total deposited was £2,266.22, and the total collected was £897.50.
(7)	Takings book: the Appellant had not been in the habit of retaining any used tickets once cleaning had been collected, or any other means of recording individual transactions to support the level of declared takings, as legally required. Monies received were not rung into the till: instead, it was claimed that the Daily Gross Takings figure represented the “Cash Taken” after it was “rounded” to produce the figure entered into the Takings Book. The calculations [reproduced above] indicated that true takings were far greater than would have been achieved by mere “rounding”, and even if (as Mr Piper did not accept) this had been the case, it was totally unacceptable for rounding to produce amounts running into hundreds for each day.
(8)	Staff thefts: at the interview, Mr Piper had asked the Appellant whether any major errors had occurred that might have affected takings, and had given as examples burglaries and staff thefts. The answer had been that none had occurred. Later, after Mr Piper had carried out his checks and told the Appellant of his belief that substantial misdeclaration had been occurring, the Appellant had said that he had been ill for the approximate period 1998-2000 and was himself aware that regular staff thefts were occurring that he had been unable to prevent due to his illness, and that even in 2001 he had been away for two to three days a week and had only recently been fully back in charge.
(9)	After drawing attention to a number of other matters, Mr Piper summarised the discrepancies by referring to the estimated percentages of takings declared, by reference to a number of the above headings. Based on (1) above, the percentage was 36.37%. Based on (2) above, it was 38.07%. Based on (4) above, it was 37.47%. Based on (6) above, it was 42.98%. Using four different calculations covering periods involving dates as early as 11 June 1997 and as late as the day before the inspection, he had arrived on each occasion at a misdeclaration between 57% and 64%, with an average of 61.28%. He referred to the possibility of dealing with the matter as a Civil Evasion one, or merely as a misdeclaration liable to an assessment. In either instance, the amount likely to be assessed was very substantial. He invited Mr Kemal to discuss these findings with the Appellant, and offered the possibility of an informal discussion before responding in writing to this letter. As Mr Piper could not defer the taking of further action or the raising of an assessment by more than a few days, he requested that Mr Kemal should either telephone, or formally respond in writing, by 26 October 2001 at the latest.
9.	As indicated in Mr Piper’s letter of 4 December 2001, a telephone conversation between him and Mr Kemal had taken place on 12 November 2001, during which Mr Piper had advised Mr Kemal that if he wished to dispute Mr Piper’s calculations, Mr Piper needed Mr Kemal’s detailed figures in writing by 30 November 2001 at the latest. As no alternative figures had been received by that date, Mr Piper proposed to make an appropriate assessment, based on his previous letter, on 11 December 2001 when he was next in his office. If Mr Kemal wished to make any submission in an attempt to influence Mr Piper’s level of assessment, he had to have Mr Kemal’s letter in his hands on that date.
10.	In the absence of a response, Mr Piper wrote on 11 December 2001 indicating that on that day he had made an assessment based on calculation (1) in his 12 October letter. To allow for the fact that this did not build in an allowance for uncollected items and also that calculations (3) and (4) specifically covering recent periods indicated a slightly lower level of misdeclaration, he had rounded the estimated percentage of takings declared to 40% and had assessed on that basis. He set out the detailed figures of output tax declared (40%) and output tax not declared (60%) for each period from 01/00 to 07/01 inclusive; this resulted in a total assessment of £32,302. He had not assessed for the period 10/01, as this period had still been current at the time of his visit; he would be asking the next visiting officer to look closely at the records for that period, making an assessment if appropriate.
11.	The Form VAT 655 showed the detailed figures for tax underdeclared for each period. In addition to the total tax due of £32,302, the interest on the tax was £4,146.80.
12.	On 1 February 2002, Mr Kemal wrote to Mr Piper to respond to the letter dated 12 October 2001. He set out explanations or comments under each of the headings indicating that further factors needed to be taken into account. (So far as is necessary, we return to these later in this decision.) In relation to the conclusion that the Appellant had been suppressing his takings at the rate of 60%, the Appellant had responded, “I wish I was doing the takings they think I am.” Mr Kemal and the Appellant were unable to agree with Mr Piper’s calculation of average ticket price; based on all the retained tickets from garments collected for the period 1-30 October 2001, was £8.07. Mr Kemal attached detailed figures in support of this conclusion. He referred to a similar experience that his client had had with the Commissioners in 1998, the outcome of which had been that no suppression of takings had been discovered. The officer dealing with the matter had been a Ms Julie Marsh. He enclosed appendices from his firm’s calculations at that date. He gave his apologies for the delay in his firm’s response to Mr Piper’s letter; as Mr Kemal had mentioned in a telephone conversation with Mr Piper earlier on 1 February 2002, this had been due to the 31 January deadline for the filing of his firm’s clients’ tax returns [ie with the Inland Revenue].
13.	Mr Piper responded on 11 February 2002 to Mr Kemal’s letter. After making various detailed comments on the points raised in that letter, Mr Piper indicated that based upon it, he was not prepared to vary the assessment. The options were to accept it, to request a local reconsideration, or to refer the matter to the Tribunal.
14.	The option chosen was the request for a local reconsideration. Mr Kemal wrote on 7 March 2002 to Mr C Blackie at the same District. Mr Kemal set out the detailed grounds for challenging the assessment, and referred to the earlier discussions with Ms Marsh following which she had been satisfied that the Appellant was not misdeclaring his takings. Mr Kemal attached a number of pages of ticket analysis for October 2001.
15.	In his reply dated April 2002, Michael Guess of the Commissioners’ “Business Services & Taxes” department indicated that he had carefully considered the case and the points made in correspondence, and commented on the various points made in Mr Kemal’s letter dated 7 March 2002. He believed that there was an element of confusion in Mr Kemal’s office regarding the effective date of registration. According to the Commissioners’ records, this was 2 January 1997 rather than 10 January 1994 as Mr Kemal had stated. Before 1997 the business, together with the business run by the Appellant’s wife, had been operated by a limited company through another registration. Mr Guess had been unable to trace any record of a visit by Ms Marsh in 1997/98. He therefore assumed that either the visit related to declarations for the previous registration, or full enquiries were not completed. In any event, he did not see that figures produced in 1997 could reasonably be used to justify trade in 2001 or could influence the assessment raised by Mr Piper that only covered the VAT periods commencing January 1999. After covering the points raised by Mr Kemal, Mr Guess stated:
“In conclusion, I believe that his investigation into the accounts do [sic] show certain key weaknesses which lead me to believe that your client’s VAT returns could be inaccurate. In addition, I do not believe that many of the points you have raised since his visit are substantial enough to convince me that Mr Piper has not used best judgment in deciding that the liability of [sic] some returns has been understated.”
He therefore confirmed that the assessment was to be maintained.
The initial hearing and the outstanding dispute

16.	The first two days of the hearing in this appeal were largely taken up by the contentions previously raised by Mr Kemal in his letters dated 1 February 2002 and 7 March 2002. For the reasons that we discuss below, we do not think it necessary or appropriate to record them and the associated evidence in detail, or to review them in detail. Mr Palmart’s letter dated 21 March 2003 to the Tribunal showed that the one matter of dispute remaining after the discussion between the parties following the first two days of this appeal was the level of deductions that should be made from the agreed average of 186 ticket numbers issued each week. The Appellant’s contention was that deductions should be made for the following circumstances:
(1) “No sale” transactions;
(2) tickets issued in error, eg trousers rung up in error when a jacket was deposited;
(3) customers rejecting transactions, eg items rung up, but customer deciding that the cost is too high and taking the item away;
(4) “no ticket” transactions, ie if the “issue receipt” switch was turned off and a transaction was entered, a number would be issued but an additional transaction would need to be entered to create a ticket;
(5) items never collected.
17.	As the evidence relating to the issue of tickets that did not give rise to a transaction was disputed, we consider the competing contentions under “Discussion” below.
Contentions for the Appellant

18.	Mr Kemal argued that the assessment had not been made to best judgment. Following the discussions between the parties, the information used as a basis for the assessment of £10,000 as now contended by the Commissioners was the same information from the books as had been used by Mr Piper to arrive at an assessment of £32,000. Global figures had been used, giving erroneous figures. The Commissioners had made errors with the unit ticket price; at the first hearing the resultant average was £32. Best judgment had not been used. The Commissioners were arguing that for October 2001 the number of tickets issued without a resulting transaction was in the range 14-16%. However, this was a period for which the Appellant had been asked to retain the tickets, and had taken charge of the till himself. This meant that the percentage of “no transaction” tickets for that period had been a great deal lower than it would otherwise have been. Having examined a range of tickets, Mr Kemal stated that he had come out to a percentage of 47% for “no transaction” tickets. Mr Piper had found this hard to believe, but there had been a number of other matters that he had found hard to believe. Mr Kemal argued that analysis should be carried out over a longer period of time to give a more accurate figure. He pointed out that Mr Piper had referred to an average ticket price of £11-12, and had also referred to an average ticket price of £14; this should “ring alarm bells”. The Appellant’s business was situated in a working class area, in which one would expect prices to be lower rather than higher. Further, part of Mr Piper’s calculation of weekly takings had shown a figure of £3,000 per week; an experienced officer such as Mr Piper would know that this would require greater numbers of staff. Without enough staff, there was no way in which a dry cleaner could generate that kind of turnover. Mr Kemal pointed out that all the information had been available, and asked why a meeting had not been arranged before the matter had reached the point of having to go to the Tribunal; it was normal to narrow down specific areas of disagreement. In relation to the “no transaction” tickets, he contended that the range of 14-16% was the absolute minimum; he argued that his percentage of 47% was nearer to the accurate figure.
Contentions for the Commissioners

19.	Mr Palmart confirmed that the dispute remaining between the parties concerned the number of unused tickets. He summarised the Commissioners’ position. On the issue of best judgment, the Commissioners maintained that the assessment had been made to best judgment. It had been based on the information available at the time to the officer. He had written to ask for further information, but no additional information had been provided before the assessment had been raised. Mr Palmart referred in general terms to Rahman (trading as Khayam Restaurant) v Customs and Excise Commissioners [1998] STC 826 (now generally known as “Rahman no. 1”) and Van Boeckel v Customs and Excise Commissioners [1981] STC 290. The assessment had not been vindictive or capricious. Mr Palmart was aware that the provisional figure for the revised assessment was one third of the original. What the officer had done was to discuss the matter and use agreed figures; Mr Piper had explained in his evidence how he had used the figures. The Appellant had been instructed to keep the tickets and had been using the till. The only hard information available was the numbers. The bulk had been collected in a period of 9 to 10 days. The numbers on the schedule were the most accurate that could be obtained. Where items were collected, tickets must have been issued. The number of “recleans” was not known. Everything had been taken into account and an average number used. This was a matter of “hard fact” and depended on the numbers used. Taking everything into account, the Commissioners contended that the amount assessable was £10,273.10; that was the amount owed by the Appellant. Although the figures had turned out to be closer to those contained in the information derived from Mr Kemal’s previous discussions with Ms Marsh, it would not have been possible to know this until the calculations had been made. Mr Palmart contended that the assessment should be upheld.
 Discussion and conclusions based on the additional evidence

20.	The first question is whether the assessment was made to best judgment. In addition to the review of this subject in the cases cited by Mr Palmart, it has been considered in the subsequent Court of Appeal case of Rahman (trading as Khayam Restaurant) v Customs and Excise Commissioners (No2) [2003] STC 150. In that case it was argued that where the reduction in the assessment as made by the tribunal was substantial (there, a reduction of over 55%), it must inevitably follow that the Commissioners’ assessment was not made to the best of their judgment. In his judgment, with which Bodey J and Brooke LJ agreed, Chadwick LJ said that this was not correct. All that could be said was that the fact that, on considering the same material, the tribunal had reached a figure for the VAT payable which differed from that assessed by the commissioners required some explanation. The explanation could be that the tribunal had made different assumptions from those made by the Commissioners. As Lord Woolf had said in Van Boeckel, this did not lead to the conclusion that the assumptions made by the Commissioners were unreasonable, nor that they were outside the margin of discretion inherent in the exercise of judgment in these cases. Chadwick LJ pointed out at [32] that the alternative explanation might be that the tribunal was satisfied that the Commissioners had made a mistake:
“—that they have misunderstood or misinterpreted the material which was before them, adopted a wrong methodology or, more simply, made a miscalculation in computing the amount of VAT payable from their own figures. In such cases—of which the present is one—the relevant question is whether the mistake is consistent with an honest and genuine attempt to make a reasoned assessment of the VAT payable; or is of such a nature that it compels the conclusion that no officer seeking to exercise best judgment could have made it. Or there may be no explanation; in which case the proper inference may be that the assessment was, indeed arbitrary.”
21.	In the present case, although the amount of the assessment as now contended for by the Commissioners is only approximately one third of the amount originally assessed, we do not think in the light of Chadwick LJ’s comments that the original assessment can be said not to have been raised to the best of the officer’s judgment. The amount assessed was substantial, and the level of turnover that this implied and the calculated average ticket price both appeared high having regard to the nature of the area in which the Appellant’s business is situated. However, we do not consider that Mr Piper made any mistakes in arriving at his assessment. What has been shown, after the making of the assessment, is that the assumptions originally made have been altered in the light of the information subsequently provided. In comparing the Appellant’s position with that in Rahman (No 2), there is one similarity and one difference. The similarity is that Mr Piper, despite attempts to obtain further information or comments from Mr Kemal on behalf of the Appellant, had no further information available to him in order to make his assessment than he had been able to gather in the course of his visit. The difference is that the suggested amount of the assessment is the result of negotiation between the parties (subject to the one outstanding issue) and that no tribunal was involved in the process of arriving at this amount. It is a provisional proposal, and whether it is confirmed depends on the outcome of our deliberations. The issue of quantum arises for us to consider and decide upon if we conclude that the assessment was made to best judgment; we refer separately below to the quantum issue. However, even if the assessment were to be confirmed precisely in the amount of £10,273.10 proposed by the Commissioners, we see no basis for saying that the assessment was not raised to best judgment. All the information leading to the suggested reduction in the amount of the assessment was provided to Mr Piper after 11 December 2001 when the assessment was made. Adopting the words of Chadwick LJ in Rahman (No 2), at [36], we do not think that the methodology adopted by Mr Piper was “wholly wrong and offered no prospect of leading to an accurate assessment”. Chadwick LJ continued:
“But the fact that a different methodology would, or might, have led to a different—even to a more accurate—result does not compel the conclusion that the methodology that was adopted was so obviously flawed that it could and should have had no place in an exercise in best judgment.”
In our view, Mr Piper did the best that he could on the information available to him at the time. Whether a more accurate result could have been achieved if Mr Kemal had been able to respond to Mr Piper’s letter dated 12 October 2001 before Mr Piper had taken action in relation to the assessment must remain a matter of speculation. We do not think that Mr Piper’s methodology can be seen in any way as flawed. It produced a harsh result, as assessments may well do in the absence of information mitigating the level of the tax. (In particular, it may have been seen as harsh in not appearing to make allowance for the nature of the area in which the business was situated.) In that sense, it and the letters preceding it invited a response. For reasons including pressure of other work, Mr Kemal did not respond to that invitation. As he did not, the assessment had to stand, and we accept that it was raised to the best of the Commissioners’ judgment. (We review this conclusion again below in the light of our conclusions on the question of quantum.)
22.	In reviewing the evidence as to the matters provisionally resolved between the parties, our conclusion is that the basis on which they have been resolved is the best indication of the amounts that could have been expected to be taken into account if the parties had engaged in their negotiations before the assessment was made, rather than after the first two days of the hearing of this appeal. If the parties have been able to reach agreement on such points, this must demonstrate that the resolution of each of them is seen as reasonable, or at least acceptable. (It is for this reason that we have not recorded in detail the exchanges of views between Mr Kemal and Mr Piper on the matters set out in the latter’s letter dated 12 October 2002, or the representations made on these matters during the initial stage of the hearing.) We therefore accept that the assessment should be £10,273.10, subject to any necessary adjustment in respect of the outstanding issue of the “no transaction” tickets. We agree that the position is not affected by the result of the earlier discussions with Ms Marsh, which we accept as having related to a business carried on under an earlier registration. We also find, in the absence of any contrary evidence, that the business carried on by the Appellant was registered on 2 January 1997. In considering the amount of the assessment, we take into account the evidence that the Appellant’s record keeping and in particular his method of dealing with the daily takings during the periods covered by the assessment left much to be desired in terms of accuracy.
23.	This provisional amount of the assessment involves making an allowance for “no transaction” tickets of 14% of the total issued. Mr Piper told us in evidence that in his opinion this was the most favourable that the Commissioners could be expected to be. Mr Kemal’s contention was that the percentage should be 47%. Mr Piper regarded this as far outside the percentages that he felt were at all feasible. If the assessment were to be based on what he described as realistic percentages of tickets used, between 90 and 95% [implying a percentage of “no transaction” tickets of between 10 and 5%], the assessment would have been much higher. Mr Kemal argued that the Appellant would have been taking more care in the period under review (3-31 October 2001). Mr Piper challenged this; during that period there were two transactions for which he had been unable to find tickets.
24.	Apart from the additional evidence of Mr Piper and the Appellant given on the final day of the hearing, it was intended that there should have been a demonstration of the till in use at the time covered by the assessment. This proved unsuccessful, as although the till could be switched on, the Appellant was unable to unlock the security lock designed to prevent unauthorised use. At the initial part of the hearing, the Appellant had explained that the till had been damaged when a burglary had taken place; the bottom half had been stolen. Following an expensive previous repair to the till of damage caused by a coffee spill, he had instead taken the till to be repaired by a person in Biggin Hill. As this had been a cash transaction, there were no records of payment for the repair work. In the course of his additional evidence given on the final day, the Appellant explained that in various circumstances the till produced numbers without producing tickets. The result was that the next time a ticket was produced, its number would be incremented by the “non-ticket” transaction. The impression given was that the machine was printing, and it showed non-existent orders. The Appellant explained the reason for setting the machine to “No”; if it was on “Yes”, it printed a slip, so when clothes were collected, leaving the machine on “No” saved printing.
25.	For the resumed hearing, Mr Piper had prepared a spreadsheet headed “Analysis of Ticket Numbers Collected”. He had taken into account the fact the till sometimes generated a number without producing a ticket, and had selected days for analysis where only a negligible number of items would have been returned to customers on previous days. He had ignored the two days that were too close to the end of the period. He had calculated that it took the best part of four weeks for the majority of items to be returned to the customers. Earlier numbered garments were still being given back during the examination period. He had therefore discounted the tickets under the heading “Others” and concentrated on ticket numbers “36xx” to “41xx”. Averaging these six columns together, he had arrived at an average percentage of tickets collected of 84.33%, adjusted in discussions with Mr Kemal to 86%. This resulted in the percentage for “no transaction” tickets of 14% already mentioned.
26.	We have reviewed Mr Piper’s methodology. The spreadsheet analysis assumes that all the numbers are issued and that a limited percentage of these tickets assumed to be issued is actually collected. If, as maintained by the Appellant and Mr Kemal, a proportion of the “issue numbers” represents tickets not actually issued, this method does take the “non ticket” transaction numbers into account, by recognising that they do not lead to collection by a customer. Our one concern with the method is that it has been applied to only a limited period, from 3 to 31 October. We take into account the unpredictability (and at times unreliability) of the till, even though it was not possible for this to be demonstrated to us. The Appellant told us that he had zeroed the till and then taken a Z reading; he had set the till to “No” and then to “Yes”, and the number had jumped. He had taken a further Z reading and all the amounts were added up, including a value for the number issued on “No”. He had provided an example to Mr Piper at Mr Kemal’s office. We accept that the till did produce erroneous results, because of the numbers issued in error. However, we find Mr Kemal’s contention, that the allowance for the items as set out in Mr Palmart’s letter dated 21 March 2003 should be 47%, to be extreme. The issue of numbers for “no ticket” transactions cannot have been routine. If it had been, the logical result would have been that such a transaction would have been generated every time that a customer collected an item, avoiding the printing of a further ticket, making the number of “no ticket” transactions approximately equal to the number of transactions for which a ticket was properly issued. There was no suggestion that the level was anywhere near this, and we see the intermediate percentage of 47% as highly improbable, as Mr Piper did when this was put to him. Although Mr Piper considered the percentage of 14% to be the most favourable that the Commissioners could be expected to agree, we feel that it does require adjustment. Our view is that it should be increased to make allowance for the erratic behaviour of the till over a much longer period, allowing for periods when the Appellant was not present to supervise the use of the till and thus when the scope for errors made by other staff was greater. We consider that the appropriate percentage is 20%.
27.	With his letter to Mr Piper dated 24 March 2003, Mr Kemal enclosed a schedule showing the calculation of the VAT underdeclared of £10,273.10 on the basis of the 14% allowance for “no transaction” tickets. This showed the revised weekly takings to be £1,493.65. We have recalculated Mr Kemal’s figures using the 20% allowance. This produces a new revised weekly takings figure of £1,393.74. The total difference between the takings expected and the takings declared for the period covered by the assessment becomes £54,689.18, on which the VAT is £9,570.60. Subject to any representations that the parties may wish to make as to the mathematical correctness of our calculation, we reduce the assessment under the power given to us by section 83(p) VATA 1994 and confirm it in this amount. We give the parties liberty to apply to deal with this calculation if required.
Effect on the “best judgment” issue

28.	In the light of our conclusions, we return to consider whether the level of the assessment as confirmed by us could be seen as so low as to indicate that the assessment in the original amount was not made to best judgment. For the reasons that we have already given, we consider that Mr Piper was justified in making the assessment in the original amount on the basis of such information as he had available to him at the point of making the assessment. In the light of subsequent information, and in particular as compared with the amount now confirmed, it may appear to have been harsh, but we do not regard this as enough to impugn it on best judgment grounds. In arriving at this conclusion, we take into account that in the interests of arriving at an agreed basis for revising the assessment, the Commissioners attempted, in Mr Piper’s words, to “bend over backwards” to be fair and adjust the figures very much in favour of the Appellant.
Summary

29.	The appeal against the assessment on “best judgment” grounds is dismissed. Subject to adjustment of the percentage for “no transaction” tickets, the revised amount as provisionally agreed between the parties after the initial stage of the hearing is confirmed, resulting in a liability of £9,570.60. Thus the appeal on quantum is allowed in part. As the assessment is confirmed, albeit in a lower amount than that originally assessed, we do not consider it appropriate to award costs. Accordingly, we make no order as to costs. 

JOHN CLARK

CHAIRMAN

LON/02/0389