Instantaction Ltd  v Revenue and Customs [2005] UKVAT 19088 (24 May 2005)

19088
	 VAT ASSESSMENT — grocery and frozen food outlets — Customs inspection of records including those of supplier — methodology — amount of tax — best judgment — appeal dismissed

MANCHESTER TRIBUNAL CENTRE

 
 	
	INSTANTACTION LIMITED	Appellant

	- and -

	HER MAJESTY’S REVENUE AND CUSTOMS	Respondents

				Tribunal:	Elsie Gilliland (Chairman)
						Christine Owen	

Sitting in public in Manchester on 14 March 2005

No attendance by or on behalf of the Appellant 

Ms J Vickery of counsel instructed by the Acting Solicitor for HM Revenue and Customs for the Respondents 

	© CROWN COPYRIGHT 2005

DECISION

1.	The appeal heard by the tribunal was that of Instantaction Ltd. (the Appellant) against an assessment raised by Customs on 28 June 2000 for Vat arrears for the five accounting periods 01/09/98 to 31/10/99. The sum claimed under the provisions of section 73 (1) of the Value Added Tax Act 1994 was £2518 plus interest.  The updated figure given by Customs in a letter of 17 September 2002 was £2332.39 plus interest.  The Appellant was registered for Vat purposes from 1 September 1998 to 11 June 2003 and in its application for registration had stated its main business activity as: “Commercial Property Rental. Property Repairs”.  There was no attendance on behalf of the Appellant and the tribunal determined to proceed under section 26 (2) of the Value Added Tax Tribunals Rules 1986.

2.	The assessing officer Pamela Marie Shanker gave evidence to the tribunal. She had visited the business premises of the Appellant at Old Trafford Manchester and 22 Partington Street Failsworth Manchester on 2 February 2000.  It became clear to her that the business of the Appellant was substantially different from that stated in the Vat registration application.  She found the Appellant’s main business activity was three frozen food outlets and a grocery shop/off-licence with a property management company as a subsidiary.  The last acquired of the outlets fell outside the assessment period.  The premises were:

(1)	at 22 Partington Street Failsworth Manchester (Britannia) (grocers and off-licence with video rental) 
(2)	at 125 High Street Prestatyn LL19 9AIL known as Merlin Frozen Foods (frozen food retail centre)  
(3)	at Towyn Road Towyn Abergele LL22 9HD known as Gamwy Lock-up Stop (wholesale and retail of frozen foods) and
(4)	at High Street Holyhead  known as Merlin Frozen Foods (retail of frozen foods).

3. 	The officer informed us that she had found records at the premises comprising many invoices and a Sage daybook.  She considered that the books and records were in a poor state; a number of fundamental inaccuracies and errors appeared which meant that output tax had been substantially underdeclared; there was a failure prior to her visit to record daily gross takings; an incorrect mark-up had been applied to standard-rated purchases and in addition video rental income and phone card income had not been declared and input tax had been incorrectly reclaimed.  She concluded that the Appellant was engaged in the supply of standard-rated goods and was not restricted to zero-rated as the Appellant would allege.  The main suppliers were Merchandise Bulk Byers Ltd (MBB Ltd) a company related to the Appellant through one of its directors.  She had had to go to their offices to check their day books to work out the estimated sales figure.   MBB Ltd bought all the goods for resale and invoiced the Appellant which made the sales in its shops.  The witness had prepared schedules from their records.    The Appellant sought in correspondence to discredit the use of figures from this source on the basis that complicated arrangements proposed between the two companies had not taken place and also that the officers requirements as to new accounting procedures as set out by her at the time of her visit had been put in hand. 

4. 	There had been a meeting between the officer and two directors of the Appellant on 17 January 2003.  We were told that the directors then suggested that the Appellant offered management and accounting services only and did not operate retail outlets.  The Vat returns they stated had been completed by an accountant who had been company secretary and who was no longer with them. Counsel informed us that the attendance of the accountant had been expected but that he was not able to attend on the day of the hearing.

5.	In a pre-assessment letter which she sent out with accompanying schedules to the Appellant the officer had detailed the errors and referred to a full weighted mark-up exercise that had been applied calculating expected standard-rated sales and the outstanding output tax due.  She had focused on Britannia and had listed selling prices on her visit to the premises; where there were gaps she had taken the recommended retail price.  Subsequently the Appellant through its Accountants appealed against the assessment on the grounds that having requested clarification it had received no documentation from the officer to confirm that the assessment was correct.  The officer took us through her paperwork and explained the methodology of her calculations.  She used the purchase invoices as the first step as MBB Ltd reclaimed the input on them.  She then went through the sales invoices from MBB Ltd to the Appellant but found that she could not reconcile those accurately so went back to the purchase invoices and made allowance for expenses and wholesale sales not appropriate to the Appellant.  She made no provision for stock but that operated in the Appellant’s favour and she did make provision for own use.  Credits were allowed as appropriate.  The standard-rated mark-up was calculated at 17.97%.

6.	The role of the tribunal in an appeal against a Vat assessment is to ascertain the correct amount of tax due.  The assessment was based on the officer’s observations of the Appellant’s trading activities and an examination of such trading and accounting records that there were.  She produced schedules and explanations of her calculations.  Whilst the Appellant has appealed against the assessment we do not see any alternative figures put forward.  Indeed the Appellant was afforded the opportunity to put a possible figure for pilferage and as it did not respond none was inserted.  We accept this as a reasonable approach. There is no standard percentage applicable and the assumption in the appeal before us has to be that this was not a matter which caused the Appellant any concern in its particular business.  Equally in correspondence there was an objection to figures based on the records of MMB Ltd but we do not accept as credible suggestions made that there were certain non-specific “complicated issues” which would justify the exclusion of the same.

7.	We are satisfied that the officer took into account all relevant material and did not take into account irrelevant matters.  She found the records of the Appellant to be both incomplete and incorrect.  She sought to make a reasoned assessment and did so to the best of her judgement.

8.	We dismiss the appeal.

9.	In view of the non-attendance of any representative for the Appellant Customs asked for costs.  They are entitled to the same as they have been successful on the appeal and we direct that in default of agreement between the parties these are to be assessed by a Chairman sitting alone.

ELSIE GILLILAND
CHAIRMAN
Release Date: 24 May 2005

MAN/02/0780