Douglas v R & C Commissioners
| Jurisdiction | UK Non-devolved |
| Judgment Date | 13 July 2021 |
| Neutral Citation | [2021] UKUT 163 (TCC) |
| Court | Upper Tribunal (Tax and Chancery Chamber) |
[2021] UKUT 163 (TCC)
Upper Tribunal (Tax and Chancery Chamber)
Judge Timothy Herrington, Judge Thomas Scott
Nigel Ginniff, Counsel, appeared for the appellant
Julian Hickey, Counsel, instructed by the General Counsel and Solicitor to HM Revenue and Customs, appeared for the respondents
Value added tax – Best judgment assessment – Whether FTT erred in making factual findings beyond the agreed issues – Whether FTT failed to take into account relevant evidence – Whether FTT made a finding not available to it on the evidence – Appeal dismissed.
The Upper Tribunal dismissed an appeal against an FTT decision upholding an assessment issued by HMRC to a retailer who, HMRC alleged, had underdeclared VAT on his sales.
Mr Douglas ran three shops which sold newspapers, tobacco and confectionary etc. Following a VAT inspection HMRC determined that VAT of £140,000 had been underdeclared and an assessment was issued.
The FTT [2019] TC 07359 concluded that HMRC's assessment had been issued to best judgment and found that Mr Douglas had not demonstrated that the assessment was, on the balance of probabilities, excessive.
The FTT dismissed the appeal because Mr Douglas has not provided any evidence which demonstrated to the FTT that the assessment was flawed (para. 24). Mr Douglas' appeal to the UT was based on three grounds (para. 25):
- The FTT had erred in law by making factual findings which went beyond the scope of the issues being considered;
- In reaching its conclusion that Mr Douglas had not demonstrated that the assessment was too high, the FTT had not taken account of evidence presented; and
- The FTT had made a finding which was not available to it on the evidence (that Mr Douglas had not provided certain till rolls in evidence).
In relation to the first ground of appeal, HMRC's assessment was based upon a business economic exercise because the till rolls, which HMRC contended were needed in order verify the information regarding takings (contained in the daily Z1 reading from the till), were unavailable. Mr Douglas maintained that, by the time of the FTT hearing, the issue of the missing till rolls was not part of the dispute. He argued that HMRC had accepted that the Z1 report information was reflected in the VAT return and the dispute between the parties was whether the tills were inaccurate or faulty. HMRC disputed this. HMRC maintained that, because of the absence of till rolls, it had not accepted that the Z1 reports were reliable (para. 31).
The UT referred to the judge's notes which were part of an unpublished FTT hearing regarding Mr Douglas' permission to appeal. The UT noted that there was a clear conflict between these notes (which supported HMRC's version of events) and the appellant's. The UT concluded that the judge's notes were conclusive of the matter (para. 32) and that, if the FTT decision was read in its entirety, “the reliability of Mr Douglas's records, and the significance in that context of the missing till rolls, was front and centre in the appeal” (para. 34).
In relation to ground 2 of the appeal, Mr Douglas presented the UT with various aspects of his evidence which, he argued, the FTT had not taken account of. The UT dismissed these challenges. The UT noted that the key issue before the FTT was the reliability of Mr Douglas's records (see e.g. para. 46 and 50). The UT concluded that in the absence of underlying records (e.g. the till rolls) the FTT was entitled to conclude that Mr Douglas had not provided a sufficient basis on which to challenge the quantum of the assessments.
On the final grounds of appeal, Mr Douglas argued that he had provided till rolls for one of his shops and that the FTT should not, therefore, have found that no till rolls were available for this shop. The UT again rejected this as a ground of appeal. On referring back to the FTT decision, the evidence Mr Douglas had provided was considered by the FTT and the FTT had given full reasons for rejecting it (para. 56).
Mr Douglas had received a substantial assessment from HMRC which, his counsel suggested (para. 51), he was unable to pay. The assessment was issued because HMRC considered that takings had been underdeclared. The principal issue at the FTT [2019] TC 07359 was the reliability of the appellant's records. Unfortunately, none of the arguments presented at the UT addressed this fundamental weakness in the appellant's case.
[1] This is an appeal from the decision of the First-tier Tribunal (Tax Chamber) (the “FTT”) (Judge Jennifer Dean and Ms Susan Stott) released on 4 September 2019. By that decision (the “Decision”) the FTT dismissed the appeal of the appellant, Kingsley Douglas, a sole trader, against the decisions of the Respondents (“HMRC”) to raise assessments to VAT for the VAT quarterly period 09/09 in the sum of £7,319.17 and VAT periods 06/10 to 12/13 totalling £132,693.00.
[2] The assessments were made under section 73 of the Value Added Tax Act 1994 (“VATA”) which provides that where it appears to the Commissioners of HMRC that a VAT return is incomplete or incorrect, the Commissioners may assess the amount of VAT due from that person “to the best of their judgment” and notify it to that person. HMRC made those assessments because they considered that Mr Douglas did not have the till rolls relating to sales made in his business, which was the operation of three confectionery, tobacconist newsagent shops. Consequently, HMRC considered that they did not have the underlying records with which to verify the figures declared on Mr Douglas's returns. HMRC then carried out a “business economic exercise” which formed the basis of the “best judgment” assessments. The FTT determined that HMRC had fairly considered all of the material available and arrived at a decision which was reasonable and not arbitrary as to the amount of tax due. They also found that Mr Douglas had not satisfied the burden which was on him to demonstrate that the amounts of the assessments were wrong.
[3] By a decision dated 23 September 2019, the Upper Tribunal (Judge Richards) gave Mr Douglas permission to appeal against the Decision. We refer to the grounds of appeal in detail later, but in summary Mr Douglas contends (i) the FTT erred in making factual findings outside the scope of the issues which the parties had agreed fell for determination on the appeal (ii) in determining that there was no evidence upon which they could conclude that Mr Douglas had shown the assessments to be wrong the FTT failed to take into account relevant evidence and (iii) the FTT made a finding on one particular matter which was not available to it on the evidence.
[4] HMRC contend that the FTT was fully entitled to reach the conclusions that it did for the reasons it gave.
[5] Section 73 of VATA, so far as relevant, provides:
(1) Where a person has failed to make any returns required under this Act (or under any provision repealed by this Act) or to keep any documents and afford the facilities necessary to verify such returns or where it appears to the Commissioners that such returns are incomplete or incorrect, they may assess the amount of VAT due from him to the best of their judgement and notify it to him.
(2) In any case where, for any prescribed accounting period, there has been paid or credited to any person –
- as being a repayment or refund of VAT, or
- as being due to him as a VAT credit,
an amount which ought not to have been so paid or credited, or which would not have been so paid or credited had the facts been known or been as they later turn out to be, the Commissioners may assess that amount is being VAT due from him for that period and notify it to him accordingly.
[6] At [93] and [94] of the Decision, the FTT correctly set out the principles to be derived from the cases on “best judgment” assessments as follows:
[93] It is a well-established principle following Van Boeckel1 that an assessment is made to best judgement if HMRC “fairly consider all material placed before them and, on that material, come to a decision which is one which is reasonable and not arbitrary as to the amount of tax which is due.”Van Boeckel also endorsed the concept that the officer making the assessment:
must not act dishonestly, or vindictively or capriciously, because he must exercise judgement in the matter. He must make what he honestly believes to be a fair estimate of the proper figure of the assessment, and for this purpose he must, their Lordships think, be able to take into consideration local knowledge and repute in regard to the assessee's circumstances, and his own knowledge of previous returns by and assessments of the assessee, and all other matters which he thinks will assist him in arriving at a fair and proper estimate; and though there must necessarily be guesswork in the matter, it must be honest guess work.
[94] Once this threshold is passed, the burden falls on the taxpayer to establish on the balance of probabilities that the assessment is excessive. In Tynewydd Labour Working Men's Club and Institute Ltd v C & E Commrs (1979) 1 BVC 282 it was stated that:
… any taxpayer who appeals to the tribunal takes upon himself the burden of proving the assertion he makes, namely that the assessment is wrong, because unless he proves this there is nothing on which the tribunal can find an error in the assessment. There should be no difficulty in the way of the Appellant assuming this burden. The facts and figures are known to him, and if he does not understand the Commissioners' case, the rules provide for the Commissioners to give a proper explanation.
[7] Thus, it can be seen that the case law establishes that there are two distinct questions for a tribunal in considering an appeal in respect of a best judgment assessment. The first is whether HMRC have assessed the amount of VAT due “to the best of their judgment”. The second is whether the tribunal has...
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...facts and figures are known to him … [87] Those dicta were recently cited with approval by the Upper Tribunal in Douglas v R & C Commrs [2021] BVC 510 (Judges Herrington and Scott). Other VAT legislation and regulations [88] VATA s 26(2) provides that a taxable person can recover any input ......
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Kingsley Douglas v The Commissioners for HM Revenue and Customs [2021] UKUT 0163 (TCC)
...[2021] UKUT 0163 (TCC) Appeal number: UT/2020/0040 VALUE ADDED TAX – best judgment assessment - whether FTT erred in making factual findings beyond the agreed issues - whether FTT failed to take into account relevant evidence - whether FTT made a finding not available to it on the evidence ......