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	United Kingdom VAT & Duties Tribunals Decisions
You are here: BAILII >> Databases >> United Kingdom VAT & Duties Tribunals Decisions >> Beech & Anor v Revenue & Customs [2006] UKVAT V19695 (09 August 2006) URL: http://www.bailii.org/uk/cases/UKVAT/2006/V19695.html Cite as: [2006] UKVAT V19695

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19695

VAT – output tax – newsagent and tobacconist zero-rating sales which should have been standard-rated – appeal dismissed.

MANCHESTER TRIBUNAL CENTRE

RAYMOND JOHN BEECH and

MARRISSA MARJORIE BEECH

Appellant

- and -

THE COMMISSIONERS FOR

HER MAJESTY'S REVENUE AND CUSTOMS Respondents

Tribunal: David Demack(Chairman)

Arthur Brown FCA CTA

Sitting in public in Manchester on 31 July 2006

The Appellants did not appear and were not represented

Mr Nigel Poole of counsel, instructed by the Acting Solicitor for HM Revenue and Customs for the Respondents

© CROWN COPYRIGHT 2006

DECISION

1. The Appellants Mr Raymond John Beech and Mrs Marrissa Marjorie Beech (his wife), trade in partnership under the style T & T Newstores as newsagents and tobacconists from premises at Ellesmere Port, South Wirral. They registered for VAT with effect on 1 December 1992.
2. As a result of their having made a repayment return in every accounting period between period 05/02 and 08/04, they were selected for a visit by officers of Her Majesty's Revenue and Customs ("HMRC). The visit was made to their shop by Miss Teresa Scanlan on 14 October 2004. She noticed a high incidence of 'No sales' on the till roll produced by their two electronic tills, and that although there was no break in the Z reading sequence, sometimes the numbers of those readings were out of sequence. Miss Scanlan found that Mr and Mrs Beech had retained their till rolls for the period to September 2004, but not thereafter, she being told that the tills had not been working properly after that date. Although Miss Scanlan could not readily obtain the purchase price of zero-rated goods from Mr and Mrs Beech's records, she was able to calculate from the records that in accounting periods 11/02 to 11/04 they claimed to have achieved a mark-up on sales of standard-rated goods of 0.13 per cent, and on zero-rated goods of 60.12 per cent. As that difference did not appear to Miss Scanlan to reflect the true mark-up achieved on each category of goods, she asked Mr and Mrs Beech for an explanation of the large difference between those figures. They offered the following three reasons or explanations for the differences:

a) the Z readings were out of sequence due to power fluctuations at an electricity substation behind the shop;

b) the repayment returns were the result of stock being stolen (for which letters to the police and the MP were produced as evidence); and

c) they had made no insurance claims following the thefts because of the small value of goods stolen.

3. Miss Scanlan endeavoured to carry out a general mark-up exercise, but was unable to do so due to some of Mr and Mrs Beech's zero-rated purchase invoices being missing. She did, however, conclude that they were unable accurately to use the apportionment scheme, and decided to carry out a mark-up exercise based on standard-rated purchases, of which she had evidence, in order to quantify their output tax.
4. Having uplifted Mr and Mrs Beech's records and examined them, on 19 April 2005 Miss Scanlan wrote to Messrs. John Davies & Co., their accountants, with her findings and expressing her concerns, particularly on the mark-ups apparently achieved. She also indicated that her calculations, ignoring stock thefts, showed that Mr and Mrs Beech owed £9,599 VAT for the period 1 September 2002 to 30 November 2004. Although she invited a reply to her letter, the accountants failed to make any response.
5. Mr and Mrs Beech then complained to their MP about HMRC's conduct. HMRC dealt with the complaint, and by letter of 22 June 2005 sought further information from Mr and Mrs Beech themselves. They failed to reply to the letter. It was at that stage that HMRC made the assessments under appeal. They were notified on 22 July 2005, and totalled £9,597.
6. On 21 September 2005, Mr and Mrs Beech asked for a local review of the assessments. In the letter of request, Mr Beech explained that the business was in decline, that thefts of stock represented a major problem, and that the profit on capital employed was 5.5 per cent. She produced no evidence to support her various statements. Nevertheless, Miss Scanlan reconsidered the assessments, and agreed that an allowance for theft and wastage of 5 per cent should be made. In consequence, the assessments were reduced to £9,113.
7. The appeal was listed for hearing on 20 April 2006. On the day immediately prior thereto, Mr and Mrs Beech's accountants wrote to the Manchester Tribunal Centre with a number of schedules amongst which was a 'Summary of Recalculated VAT Assessments' showing a repayment due to Mr and Mrs Beech of £1231.77. In the accompanying schedule of 'Recalculation of VAT Assessments', the accountants indicated that they had made three assumptions.

1) "A reworked average mark-up price for SR standard-rated goods of 8.52% has been used as indicated on the attached worksheet.

2) This was based on prices actually used in the shop and not on RRP [recommended retail price] as used by HMRC.

3) The shop has experienced very high levels of theft indicated by the police reports. Mr and Mrs Beech believe it is realistic to assume that 7% of SR sales are subject to theft.

4) Wastage has been estimated at 2% of SR sales. Again this considered a realistic assumption"

8. None of those assumptions was supported by evidence. Nonetheless, Miss Scanlan carried out yet a further review of the assessments, and on 22 May 2006 wrote to the accountants explaining why she had agreed further to reduce the assessments to £7,617. She rejected the accountants' reworked average mark-up priced for standard-rated goods of 8.52 per cent (as opposed to the figure of 10.88 per cent on which she had worked) saying that the accountants claimed to have used the prices actually obtained by Mr and Mrs Beech in contrast to the producers' recommended retail prices they claimed in the Notice of Appeal to have used.
9. Miss Scanlan observed that allowances for theft and wastage of 7 per cent and 2 per cent respectively were excessive. To illustrate that observation, she noted that as tobacco and cigarettes represented 85.87 per cent of Mr and Mrs Beech's standard-rated stock, allowances totalling 9 per cent would equate to them losing an average of 12.54 packets of cigarettes per day, of which 2.78 packets would be represented by wastage. Needless to say, Miss Scanlan was not prepared to accept the accountants' figures, particularly as they were not supported by evidence.
10. In relation to the zero-rated mark-up, Miss Scanlan said this in her letter:

"Schedule B calculations show that the Z/R Mark up has subsequently increased to 88.18% on average. Mr Beech advised me during my initial visit that sales were split approximately 60% S/R and 40% Z/R with the majority of S/R Sales being cigarettes. This however is not being reflected in the figures on the VAT returns. The figures declared on the VAT returns in question show that your clients are only making £1.02 per week on average on S/R goods but £1,738.29 on Z/R goods. If consideration is given to allowances in respect of theft and wastage totalling 9%, this is subsequently increased to £6.87 per week on average for S/R Goods and reduced to £1,704.84 on Z/R Goods. This clearly illustrates that your clients have difficulty in identifying the correct VAT liability at the time the goods are sold. At no time since my initial visit of 14/10/04 have these concerns been addressed."

11. It is against that factual background that we are required to reach our conclusion. Mr and Mrs Beech indicated in a letter of 14 May 2006 to the Tribunal that they would not be attending the hearing of their appeal. On the application of Mr Poole, counsel for HMRC, we determined to proceed under rule 26(2) of the VAT Tribunals Rules 1986, as amended, that is in the appellants' absence.
12. It has long been established that the burden of proof in appeals against tax assessments is on the appellants: HMRC have to prove nothing. For the benefit of Mr and Mrs Beech, we should explain that that means that it is for them to prove on the balance of probabilities, i.e. it is more likely than not, that the assessments under appeal were excessive or, much less likely these days following certain decisions of the higher courts, that they were not made to HMRC's best judgment.
13. In the absence of any evidence whatsoever to show that the assessments were excessive, and no claim that they were not made to HMRC's best judgment, we have no alternative but to confirm them in their reduced total of £7,617. We do so, and dismiss the appeal.
14. We make no direction as to costs.

David Demack

CHAIRMAN
Release Date: 9 August 2006

MAN/05/811