Great British Takeaway Ltd
| Jurisdiction | UK Non-devolved |
| Judgment Date | 01 September 2022 |
| Neutral Citation | [2022] UKFTT 315 (TC) |
| Court | First-tier Tribunal (Tax Chamber) |
[2022] UKFTT 315 (TC)
Judge Anne Redston
First-Tier Tribunal (Tax Chamber)
VAT – Alleged suppression of sales - leading questions and adverse inference – Whether assessment made on time – Yes – Whether assessment made to HMRC’s best judgment – Yes - VATA 1994, s. 73 – Penalty for errors – Whether behaviour deliberate – Yes – FA 2004, Sch. 24.
In Great British Takeaway Ltd [2022] TC 08584, the First-tier Tribunal (FTT) dismissed an appeal against a best judgement assessment by HMRC and found it was issued within the relevant time limits. They also upheld the penalty applied by HMRC for a deliberate inaccuracy.
GBT operated a fish and chip shop staffed by family members and students. Following a test purchase and unannounced visit to the premises on 22 September 2017, when the till was interrogated and Z reading data extracted, it was alleged by HMRC the taxpayer had been suppressing sales.
A further meeting between HMRC and family members on 19 July 2018 failed to resolve the issue. Takings sheets and other records were later requested and provided to HMRC who issued an assessment, on 1 October 2018, based on a comparison of the Z readings with the takings declared on the VAT returns. The assessment was reduced, on review, as the VAT had been calculated at 20% of the difference which should, instead, have been deemed to be inclusive of the VAT.
The taxpayer claimed the difference could be explained by adjustments made to take account of duplicated sales transactions when telephoned orders were taken and paid by credit card, dummy sales entered during staff training, and errors made by the students they employed. The adjustments were said to have been made at the end of each day based on handwritten notes that were then thrown away, rather than being retained as required by para. 5.3 of Notice 727/3 which has the force of law.
The FTT rejected this explanation, found there was no reliable evidence to support the existence of the notes, and drew an adverse inference from the lack of any witness evidence from the family member who made the adjustments.
The FTT concluded the only credible reason for the difference between the Z readings and the figures used in the VAT returns was that GBT was suppressing its takings and reducing the VAT shown on its VAT returns.
The failure to provide a credible explanation for the differences at the meeting on 19 July 2018 was the last piece of evidence sufficient to justify the making of an assessment. The assessment issued on 1 October 2018 was therefore issued on time.
Basing the assessment on GBT’s own Z readings was deemed to be consistent with an honest and genuine attempt to make a reasoned assessment of the VAT payable, and where Z readings were not available, applying a presumption of continuity in using an average of other periods was also reasonable and not arbitrary. The assessments were therefore made to best judgement. The FTT found no evidential basis to set them aside or reduce them and therefore confirmed them.
Having found the only credible explanation for the differences between the Z readings and the figure used in the VAT returns was that GBT were suppressing their takings, the adjustments were found to have been carried out deliberately and there was no basis to further reduce the penalty which was also upheld.
The taxpayer, and their representative, appeared to have a limited understanding of the tribunal procedures which resulted in some of their evidence being found inadmissible. Information provided (or not provided) early in their contact with HMRC may also have undermined their case. Whilst this may not have affected the overall outcome it does underline the value of ensuring a thorough preparation for, and understanding of what is required at, any interaction with HMRC.
Comment by Angela Bedi, Senior Tax Writer at Croner-i.
Mr Arnold J Homer, Chartered Accountant and Chartered Tax Adviser, instructed by Marneros Marcus & Co, Chartered Certified Accountants appeared for the appellant
Mr Max Simpson and Mr Charles Asuelimen, Litigators of HM Revenue and Customs' Solicitor's Office appeared for the respondents
[1] The Great British Takeaway Ltd (“GBT”) runs a fish and chip shop in Bristol. On 1 October 2018, HM Revenue and Customs (“HMRC”) issued GBT with VAT assessments for periods 11/14 to 05/18 (“the relevant period”) on the basis that it had suppressed its takings and under-declaring its VAT. The assessments were subsequently amended to £109,450, and before the hearing HMRC asked the Tribunal further to reduce them to a total of £109,157.
[2] On 8 February 2021, HMRC issued GBT with a penalty on the basis that disclosure had been prompted and the behaviour deliberate. The penalty was subsequently amended to £51,607.82 in line with the reduced assessments and then amended again to £49,665.94.
[3] GBT appealed against the assessments and the penalty. The issues in the case were:
- whether the assessments for periods 11/14 to 8/16 had been made within one year after evidence of facts, sufficient in the opinion of the Commissioners to justify the making of the assessment, comes to their knowledge, as required by Value Added Taxes Act 1994 (VATA), s 73(6);
- whether the assessments had been made to the HMRC's best judgement as required by VATA s 73(1);
- if the answer to the above question was yes, what was the correct amount of tax payable by GBT;
- if the assessments were upheld in whole or in part, whether the behaviour was deliberate within the meaning of Finance Act 2007, Sch 24 (Sch 24); and if not, whether it was careless; and
- whether any resulting penalty should be further reduced under Sch 24, para 9 as the result of the quality of the disclosure.
[4] I decided as follows:
- the assessments for periods 11/14 to 8/16 were made within the statutory time limit;
- all the assessments were made to HMRC's best judgement;
- having considered all relevant facts, there was no basis for reducing the assessments;
- the behaviour had been deliberate; and
- there was no basis further to reduce the penalty.
[5] I therefore confirmed the assessments in the total amount of £109,157 and I upheld the penalty of £49,665.94.
[6] HMRC issued their review decision on 7 December 2018. GBT appealed the Tribunal on 21 February 2019, so the appeal was around 6 weeks late. HMRC did not object to the late appeal. GBT's reasons for appealing late were that:
- On 21 December 2018, Mr Marneros, GBT's accountant, wrote to HMRC saying that GBT wanted to appeal the assessments, asking whether at this stage, a more formal manner of appealing is appropriate and making a formal complaint about the review process.
- On 2 January 2019, Mr Justin Richards, the HMRC officer who had issued the assessments, emailed GBT saying that the next step would normally be to follow the Alternative Dispute Resolution (ADR) procedure as discussed in the review decision letter.
- HMRC responded to GBT's complaint on 8 January 2019.
- On behalf of GBT, Mr Marneros asked for ADR on 31 January 2019, and at the same time asked HMRC to regard the letter as a formal appeal against the VAT assessments and enquired whether intimation of [GBT's] formal appeal to the VAT Tribunal is necessary at this stage.
- HMRC responded by saying that ADR could not be considered, as GBT had not appealed to the Tribunal.
[7] I considered the relevant case law, in particular Martland v R & C Commrs[2018] BTC 525. The delay was serious and significant, being over twice the statutory time limit. However, it is clear from the correspondence that HMRC were aware that GBT intended to appeal, and it is also clear that GBT did not understand the interactions between appeals, complaints and ADR; and that Mr Richard's email of 2 January 2019 had been unhelpful in that respect …
[8] Having considered and weighed all relevant factors, including giving particular weight to the need for statutory time limits to be respected, I gave permission for GBT to make the appeal late.
[9] The evidence before the Tribunal consisted of both documents and witness evidence.
[10] The hearing of this appeal was originally listed for February 2022 but was postponed. A main bundle of documents and one supplementary bundle was prepared for that hearing. I gave permission for GBT to file and serve a second supplementary bundle before the relisted hearing. In this decision, unless otherwise specified, reference to “the Bundle” is to all three bundles.
[11] The Bundle included the following:
- correspondence between GBT (and its advisers) and HMRC, and between the parties and the Tribunal;
- notes made by HMRC officers following test purchase visits to GBT's premises on 4 August 2018 (the Test Purchase), and notes made following a subsequent unannounced visit to the premises on 22 September 2017 (the Visit);
- a copy of a document headed E-PoS Cashing Up Record (the cashing-up record), which was the subject of extensive submissions, see further paragraph 59;
- schedules of sales prepared by HMRC setting out the itemised sales as recorded by the till (the analysis schedules);
- GBT's statutory accounts for the four years from April 2014 to April 2018;
- two pictures of the premises and a description of its dimensions; and
- documents produced by Mr Marneros, referred to at paragraph 17.
[12] Ms Rushworth attended the Visit and took over responsibility for the case from Mr Richards after he had issued the assessments. She provided a witness statement, gave oral evidence led by Mr Simpson, was cross-examined by Mr Homer and answered questions from the Tribunal. I found her to be an entirely credible and honest witness.
[13] Mr Christakis Kyriacou (“Mr Kyriacou”) is a director of GBT. He provided a document dated 13 March 2020 which did not comply with the requirements for a witness...
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