20828

Value Added Tax – whether additional assessments calculated to best of Commissioners’ judgment – Section 73 VATA 1994 – revised assessments upheld.

EDINBURGH TRIBUNAL CENTRE

	PIPEWORK SYSTEMS.CO.UK LTD	Appellant

	- and -

	THE COMMISSIONERS FOR 
	HER MAJESTY’S REVENUE & CUSTOMS	       Respondents

			Tribunal:	 (Chairman):  Mr Kenneth Mure, QC
					 (Member):     S A Rae, LLB., WS

Sitting in Edinburgh on Tuesday 23 September 2008

for the Appellant		No Appearance

for the Respondents	Mr Bernard Haley, Solicitor’s Office, VAT & Excise
Litigation

© CROWN COPYRIGHT 2008.

DECISION

Introduction
This Appeal relates to 2 additional assessments to VAT, one for £9034 for the period 07/06 and another for £20,717 for one year covering the periods from 07/04 to 04/05.

The Appellant company was not represented.  There had been correspondence with Mr Gilmartin, one of its directors, but he did not appear.  The Appellant had been advised of the hearing date.  It has not lodged VAT returns for 2 periods and apparently no longer trades from its only known address.  However, its details on the Companies Register remain unchanged.

Having adjourned briefly in case of transport delays we considered it appropriate to hear the appeal in absence in terms of Rule 26(2).  It is not entirely clear whether the additional assessment for £9034 is under appeal.  The terms of the Notice of Appeal and the date reference there suggest not.  However, we heard evidence relating to the calculation of both assessments.  

The Law
The legal issue is quite simply whether having regard to Section 73(1) VATA 1994 these additional assessments were made to best judgment by the Respondents’ officers.

Evidence and Argument
No objection was taken to the witness statements of Robert W C Taylor and Lesley Susan Turner, 2 officers of the Respondents.  Mr Taylor was present and gave evidence to the Tribunal.  Subject to one aspect noted in our Decision infra on the adjustment in respect of debtors, we found Mr Taylor’s evidence entirely satisfactory and credible.  His enquiries followed on a routine assurance visit to the Appellant’s premises on 27 September 2006.  He discussed matters with Ms Toner, the Appellant’s accounts manager.  He has had no contact with Mr Gilmartin.  

So far as the period 07/06 was concerned VAT of £4838 on 2 vans had been re-claimed prematurely.  Additionally the balance of VAT due for the final month of July had not been accounted for.  Additional output tax of £6622 fell to be added and extra input tax of £2426 fell to be deducted.  Thus an additional £9034 is due.  (See Bundle, Part 2 pages 1-2). 

The second additional assessment, originally for £22,888 and then reduced to £20,717, has been calculated by comparing the Appellant’s annual accounts with the relative VAT periods.  The Profit & Loss account for the year to end March 2005 indicates total sales of a sum in excess of the total VAT outputs declared of £607,061 for the comparable four periods by £75,345.  (It seems that the accounts were all one month out of sequence and thus these periods correspond).  This calculation is set out helpfully at Part 2, page 29 of the Bundle.

Additionally in their calculation the Respondents sought VAT on the amount by which the Appellant’s debtors had been reduced by the end of the period covered by the P&L account.  Originally this had been mis-calculated by taking a VAT inclusive figure, but at page 29 a lower revised figure of £63,760 is produced and the assessment was amended accordingly.  We explain our reservations about including this in the additional assessment in our Decision.

Decision
We are satisfied that the Respondents’ officers made earnest efforts to calculate accurately the VAT due by the Appellant.  There is copy correspondence in the Bundle of productions with repeated requests for further information from the Appellant.  Certain bank statements were produced but only for part of the period sought.  The area in which the Appellant’s premises are situated is subject to flooding and there may have been water damage to business books.

So far as the first assessment is concerned (viz £9034 for 07/06) we are satisfied that the re-calculation has been made to best judgment.  We are satisfied that repayment of VAT on the vans was premature.  The balance of VAT due for the final month of July in this period should have been included too.

In relation to the second assessment we agree that a re-calculation falls to be made, adding the shortfall of sales by reference to the P&L account.  However, we had reservations as to whether a further addition should be made for the reduction in debtors.  There is a dearth of information as to how the accounts were produced.  The method seems to have been a form of “cash” basis.  If invoices issued are totalled to produce a total “output” figure, then this may well include the value of debtors whose payments are made late.

Having explained our concern to Mr Haley and then having adjourned briefly, he indicated that he thought it appropriate to withdraw this element in the second assessment.  Accordingly he proposed that the second assessment should be restricted to VAT on the difference between the P&L account figures for sales and the outputs declared, viz £75,345.  We would respectfully agree in principle with that and accordingly the second assessment, so revised, represents a calculation to best judgment.

We note that the extra tax due has been apportioned between the relevant VAT periods rateably according to their pre-existing totals.  We consider this also to be correct.

Costs
No application for Costs was made by Mr Haley and accordingly we make no award.

We are grateful to Mr Haley for his assistance in this matter and his careful consideration of the issues raised by us.

MR KENNETH MURE, QC

CHAIRMAN

RELEASE:  10 OCTOBER 2008

EDN/07/152