Queenspice Ltd v HM Revenue and Customs
| Jurisdiction | UK Non-devolved |
| Judgment Date | 16 March 2011 |
| Neutral Citation | [2010] UKUT 111 (TCC) |
| Date | 16 March 2011 |
| Court | Upper Tribunal (Tax and Chancery Chamber) |
[2010] UKUT 111 (TCC).
Upper Tribunal (Tax and Chancery Chamber).
Lord Pentland.
Duncan Hay of Denholm Hay Associates LLP for the appellants.
Garry Borland (instructed by the Solicitor to HM Revenue and Customs) for the respondents.
The following cases were referred to in the judgment:
Akbar (t/a Mumtaz Paan House) v C & E Commrs VAT[2000] BVC 88
Ali (t/a The Bengal Brasserie) VATNo. 16,952; [2001] BVC 4,073
Buttigieg (t/a the Cottage Café) VATNo. 20,707; [2009] BVC 4,004
Courts plc v C & E Commrs VAT[2005] BVC 68
C & E Commrs v Pegasus Birds Ltd VAT[2004] BVC 788
Grunwick Processing Laboratories Ltd v C & E Commrs VAT(1986) 2 BVC 200,240
House (t/a P & J Autos) v C & E Commrs VATVAT[1996] BVC 116 (CA); [1994] BVC 35
Raj Restaurant v R & C Commrs VAT[2009] BVC 37
Ross (t/a G & G Mobile Stone Crushing) v R & C Commrs UNK(unreported, 6 May 2008, NI)
Van Boeckel v C & E Commrs VAT(1980) 1 BVC 378
Value added tax - Output tax - Under-declaration - Assessment - Best judgment - Restaurant business - Test purchases of meals - Representative sample - Expert evidence relating to "cash ups" or totalling meal slips shortly before closing time - Notification of assessment - Whether assessment made to best of judgment - Whether assessment invalid as not related to defined accounting period - Taxpayer's appeal dismissed - Value Added Tax Act 1994, Value Added Tax Act 1994 section 60 section 73 section 77ss. 60, 73, 77.
This was an appeal by the taxpayer company against a decision of the First-tier Tribunal ([2009] UKFTT 300 (TC); [2010] TC 00244) that HMRC had made an additional assessment to the best of their judgment and had validly notified it to the taxpayer under VATA 1994, s. 73(1).
The taxpayer carried on a restaurant business. HMRC carried out an investigation of the business and concluded that sales had been under-declared by at least 65percent. Officers had made test purchases which could not be traced in the restaurant's records. Also on two days an officer had visited the premises shortly before closing time and totalled the meal slips for both restaurant and takeaway meals. The turnover for the two days which were the subject of the "cash ups" was £3,486.30, which exceeded by £1,383.30 the expected total of £2,103 derived from the average declared turnover of the business. An assessment was issued in the sum of £106,504 for the period from March 2002 to May 2008. Enclosed with the document entitled "Notice of Assessment" were a document headed "Officer's Assessment" and a schedule headed "Details of Assessment(s)". Each of those two documents contained an entry, relative to accounting periods, of "00/00". The taxpayer queried the basis of calculation of the assessment and HMRC responded by two letters advising how the amount of the assessment had been arrived. In particular, one letter stated that "for assessment purposes, periods 05/02 to 11/05 inclusive were grouped together as period "00/00"."
The taxpayer appealed, challenging HMRC's evidence as unreliable and contradictory. Receipts for the HMRC officers' test purchases had not been recovered which, according to the taxpayer, was implausible and sinister. Further, the basis for the calculations was unsound and a two-day sample was wholly insufficient to support HMRC's conclusions. In addition, the taxpayer contended that the time-limits for issuing the assessment had expired and the format of the assessment was invalid as the form did not show a correct period reference. HMRC argued that the absence of receipts did not undermine the findings. The officers' testimony and notes were "best evidence" and should be accepted. The assessment was made timeously and to bestjudgment.
The First-tier Tribunal ([2009] UKFTT 300 (TC); [2010] TC 00244) decided that the central issue was whether the assessment was properly made and made to best judgment. On the evidence, all the officers were credible, reliable and conscientious in the manner they carried out their duties. The burden of proving dishonesty on the part of the taxpayer lay with HMRC and they had discharged that burden. There was evidence of dishonesty which was indicative of systematic suppression of sales. None of the other matters relied on by the taxpayer affected the assessment which was upheld.
The taxpayer appealed, arguing that the FTT had misdirected itself in law by ignoring the expert evidence of a statistician led on behalf of the taxpayer that a sample of two days could not be used as a sound basis for extrapolation of the turnover of the restaurant over a period of six years. Furthermore the assessment was invalid because it referred to 00/00 and was not related to a defined accounting period.
Held, dismissing the appeal:
1.The taxpayer's attack on the FTT's approach to the expert evidence was misconceived. The task of HMRC under VATA 1994, s. 73(1) was to make an assessment of tax to the best of their judgment which required them to make a value judgment on the material before them honestly and in good faith. The primary obligation was on the taxpayer to make a return himself. It followed that HMRC did not have to carry out exhaustive investigations; they had only to consider the material which was before them in a fair way and to come to a decision which was reasonable and not arbitrary as to the amount of tax which was due. The FTT had not ignored the taxpayer's expert evidence. They had considered it, but had preferred the evidence for HMRC, as they were fully entitled to do. There was no basis for interfering with the FTT's findings and no merit in the argument that the assessment had not been made "to best judgment". (Van Boeckel v C & E Commrs (1980) 1 BVC 378, Akbar (t/a Mumtaz Paan House) v C & E Commrs [2000] BVC 88, C & E Commrs v Pegasus Birds Ltd [2004] BVC 788 and Buttigieg (t/a the Cottage Café) [2009] BVC 4,004 considered.)
2.Section 73(1) of the 1994 Act laid down no particular formalities in relation to the form, or timing, of the notification of the assessment. A notification pursuant to s. 73(1) could legitimately be given in more than one document. In judging the validity of notification, the test was whether the relevant documents contained between them, in unambiguous and reasonably clear terms, a notification to the taxpayer containing the taxpayer's name, the amount of tax due, the reason for the assessment, and the period of time to which it related. On the evidence in the present case, notification of the assessment for the purposes of s. 73 had been given by HMRC clearly and unambiguously in documents containing all the necessary elements of a valid notification. (House (t/a P & J Autos) v C & E Commrs [1996] BVC 116 applied; Courts plc v C & E Commrs [2005] BVC 68 considered.)
1.This is an appeal against a decision by the First-tier Tribunal ("the Tribunal") (Mr Kenneth Mure QC, Mrs Helen M Dunn LLB and Mr S A Rae LLB) ([2009] UKFTT 300 (TC); [2010] TC 00244) refusing the appeal by Queenspice Limited (" the Appellants") against an assessment made by the Respondents for VAT in the sum of £106,504 in respect of under-declaration of output tax during the period from March 2002 to May 2008. The Appellants traded as a restaurant business at 1 High Street, South Queensferry.
2.Having heard evidence inter alia as to certain investigations carried out on behalf of the Respondents by its officers, the Tribunal found a number of facts to be established. Those which are pertinent for present purposes may be summarised as follows. The Tribunal held that the total declared turnover of the Appellants for the 39 week period from November 2007 to May 2008 ("the relevant period") was £164,045, giving a weekly average declared turnover of £4,206. The true weekly turnover during that period was, however, probably about £6,972.60; this figure was extrapolated from "cash ups" conducted by two of the Respondents' officers (Mr Paul Rarity accompanied by Mr John Shearer) at the restaurant on Friday 19 October 2007 and Saturday 30 August 2008. The Tribunal found that throughout the relevant period the Appellants had under-declared turnover by a factor of at least 65 per cent. The Tribunal held also that the assessment issued by the Respondents and the methodology underlying it were reasonable and had been calculated to the Respondents' best judgment on the basis of the information available to them as at 30 August 2008. During the relevant period the Appellants were held to have knowingly and dishonestly under-declared their turnover for VAT. The Respondents were found to have correctly calculated the further VAT due to be paid by the Appellants in the sum of £106,504.
3.The Appellants applied for permission to appeal under rule 39(1) of the 2009 Rules (the Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009 (SI 2009 No. 273)). The reasons given by the Appellants for appealing made reference to the overriding objective of the rules as stated in rule 2, namely to enable the Tribunal to deal with cases fairly and justly. It was said that the Tribunal could not have applied rule 2 correctly for two reasons. Firstly, the Appellants had led expert statistical evidence to prove that cash ups carried out on only two days could not provide a sufficient basis for finding that turnover had been under-declared for a period of six years. This expert evidence had not been challenged, yet the Tribunal had ignored it. Secondly, it was said that the Respondents had failed to comply with rule 2(4); this, of course, places a duty on parties to help the Tribunal to further...
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