ASSESSMENT  — Value Added Tax — motor trader — whether assessment made to best judgment —section 53(1) VATA 1994 — appeal dismissed

MANCHESTER TRIBUNAL CENTRE

 
 	
	JOHN ARTHUR HENRY LAMBERT	Appellant

	- and -

	THE COMMISSIONERS OF CUSTOMS AND EXCISE	Respondents

				Tribunal:	Mr I E Vellins (Chairman)
						Mr A E Brown (Member)

Sitting in public in York on 28 January 2004

Mr John Arther Henry Lambert, the Appellant, in person
Miss L Linklater of counsel instructed by the Solicitor for the Customs and Excise for the Respondents

	© CROWN COPYRIGHT 2004

DECISION

1.	In this appeal the Appellant is Mr John Arthur Henry Lambert, who carries on business as a sole proprietor in the motor trade, trading from premises at Hopper Lane Garage, Blubberhouses, West Yorkshire.  The Appellant was registered for VAT with effect from 24 January 1995.
2.	He appeals against an amended notice of assessment to VAT dated 13 September 2001 in the sum of £7,975 in respect of quarterly VAT periods from 08/98 to 11/00.  The notice was issued pursuant to section 73(1) of the Value Added Tax Act 1994.  The assessment amended a previous notice of assessment to VAT dated 12 June 2001 in the sum of £10,406.  
3.	At the hearing of this appeal at York on 28 January 2004 the Appellant represented himself.  The Commissioners were represented by counsel, Miss L Linklater.  Evidence was given at the hearing of the appeal by the Appellant himself, and his friend Miss H Strachan, and on behalf of the Commissioners by an officer of the Commissioners, Mr Mark Summers.
Background
4.	On 15 February 2001 the Commissioners officer, Mr Summers, made a routine visit to the Appellant’s premises, with further visits on 23 February 2001 and 8 May 2001.  The Appellant’s annual accounts for the years ended 31 August 1998 and 1999 were examined.  The sales figures in these accounts were compared by Mr Summers to sales declared for VAT in the Appellant’s VAT returns for the same period, and Mr Summers found substantial discrepancies which eventually formed the basis of his assessments.
5.	Further checks revealed to Mr Summers in connection with “sales” that for the period from 1 December 1998 to 30 November 2000 the Appellant’s bankings were £104,121, whereas his declared sales were £57,228.  Mr Summers also found an apparent discrepancy when making a further calculation, on the relationship of parts to labour. 
6.	Mr Summers made his assessments based on the difference between the annual accounts of the Appellant and his VAT returns for the two years to 31 August 1999, with a small allowance for zero rated sales.  Part of the first year was subjected to the 3 year cap and therefore not assessed.  For the period 1 September 1999 to 30 November 2000 Mr Summers made assessments calculated using the percentage under-declaration rate for the previous two years, when comparing the sales in the Appellant’s annual accounts with his declared sales in his VAT returns.
7.	The Appellant in his grounds of appeal stated “the excess of bankings over declared amounts of business income received is a result of the disposal of motor car parts and accessories (veteran and vintage) collected by and left to me by my late father.  Having no other bank account, this money was banked in the normal way, as and when parts were sold.”
8.	The Commissioners contended that such sales were part of the Appellant’s normal business activity.  Mr Summers’ calculation of parts to labour indicated that normal business purchases had been entered to the business records for which sales had been made but seemingly under-declared.  For the year ended 31 August 1999 the sales declared for VAT was £36,629 whereas the purchases in the annual accounts for the same year, adjusted for stock, was £60,393.  The Commissioners maintained that the sales declared for VAT were unrealistic and the assessments had been made to their best judgment.
Facts
9.	We make the following findings of fact in this appeal.
10.	Mr Mark Summers, an officer of the Commissioners based at Leeds, made a routine VAT visit to the Appellant’s premises initially on 15 February 2001.  He described the Appellant’s premises as a very small concern on the side of a filling station, with only room for one car to be worked on at any one time.  It was cluttered and untidy, and Mr Summers carried out his interview with the Appellant at Mr Summers’ office. The Appellant delivered up documents to Mr Summers who examined the documents.  Mr Summers carried out a number of checks which revealed that there were some anomalies which Mr Summers felt required investigating or explaining further.  
11.	Firstly when Mr Summers analysed the annual accounts of the Appellant, and compared these with the VAT returns submitted by the Appellant for the same periods he found differences between the sales stated in the annual accounts and the sales stated in the VAT returns.
12.	Secondly Mr Summers looked at the records involving purchase invoices to identify specific parts purchased by the Appellant and was unable to identify sales invoices for these same parts or the work done with such parts.  He was concerned that the Appellant was not declaring everything.
13.	Thirdly Mr Summers carried out a parts to labour exercise and found anomalies.  He analysed sales invoices for a period of 6-7 months and calculated the ratio of parts sold to labour for that period, having been told by Mr Lambert that he applied a minimum of 5% mark up on parts purchased for repairs.  Mr Summers found shortfalls on what sales he expected to be declared and the sales shown on the VAT returns.
14.	Fourthly Mr Summers carried out a banking exercise.  He carried out a bank reconciliation to compare the bankings of the Appellant in specific periods of time with the sales declared by the Appellant in his VAT returns for the same period, namely between February 1999 and November 2000.  This exercise revealed significant differences between the money banked by the Appellant and what was declared on his VAT sales returns.
15.	Fifthly Mr Summers found certain other anomalies when he carried out a few specimen checks on individual items.  He looked at some individual payments which were mentioned in the paying in book and noted the names of the customers and amounts.  Mr Summers then tried to identify or trace these on sales invoices but was unable to find a sales invoice for a number of such payments recorded in the paying in book.  He also noted that in October 2000 £1,250 worth of parts were purchased yet only one record of sale totalling £45 was available for the same month.  Mr Lambert told Mr Summers that he did not in fact keep any stocks.
16.	Mr Summers returned the records to Mr Lambert and discussed his concerns with Mr Lambert.  Mr Summers also agreed he would put points in writing to Mr Lambert so that Mr Lambert could respond to them.  This was done in a letter from Mr Summers dated 28 February 2001.  Mr Summers received no response at all to that letter.
17.	Accordingly on 20 April 2001 Mr Summers wrote to the Appellant raising an assessment.  In that assessment Mr Summers made an allowance on the basis that the Appellant did carry out some MOT work which was zero rated, and accordingly calculated that 99.2% was the average annual standard rated sales.
18.	Mr Summers calculated the sales in the Appellant’s annual accounts for the year ending 31 August 1998 and compared these to the declared sales in the Appellant’s VAT returns.  He calculated the amount of VAT that had been under-declared but limited this to the months not affected by the 3 year capping rule.  He did the same with the differences in the year ending 31 August 1999.  For the period from 1 September 1999 to 30 November 2000 for which there were no accounts available, Mr Summers calculated the average percentage of sales declared against the sales declared in the accounts for the previous two years to be 67.61%, applied that to the total sales declared for that period by the Appellant and calculated the difference on that basis.
19.	No response was made by the Appellant, but Mr Summers carried out a local reconsideration and recalculated the assessment by reducing it mainly because some time had passed and Mr Summers had recalculated the figures to properly take into account the 3 year capping rule.  
20.	In the amended calculation Mr Summers assessed VAT for the 3 months not affected by the 3 year cap rule for the period 08/98 at £874.46 on the basis of the differences in the annual accounts for the year ending 31 August 1998 and the declared sales in the VAT returns for that period.  For the annual accounts year ending 31 August 1999 Mr Summers assessed £5,297.97 VAT.  For the estimated under-declaration of sales between 1 September 1999 and 30 November 2000 Mr Summers assessed £1,806.87 VAT.  Mr Summers enclosed with the amended assessment details of his analysis from the annual accounts, his reconciliation of  tax declared to annual account values, and his reconciliation of tax claimed to annual account values.
21.	The Appellant, giving evidence at the hearing, claimed that he had an explanation for why he put more money into his bank account than his VAT records indicated.  He stated that the majority of the money came from the sale of old motorcycles and car parts which had been in the Appellant’s father’s garage when the Appellant’s father had died, his father being interested in vintage cars and vintage vehicles.  He claimed that when his father died intestate the Appellant had not applied for any grant of representation of his father’s estate but had merely removed the effects from his father’s garage.  He produced for the first time at the hearing registration documents relating to 7 vintage engines which had not previously been produced or shown to Mr Summers.  These registration documents referred to engines dated 1921, 1923, 1924, 1925, 1922, 1933 and 1937.  He stated that these were in pieces and he sold them all through jumble sales and car boot sales.  He had found a list of various items in a notebook in his father’s handwriting and a photograph of a petrol Bowser together with a letter that his father had received from Shell UK in 1982.  He thought that the list in the notebook related to items owned by his father in the 1960s.  He showed a newspaper clipping showing that his father was involved with vintage cars.  He stated that these items had only just been given to him by his sister.  He stated that his father Arthur Lambert died about 12 years ago.  He stated that his late father had worked for a company and when his father left the employment his employers had given him the various spare parts of the vehicles on which he had been working in his employment.  The Appellant stated that he received about £620 for the petrol Bowser and for the pieces of his late father’s motorcycles about £1,500-£1,800 for each of the 6 engines.
22.	The Appellant said in evidence that when he had sold the various items owned by his late father he put the money he received from the cash sales into the bank as the Appellant only operated one bank account and he had no private bank account.  He stated that at the material time he merely had the one business account for his garage which changed from time to time from Barclays Bank to National Westminster Bank and to Abbey.  
23.	The Appellant said that in June 1997 he was given a Rover car by a man which had been involved in an accident.  The Appellant carried out welding work, repaired the vehicle and then sold it in June 1997 for £6,000 to Miss Helen Strachan.  He said that in June 2000 he was given a Peugeot car by a pilot which again had been involved in an accident.  The Appellant had repaired this and sold it to Helen Strachan.  The Appellant in the past had traded at the service station but had given up the filling station and only repaired vehicles and did not sell them.  He had not informed the Commissioners of the change in the basis of his business.  When he had sold the vehicles to Miss Strachan he did not charge her VAT or pay any VAT to the Commissioners.  He had not issued any VAT invoice in respect of those two cars which he had repaired through his work.  The Appellant said that he did not think that he needed to issue any VAT invoice because he did not think that the accident repairs were part of his business, being done for Helen Strachan who was a friend.  He confirmed that he did not respond to Mr Summers’ letters.  He had started clearing out the old vehicles and parts from his father’s premises after his father died.  He was not able to point out in his bank statements what he had banked from the sales of parts from his father’s vehicles, although he said that he had banked in the bank account all the proceeds of sale of his father’s items.  Although he had commenced his appeal in July 2001 he had not tried to identify any of these sales in his bank statements.  
24.	The Appellant stated that it was correct that the sales shown in his VAT returns did not conform to the sales shown in his annual accounts.  He said that his annual accounts had been prepared by a qualified accountant, Mr Norfolk, and the Appellant had signed the accounts.  These accounts had been submitted to the Inland Revenue who had investigated the accounts and who had accepted the accounts as in order.  The Appellant said that he realised that he should have shown in his accounts capital introduced in connection with his father’s items, but the Appellant said in his evidence that he had “buried his head in the sand” and had not looked into matters.  He said that in his business he did not sell any car parts or accessories, but merely bought from a supplier when he needed parts or accessories for a repair job.  He said that Mr Norfolk had been his accountant for about 6-8 years.
25.	Miss Helen Strachan gave evidence at the hearing that she had been a friend of the Appellant for some 30 years and that she had purchased the two cars from the Appellant as described by him in his evidence.  She had never received any VAT invoice from him for these vehicles.  She had tried to help the Appellant with his paperwork and from his dictation had made a list of vehicles and parts that he had inherited and sold for about £150-£200 each.  That list also included the registered vehicles previously described by the Appellant.
26.	The Appellant confirmed at the hearing that he had not shown Mr Summers any accounts since 1999.  He could not say when he had sold the vintage effects from his late father’s estate.  His late father died in 1992.  He had not taken up with his accountants his assertions that some of the bankings constituted the sale of some of his father’s effects.
Conclusions
27.	Section 73(1) of the Value Added Tax Act 1994 deals with the law in relation to a VAT assessment as follows —
“... where it appears to the Commissioners that … returns [required under this Act] 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”.
28.	This section has been interpreted by the courts in a number of established authorities including Van Boeckel v Customs and Excise Commissioners [1981] STC 290, Rahman v Customs and Excise Commissioners [1998] STC 826, Rahman v Customs and Excise Commissioners [2002] EWCA 18A1 and Commissioners of Customs and Excise v Pegasus Birds Ltd CA/2002/APP/0608 [2003] EWHC 2552 (CH).
29.	The Commissioners have not suggested any dishonesty on the part of the Appellant and this is not a penalty case.
30.	The Commissioners contend that the assessment was made to best judgment.  The method of arriving at the assessment was set out in the letter of the Commissioners’ officer, Mr Summers, dated 10 September 2001.  Mr Summers’ assessment is based upon differences between the sales declared by the Appellant in his annual accounts and the sales he had declared in his VAT returns for two corresponding periods and upon a further under-declaration at a later period for which no accounts had been produced estimated by Mr Summers on the basis of the previously noted differences.
31.	The Appellant alleged in his notice of appeal that the discrepancy was due to income received from the disposal of motor car parts and accessories collected by and left to him by his late father who died in 1992.  The burden of proof is on the Appellant to establish that, firstly, the assessment was not made to the Commissioners’ best judgment or, secondly, that if it was made to best judgment, it was too high.
32.	We find that Mr Lambert has failed to satisfy us that the assessment was not made to the Commissioners’ best judgment and he has further failed to satisfy us that the assessment was too high.
33.	We find that the assessment was made by Mr Summers to the best of his judgment.  We find that Mr Summers based his assessment on the discrepancy between the Appellant’s own accounts and the Appellant’s own VAT returns.  We further find that the Commissioners’ methodology was sound.
34.	We are not satisfied that the assessment should be reduced.  The discrepancy arose from the Appellant’s own trading accounts.  The Appellant has failed to satisfy us that in those accounts were items which were purely personal to him as distinct from business matters.  His sales have been included in such accounts and he has produced no satisfactory evidence that purely personal transactions have been included in the accounts when they should not have been.  The discrepancies between the accounts and sales declared to the Commissioners were apparent to Mr Summers in the two years examined.  Furthermore, the total under-declarations amount to £59,534 in such period, being 32.39% of total sales, which casts doubt on the Appellant’s assertions.  We further find that the sale of motor car parts and accessories is part of the business of the Appellant and is a business activity.  His sale of vehicles that he repaired to Miss Strachan were part of his business and business activities and we see no reason why he should not have delivered a VAT invoice to Miss Strachan and charged VAT on the transaction.
35.	We cannot be satisfied as to when the Appellant sold the parts and accessories left to him by his late father.  His late father died in 1992.  The Appellant was not able to specify when he sold the various items from his father’s estate.  The Appellant has brought no evidence as to when such items were sold and has not identified in his records the sales of such items.  He lodged his appeal in July 2001 and has had ample time to provide evidence in support of his appeal.  He has failed to do so.  The onus is on him to produce that evidence.  There is no evidence that any of his father’s items were sold in the periods from August 1998 to November 2000, which periods are the subject of this appeal and the subject of the assessment.  In any event the sales of the vehicles to Miss Strachan are not relevant to the points at issue in this appeal as the first vehicle was sold in mid-1997 and was sold outside the periods at issue, and the second vehicle was sold at a time later than the accounts studied by Mr Summers.  In any event the sales would have been part of the ordinary business activities of the Appellant.
36.	We find that the Commissioners made a value judgment on the material which was before them.  We find that Mr Summers performed his function honestly and in good faith.  We find that Mr Summers fairly considered all the material placed before him and came to a decision which was reasonable and not arbitrary.  We agree with Mr Summers’ methodology.  We find that he has made an honest and genuine attempt to make a fair assessment.  We find no errors in his assessment and no flaw in his methodology.
37.	We conclude that the assessment was made to the best of the Commissioners’ judgment.  We dismiss the Appellant’s appeal.
38.	The Commissioners made no application for costs and we make no order as to costs.
Mr I E VELLINS
CHAIRMAN
MAN/01/0554