19682

Late registration – Penalty – Assessment – Whether Appellant liable to be registered from date in 2001 – Yes – Whether penalty for his failure to notify liability to be registered properly imposed – Yes – Whether assessment in correct amount – Yes – Appeal dismissed

LONDON TRIBUNAL CENTRE

	MEHMET GURBUZ	           Appellant

-	and –

	THE COMMISSIONERS FOR HER MAJESTY’S REVENUE & CUSTOMS 	 Respondents

				Tribunal:	STEPHEN OLIVER QC (Chairman)
						HELEN FOLORUNSO

Sitting in public in London on 24 July 2006

The Appellant in person

Jonathan Holl for the Respondents

© CROWN COPYRIGHT 2006

DECISION

1.	The Appellant, Mehmet Gurbuz, appeals against a decision contained in a letter of 17 June 2004 notifying him that he was liable to be registered for VAT with effect from 1 November 2001 under the provisions of VAT Act 1994 Schedule 1 paragraph 1(1). He further appeals against penalty in the sum of £3,697 imposed under section 67(1)(a) for his failure to notify his liability to be registered at the correct time. The Appellant further appeals against an assessment for VAT considered to be due from him in the sum of £21,286 for the period from 1 November 2001 until 30 September 2004 raised under section 73(1) and notified to him on 25 November 2004.

2.	The Appellant attended the hearing but gave no evidence. Nor did he challenge or question the evidence given by Ms Laura Castle, the assurance officer called for the Respondents.  The findings of fact that follow are therefore taken largely from the Respondents’ Statement of Case on the grounds that they have gone without challenge.  

Findings of fact

3.	The Appellant, trading as “Deal Kebab and Pizza House” has been in business providing hot food from premises in high street, Deal, from 21 July 1999.  His business had been taken over as a going concern from Mustafa Deniz.  Mr Deniz had been registered for VAT.

4.	An inquiry visit was made to the Appellant in late 2003 by an officer from the Maidstone VAT office.  Registration for VAT had been discussed as had been the requirements to maintain certain records and accounts.  The Customs wrote to him on 14 November 2003 advising him about registration for VAT and about the requirement to make and keep records of daily gross takings.  He was supplied with a copy of Notice 700/1 and a further appointment was notified for 26 November 2003.  

5.	Test purchases were made and observations were conducted of the Appellant’s business on Tuesday 10 February 2004 and on Thursday 26 February 2004.  The officers taking part recorded all sales observed by them or overheard by them.  

6.	An arranged visit to the Appellant’s premises took place on 28 April 2004 at which the Appellant was interviewed and the records and accounts of the business were examined.  The opening hours, recording of sales, cashing up, prices and price rises, details of suppliers etc. were noted down.  The Customs had recorded a total of 63 purchases, including those of the officers, on 10 February 2004.  The till reading, “Z” reading, recorded 44 transactions for that day.  On 26 February 2004 the Customs had recorded 63 purchases, including those made by the officers.  The Z reading from the till recorded 39 transactions.  Examinations of the records and accounts revealed that not all the purchases made by officers and observations made by them had been recorded.  This was put to the Appellant at the meting.  The next day the Customs notified the Appellant of their findings and that they considered that 34% of his daily gross takings was underdeclared in that period.

7.	The Appellant’s accountant, Stavri & Co, provided the Customs with a list of the business daily gross takings from July 1999 until December 2001.  Then, by letter dated 17 June 2004, the Customs notified the Appellant of his liability to be registered with effect from 1 November 2001. They had applied the rate of suppression of 34% to the monthly takings figures from February 2004 back to July 1999 on a reducing scale. From these calculations it was found that the Appellant’s turnover, as calculated by the Customs, breached the objective test for a liability to register for VAT in October 2001. The effective date for registration was found to be 1 November 2001.

8.	The letter from the Customs of 17 June 2004 also notified the Appellant that he was liable to a penalty for failing to notify his liability to be registered at the correct time.

9.	Stavri & Co, writing for the Appellant, referred to the Customs’ letter of 17 June 2006.  Their response was as follows:

“Whereas we are in agreement with its contents, we find ourselves pleading for the above regarding Commencement date of Registration.  Mr Gurbuz recently got married.  With his wife’s help (reducing his overheads) he will just about be able to pay output VAT.  By backdating his registration to 1 November 2001 will be catastrophic.  Two and three-quarter years would be beyond his capability.”

10.	By a letter of 17 August 2004 Stavri & Co stated that registration would be difficult for their client, that his staff had been sacked and that he and his wife would be in charge of the cash register.  A date of registration in 2004 would give the Appellant a fighting chance.

11.	The Customs advised Stavri & Co that clear proposals would be required if an alternative date of registration were to be considered. There was no further communication from the Appellant or from his representative. The Customs notified him of a penalty in the sum of £3,697 for failing to register for VAT at the correct time.  In the absence of a return being rendered by the Appellant for the period from 1 November 2001 to 30 September 2004 the Appellant was notified of an assessment for VAT in the sum of £21,286. That assessment was made under the provisions of section 73(1).

12.	Stavri & Co then asked the Customs to carry out a review of the decisions notified to him. The conclusion of the review officer was that there were no grounds for changing the decisions.  

The contention for the Appellant

13.	In his notice of appeal the Appellant says:

“Effective date of registration 1.11.01 will render my business bankrupt.  VAT officers’ observations 10.2.04.  Price increases occurred on 1.1.04.  VAT officers’ calculations based on 2004 prices.”

When he came to present his case to the Tribunal, Mr Gurbuz stated that –  “My figures are true”.  He went on to point out that, for certain items on the menu, zero-rating applied.

The case for Customs

14.	The case for the Customs is that the decision to require the Appellant to be registered with effect from 1 November 2001 was reasonable. The Customs had found that not all of the Appellant’s sales had been recorded.  They had therefore calculated a rate of suppression and applied it to declared sales on a reducing basis back to the start of his business.  This, it was pointed out, gave the Appellant the benefit of the doubt by assuming that there had been no suppression of sales at the very start; had the Customs taken the position that the Appellant had been suppressing sales from the very start of his business in 1999, the registration threshold would have been crossed on an earlier date than 1 November 2001.

Conclusions

15.	The unchallenged evidence shows that the Customs conducted an examination into the Appellant’s business activities. In the circumstances this has in no way been shown to be incorrect or inaccurate.  There was no challenge to the conclusions to be drawn from the observations and from the test purchases.  Both of these indicated that sales were being suppressed.  Nor has any challenge been made as to the calculation of the suppression rate.  It seems to us, therefore, that in the absence of any evidence to the contrary, there is no case for displacing 1 November 2001 as the effective date for registration.   In particular, we cannot see that the fact that price increases had occurred on 1 January 2004 makes any difference to the calculations.  The calculations are based on the assumption that the suppression rate has remained constant; this is applied to sales figures.  As far as we can see, price changes have no effect.

16.	Turning to the penalty imposed upon the Appellant for his failure to make application to register for VAT at the correct time, we consider that this is reasonable.  No grounds have been put forward to establish a reasonable excuse.  Nor can we see any grounds on which to mitigate the penalty. Here again we have to take the circumstances as we find them and, in the absence of any contrary evidence from the Appellant, we are bound to accept the interpretation put forward by the Customs. 

17.	We turn finally to the assessment. We recognize that while the liability to register for VAT remains in dispute, the Customs would not require the Appellant to render a return for VAT.  Nonetheless the Customs still have a duty to manage the VAT and it seems to us reasonable that they should notify the Appellant of a liability to VAT based on their findings.  They had some material before them on which to base their judgment.  Nothing that the Appellant has disclosed or said has in any way displaced the accuracy or reliability of the information used by the Customs.  It seems to us that they have made an acceptable attempt to reach a fair assessment.  For that reason we can see no grounds for reducing the assessment.

18.	For all the reasons given above, we dismiss the appeal.  Nonetheless, we repeat what we have said earlier.  Nothing that has been said or done by either the Appellant or his accountant has provided us with any grounds to see this matter in a different way from the Customs. We should add that we have looked at the point taken by Mr Gurbuz that some of the food sold by him should properly have been zero-rated. But we note that the “flat rate scheme” has been applied for the purpose of the calculations made by the Customs.  It is likely that this scheme reflects an element of zero-rating. Consequently we cannot see that this factor should have affected the calculations. The Customs offered to have a look at this point but could hold out little hope for Mr Gurbuz.  All we can say is that it does not affect our conclusion. 

19.	Appeals dismissed.

STEPHEN OLIVER QC
CHAIRMAN

RELEASED: 8 August 2006

LON/04/1347
££Mehmet Gurbuz v  Revenue & Customs [2006] UKVAT V19682 (08 August 2006)