19243
VAT — ASSESSMENTS — best judgment — allegation that effect of student population on takings of takeaway wrongly ignored by Customs — allegation that results of invigilations were applicable to business when owned by previous trader and should have been disregarded as against the Appellant — allegations rejected — appeal dismissed subject to adjustment of assessments to allow for clerical error

MANCHESTER TRIBUNAL CENTRE

 
 	
SHOJUN MIAH	Appellant

- and -

HER MAJESTY’S REVENUE AND CUSTOMS	Respondents

			Tribunal:	Michael Johnson (Chairman)
					Norman Phillips	

Sitting in public in Manchester on 9 February 2004, 15 November 2004 and 7 July 2005

The Appellant appeared in person

Jonathan Cannan, counsel, instructed by the Acting Solicitor for HM Revenue and Customs for the Respondents 

© CROWN COPYRIGHT 2005

DECISION

1.	Mr Miah has appealed against certain assessments for value added tax made under section 73(1) of the Value Added Tax Act 1994 (“the Act”) amounting to £27,098.00, plus interest of £2,409.41, a total of £29,507.41.  These assessments have been issued in respect of his takeaway food business known as the “Bilash Balti House”, located in Sharrowvale Road, Sheffield.

2.	The assessments relate to each of Mr Miah’s quarterly VAT accounting periods from 03/99 to 03/01 inclusive.  They were made because H M Customs and Excise (“Customs”) did not consider that Mr Miah had accounted for all the value added tax due from his business during those periods.  The appeal against the assessments is on the ground that Customs have not, so it is said, used “best judgment”.

3.	Having regard to an admitted clerical error, Customs accept that the total amount assessed, disregarding interest, should have been £26,171.00. 

4.	At the hearing of the appeal, the Appellant attended in person.  Jonathan Cannan of counsel was present to represent Customs.  Mr Miah told the tribunal that he had been let down by his representative, who had had to go to Pakistan and was unable to provide a substitute person to represent him at the hearing.   Mr Miah said that the defaulting representative had suggested that Mr Miah should approach a firm of representatives in Leeds, but Mr Miah told us that he knew nobody in Leeds, and that in any case they would have no time to prepare for the hearing.

5.	Mr Miah therefore orally applied for an adjournment of the hearing, so that he might obtain alternative representation.  Mr Cannan resisted the application, having attended with various witnesses for Customs, and no advance notice of the application having been provided.

6.	We considered the application, but we felt that, seeing that the appeal was a longstanding one and overdue for determination, and that Customs had gone to the expense of briefing tax counsel and arranging for their witnesses to attend on the date fixed for the hearing, it would be wrong to vacate the fixture on the day of the hearing.  We ruled that the hearing should proceed. 

7.	Although Mr Miah had the right to open the appeal and present his evidence first, it was agreed that it would be best in the circumstances for Mr Cannan to present Customs’ case first, so that the Appellant would know the precise case he had to meet.

8.	Mr Cannan explained the background to the assessments.  At the beginning of 1999, Customs had identified the “Bilash Balti House” as an establishment which might be underdeclaring its VAT.  The “Bilash Balti House” was then run by a Mr Abdul Jahir, and it was his business that Customs were initially concerned to investigate.

9.	Customs were in the process of conducting invigilations of these premises when ownership of the premises changed hands from Mr Jahir to Mr Miah.  The first such invigilation with which Mr Miah was concerned took place on 19 February 1999.  At that time, Mr Miah had only just taken over the business.  Mr Cannan informed the tribunal that we were not concerned with Customs’ dealings with Mr Jahir, with whom Customs had reached agreement separately.

10.	Customs have assembled a variety of evidence on the basis of which the assessments under appeal have been formulated.  In summary, this evidence is as follows –

a)	The invigilation on 19 February 1999, a Friday, and a further invigilation on Saturday, 20 February 1999;

b)	External observations of the premises on Wednesday, 10 May 2000;

c)	A comparison between the contents of “self-invigilation” sheets filled in by Mr Miah between Friday, 8 September 2000 and Sunday, 17 September 2000 and the results of “test purchases” and internal observations made by Customs during that period; and

d)	External observations of the premises on the evening of Thursday, 16 November 2000.

11.	The tribunal received three kinds of evidence, namely, written, video and oral.  

12.	The written evidence was helpfully assembled into a lever-arch file, prepared by Customs and containing copies of (i) the assessments and Customs’ Statement of Case; (ii) all the witness statements served in relation to the appeal; (iii) schedules of calculations underlying the assessments; (iv) records of the business; and (v) communications between Customs, Mr Miah and his advisers from time to time, incorporating alternative calculations and workings.  We record that the bundle was not an agreed bundle.

13.	The video evidence purported to be a contemporaneous record of persons entering and leaving the takeaway premises on the evening of 16 November 2000, supporting a written analysis prepared by Customs.  Mr Miah did not accept that Customs had correctly analyzed what the video showed, so we watched the video ourselves to form our own view.

14.	The oral evidence was from the following witnesses, in order of call –

(On 9 February 2004)

Ms Deborah Jane Hardwick;
Mr John Alan Walsh;
Mrs Joanne Needham, née Ridyard;
Mr Keith Thomas Allison;
Ms Cosma Williams;
Mrs Penelope June Kay.

(On 15 November 2004)

Mr Alan McClelland;
Mrs Suzanne Vanessa Hurst.

15.	All these witnesses were officers of Customs.  The sole witness for the Appellant’s case was Mr Miah himself.   He gave evidence on 7 July 2005.

16.	This is perhaps the point at which to state that we deprecate the amount of time that has passed between the three dates on which this appeal has been heard.  In our view it would have been preferable to have allotted a block of three consecutive days to ensure that the hearing of this appeal, which was obviously a multi-day case from the outset, could have been completed at one sitting.

17.	We make the following findings of fact.

18.	Mr McClelland was the officer of Customs responsible for the assessments under appeal.

19.	Ms Hardwick was responsible for the invigilations that took place at the “Bilash Balti House” on 19 and 20 February 1999, which were done with the consent of the owner of the takeaway.  The invigilations were conducted initially by Mr McClelland and Mrs Hurst, from whom, on each evening, Ms Hardwick and Mr Walsh took over, part way through the evening.  

20.	When he arrived at the premises on 19 February 1999, Mr McClelland believed that the owner was Mr Jahir.  It was then that he found out that Mr Miah had taken over the business.  This had not previously been appreciated by Customs.  However we find that there was no obvious change in the conduct of the business that resulted from the change of ownership.

21.	The officers operated in pairs so that one officer could observe and the other officer could compile the invigilation log.  In the same way, external observations were by officers operating in pairs, so that one could observe and the other record the observations.  We find that this was an effective method of producing an accurate record.

22.	On the evening of 10 May 2000, Mr McClelland and Mrs Hurst conducted external observations of the premises from the vantage point of a car parked in a position giving a clear view of the entrance to the premises.  They were relieved, part way through the evening, by Ms Hardwick and Miss Ridyard, who observed from a car parked in a different position, likewise providing a clear view of the entrance.

23.	On the evening of 8 September 2000, observations took place inside the premises, enabling the recording of actual cash transactions, as with the invigilations in February 1999.  These observations were conducted by Mrs Hurst and Miss Ridyard, who were relieved during the evening by Ms Hardwick and Mr McClelland.

24.	On the evening of 11 September 2000, Mrs Hurst and Mr Walsh initially observed on the premises, being relieved during the evening by Ms Hardwick and Miss Ridyard.

25.	Each pair of officers filled in record sheets of their observations as they went along.  The invigilation/ internal observation sheets recorded actual cash transactions; the external observation sheets recorded persons entering and emerging from the premises, with times, notes as to what they were carrying when they emerged (eg carrier bag, box, small package, etc) and anything else observed (eg arriving or departing on foot or by vehicle).

26.	The observations conducted on 16 November 2000 were video-recorded.  We watched the video, which was recorded from a greater distance away from the takeaway than one might have wished.  It is true that one can see people entering and leaving the takeaway premises, but it was occasionally far from clear how many customers might have been in the premises at a time, or which of them might have purchased what amounts of food.  Whilst video evidence can sometimes be very useful, we did not feel that to be the case here.  We find that the video evidence constitutes the least satisfactory evidence put forward by Customs in this case.  However we have on balance concluded that it is and was reasonable to have placed reliance upon it, as Customs have done, as the conclusions to be drawn from it are not inconsistent with the rest of the evidence assembled, which we find to be considerably more satisfactory.

27.	Finally, “test purchases” of meals were made by Ms Kay on 11 and 17 September 2000, Mr Allison on 9 and 23 September 2000, and Ms Williams on 9 September 2000.  We find that the object of these purchases, and indeed of the internal observations on 8 and 11 September 2000 respectively, was to provide material to consider alongside a set of “self-invigilation” sheets with which Mr Miah had been supplied, in order to record the sales transactions of his business.  These were for use by him from 8 September 2000 onwards.

28.	In our view Mr Miah did not make a great success of keeping these sheets.  The first such sheet, dated Friday, 8 September 2000, shows the first 31 entries as having been crossed out.  Subsequent sheets do not impress as to their comprehensiveness.  

29.	Mr Miah’s records show that some of the transactions noted by Customs, and some of the “test purchases” made by officers of Customs, were recorded by him, but some were not.  So far as there is overlap between the two, we prefer Customs’ records to those of Mr Miah himself.

30.	Between October 2000 and February 2001, Mr McClelland pressed Mr Miah to provide him with a complete set of records for the business.  On 20 February 2001, Mr Miah consulted Mr Philip Rayner, of Portcullis VAT Consultancy Ltd.

31.	A delay ensued whilst Mr Rayner took instructions from Mr Miah, and out of respect for the sad death of Mr Miah’s nephew.  Thereafter an arrangement was made for Mr Miah to meet Mr McClelland at the VAT office on 17 May 2001.   The meeting in fact took place on 22 June 2001.  Contemporaneous notes were made of the meeting, but the meeting was not recorded, so no transcript is available.

32.	It emerged from the interview that Mr Miah was maintaining that his takings had, in substance, been correctly declared.  He had had minor difficulties with staff stealing from him, but this had been “ages back”.  He reckoned that his tally of sales bills was almost complete.

33.	Mr Miah was taken specifically to the evidence obtained from the invigilations and observations.  The 1999 invigilations showed total takings for the business of £1,047.15 on Friday, 19 February 1999 and £1,026.35 on Saturday, 20 February 1999.  This compared with average Friday takings, in February and March 1999, of £713, and average Saturday takings in the same months of £731.  Mr Miah stuck to his takings in the £700s as being correct.  He said that, when his student customers went home, his takings were not very good.

34.	It was also pointed out to Mr Miah that the invigilation on Friday, 8 September 2000 showed takings for the day of £1,020, against a next highest Friday takings of £828, straight after the invigilation, and an average for all Fridays between February 1999 and September 2000 of £601.  Mr Miah stated that Customs must have invigilated on a good night.

35.	The invigilation on 11 September 2000 was on a Monday.  Takings recorded by Customs were £203, compared with an average of £88 for other Mondays in that month.  Mr Miah said that he had no explanation for this.

36.	Mr Miah was then asked about discrepancies between bills whose amounts he had declared and other bills not so declared.  It was put to him that there were two lots of bills, which when totalled, greatly exceeded the declared amounts.  Mr Miah said that there might have been an early cash-up and that the second lot of bills could have been overlooked.

37.	Mr Miah was told that Customs had noted 48 sales on 10 May 2000.  Mr Miah had declared 13 sales.  The video observations on 16 November 2000 had, said Customs, shown 30 sales, when Mr Miah had declared 13 sales.  The two “test purchases” on 9 September 2000 had not been declared, nor that on 11 September 2000.  Sales overheard by Customs officers had also not been declared.  Mr Miah said that he wished he had an answer to these matters, but that he hadn’t.

38.	When Mr Miah was told that the “test purchases” on 19 and 23 September 2000 had also not been declared, nor had a sale that had been overheard by Customs, Mr Miah is recorded as saying that he was “gob-smacked” and had no idea why this might be.

39.	The meeting ended with Mr Miah insisting that his declared takings were genuine, but that he didn’t know what to say in the light of Customs’ evidence.  Customs referred Mr Miah to his accountant for advice.

40.	Mr Miah consulted Mr Davies of Jones Burns Davies, accountants of Eckington, Derbyshire.  On 13 July 2001, Mr McClelland sent Mr Davies copies of the schedules used to calculate Mr Miah’s underdeclarations of VAT contended for by Customs.  

41.	The methodology employed in these schedules was to calculate the suppression rate for Mondays to Thursdays separately from that for Fridays to Sundays.  Marshalling all the information obtained, Fridays to Sundays indicated a suppression rate in the bracket 30 – 40%, whereas Mondays to Thursdays showed a much higher suppression rate.  Customs settled on an overall average of 36.41% suppression rate (corrected to 35.06% at the hearing) for Fridays to Sundays, and 64.84% for Mondays to Thursdays.

42.	Customs applied these suppression rates to the full three years from period 03/99 to period 03/01, calculating that £140,511 of takings had been underdeclared.  Expressed as a percentage of declared takings, this gave rise to an “error rate” of 82.89%.  That rate was applied separately to the tax declared for each quarter, providing a total of £27,098 output tax underdeclared for the full three years, being the amount assessed.

43.	The assessments were made on 11 July 2001 and notified on 25 July 2001.  On 29 August 2001, Mr Davies wrote to Mr McClelland indicating Mr Miah’s intention to appeal against the assessments, and on 14 September 2001, Mr Davies sent to Customs schedules of his own, putting forward, in effect, a counter-proposal for how underdeclared amounts of tax should be arrived at.

44.	It is noteworthy that Mr Davies adopted the Monday to Thursday/ Friday to Sunday dichotomy, but he then factored in a notional concept of 75% of customers being students who only patronize the establishment for 31 weeks per year.  On that basis, Mr Davies came up with a Monday to Thursday suppression rate of 44.95%, and a Friday to Sunday suppression rate of 24.67%.  That produced underdeclared takings of £44,323, an “error rate” of 42.31%, and total VAT underdeclared of £13,836.  So his methodology was the same, subject to the alleged student dimension.

45.	After that, matters rested unresolved for some months.  Mr McClelland sought an indication from Mr Davies in February 2002 as to whether he had any further proposals about the assessment, and received no reply.  However, on 28 February 2002, Kirtley Qureshi & Co, of Herries Road, Sheffield, wrote to Mr McClelland to say that they were now acting for Mr Miah.

46.	On 13 March 2002, Mr McClelland wrote to that firm indicating that it might be possible to agree a small reduction in the assessments on account of the student dimension.  Correspondence then continued whilst Customs briefed Kirtley Qureshi & Co on the details of the case.  Mr Miah spent some weeks in Bangladesh, but on his return, Kirtley Qureshi & Co submitted a report to Customs, on which Mr Miah relies for the purposes of this hearing.

47.	That report was presented on the basis that it might constitute “a tangible response which could form a basis of an amicable settlement” (we quote from the second paragraph of Kirtley Qureshi & Co’s letter to Customs dated 29 August 2002).  

48.	We find the report to be an impressive piece of work.  It proceeds on the footing that trade at the takeaway was very much dependent upon the students residing in the area (paragraph 35 of the report).  It offers calculations based upon notional differences in trade within and outside term-time.  It states (page 20 of the report) that Customs have acknowledged that term-time lasted 31 weeks and that this “seasonal trend” should be factored in.     

49.	The report alleges (paragraph 17) that Customs failed to treat Mr Miah in “an equitable and equal manner” and that there was exhibited what is described as “institutionalised covert racism”.   It alleges (paragraphs 20 and 27) that the invigilations on 19 and 20 February 1999 were used to assess Mr Jahir, the thrust of the report being that these invigilations were irrelevant to any assessment of Mr Miah in relation to the business.  

50.	However, having listened to Mr Miah, we do not think that it is correct to say that the invigilations of February 1999 were irrelevant, as Kirtley Qureshi & Co have alleged in their report.  This is because, on Mr Miah’s own evidence, the business continued to be run, after he acquired it, in exactly the way that it had been run before.

51.	Mr Miah told us that he took over the “Bilash Balti House” as a going concern under the supervision of a manager, a gentleman called Mr Shergul.  Mr Miah told us that he, Mr Miah, did not attend the premises on a daily basis – he might attend on a Sunday; otherwise he would leave the business to look after itself.  The business was acquired by Mr Miah complete with staff – chef, second chef and manager.  Mr Shergul would do the cashing-up for the business, dropping off the daily takings at Mr Miah’s home, and leaving the bills at the premises.  Mr Miah lived 10 miles away from the premises.

52.	We find that Mr Miah regarded ownership of the business as no more than an investment opportunity. Mr Jahir was looking for a quick sale of the business at the beginning of 1999, and Mr Miah had the funds to purchase it.  Mr Miah regarded the business not as something that he would take over and run in a “hands on” fashion, but as a vehicle for producing a return on capital.  

53.	The key to the “Bilash Balti House” was accordingly that it continued to be managed and run by Mr Shergul, not Mr Miah, just as it had been before it was sold by Mr Jahir to Mr Miah.    

54.	Mr Miah accepted in tribunal that the staff at the takeaway might well have been “milking” him, as he put it in his evidence-in-chief.  In his first reply to Mr Cannan in cross-examination, Mr Miah said that, if the figures obtained by Customs were accurate, he had no other explanation than that of stealing by his staff.

55.	We find that Mr Miah was naïve.  We think that, at least for the first few months of his ownership, he was not really bothered about how well the takeaway was doing, so long as he obtained an income from it that was no smaller than his expectations, from the standpoint of an investor who was unfamiliar with the details of running a takeaway.  In cross-examination, he readily agreed that it seemed there had been underdeclarations of tax in respect of the business.

56.	Then, after a few months, the business lost its chef, and Mr Miah was obliged to come in to the premises for one or two days during the week.  However, he told us that, from Customs’ figures, he thought that it was at that stage all the more likely that his employees were stealing from him.  He told us that the takings seemed to him to be pretty much the same as they had been before.

57.	We therefore do not think that it is wrong to have regard to the results of the February 1999 invigilations in assessing the overall picture of the business during the period of ownership of Mr Miah.

58.	We are also sceptical as to the so-called “seasonal trend” in respect of students.  The tribunal received only a small amount of evidence about student customers of the business.  Kirtley Qureshi & Co are not correct that Customs accepted a 31-week term-time.  As we mention in paragraph 44 above, that was a concept introduced by Mr Davies of Jones Burns Davies in his proposals.  All that Customs did, by their letter to Kirtley Qureshi & Co dated 13 March 2002, referred to in paragraph 46 above, was to acknowledge that there might possibly be a reduction in the assessments to make allowance for the variations in trade caused by the student population.  The extent of that reduction, and on what basis it might be accepted as appropriate by Customs, was never fleshed out.

59.	Mr Cannan asked Mr Miah in cross-examination about his university student customers.  Mr Miah said that they would come into the premises in fours or fives, and order starter courses between four of them.  There would therefore be more customers, but less food would be sold.  However, the tribunal had no evidence as to the proportion of customers overall that might be represented by students, no evidence as to term-times, and no evidence as to the effect that fluctuations in the student population during the year might have on the takings of the business.  The only other evidence that we have under this head is that, in interview, Mr Miah said that, when his student customers went home, his takings were not very good.  There does not seem to have been any elaboration of this assertion.

60.	We conclude that the careful piece of work done by Kirtley Qureshi & Co in their report is invalidated by the lack of evidence that students formed a significant part of the customers of the business during some times and not others, and by the fact that the report incorrectly, in our view, disregards the February 1999 invigilations in its calculations.  We do not pause to consider the allegation of “institutionalised covert racism”, as to which there is not a shred of evidence before the tribunal.  We find this to be a surprising assertion in the context of this case, and one that is unworthy of chartered accountants of the stature of the partners in Kirtley Qureshi & Co.

61.	For Customs, Mr Cannan submitted that we should reject the report of Kirtley Qureshi & Co, which we do for the above reasons.  He referred us to the cases of Pegasus Birds Ltd v Customs and Excise Commissioners (No 2) [2004] STC 1509 and Rahman (trading as “Khayam Restaurant”) v Customs and Excise Commissioners (No 2) [2003] STC 150 as to our role, submitting that in the vast majority of cases of assessments made to “best judgment”, including the present, the tribunal was only concerned to verify the quantum of the assessments.  Mr Cannan submitted that there had been no “realistic challenge” to what had been an honest and genuine attempt by Customs in this case to make reasonable assessments.  He said that this was consonant with what Mr Miah had told the tribunal in evidence.

62.	Mr Miah said that his attitude had been one of co-operation throughout, submitting to interview and supplying Mr McClelland with everything he requested.  He was concerned that he should not be thought to have withheld some bills for sales by the business and put forward others.  

63.	In our view the assessments under appeal were in order within the meaning of section 73(1) of the Act as interpreted by the authorities, in particular those mentioned by Mr Cannan in his submissions.  There is no suggestion in this case that there existed any irregularity on the part of Customs that might justify us in striking down any of the assessments.   

64.	As to the quantum of the assessments, we observe that the methodology adopted by Customs equated with that adopted by Mr Davies, save that he prayed in aid the student dimension.   Kirtley Qureshi & Co also adopted the student dimension, employing a different methodology which took account of some parts only of the evidence assembled by Customs.  We have rejected the student dimension as not borne out by the facts that we have found.  We have also rejected the selective approach to the evidence employed by Kirtley Qureshi & Co.

65.	We think that it was reasonable for Customs to have had regard to all the evidence assembled by them, which was quite extensive in this case.  We find that, on that basis, the methodology adopted by Customs has not been the subject of serious challenge at any stage.  Rather the approach of the respective accountants has been to come at the quantum of the underdeclarations from different angles – angles that we have rejected.

66.	The actual figures have not been the subject of challenge at all – in other words, no-one has contended that an alternative calculation, on the evidence assembled by Customs, might be correct.  Indeed, the only correction that might be appropriate has been the one picked up by Customs themselves, whereby the assessed figure of £27,098 should be reduced to £26,171.

67.	We accept that reduction as correct.  It reflects a mere clerical error that we need not trouble to rehearse.  Subject to that reduction, we have concluded that we should dismiss this appeal.  The appeal is therefore allowed only to the extent that the assessments under appeal should be reduced to a total of £26,171.

68.	We do not understand Customs to be applying for costs.  However if there is such an application, we will hear it, and we give liberty to restore the case to the list for the limited purpose only of making such application.

 

MICHAEL JOHNSON
CHAIRMAN
Release Date: 12 September 2005

MAN/02/0738