Scott and Another t/a Farthings Steak House v McDonald
| Jurisdiction | England & Wales |
| Judgment Date | 15 July 1996 |
| Date | 15 July 1996 |
| Court | Special Commissioners |
special commissioners decision
Mr THK Everett.
Mr Paul Whybrew of Kenneth Shaw & Co, Solicitors, for the taxpayers.
Miss Leslie Sperring, deputy district inspector, Southend 1 District.
Income tax - Income and Corporation Taxes Act 1988Sch. D - Back duty - Restaurant business - Whether inspector had made a "discovery" to entitle him to make further assessments - Whether accounts submitted by taxpayers were correct - Appeal allowed and further assessments quashed - Taxes Management Act 1970 section 29 subsec-or-para (3)Taxes Management Act 1970, s. 29(3).
Mr & Mrs Scott run a restaurant known as Farthing Steak House at 513 Southchurch Road, Southend-on-Sea, Essex. They have done so since 1982, at first in partnership with two friends, but since 1984 alone. They appeal against seven further assessments to Schedule D Income Tax for the years 1988/89 to 1994/95 inclusive and two main assessments for the years 1994/95 and 1995/96. All the assessments are in time assessments, so there is no allegation by the Inland Revenue of fraud or wilful default on the part of the taxpayers.
The taxpayers were represented by Mr Paul Wybrew, a partner in Messrs Kenneth Shaw & Co, solicitors and the Inspector by Miss Lesley Sperring, Deputy District Inspector of Taxes at Southend 1 District.
I heard oral evidence from each of the taxpayers, from Mr Alan Roger Howard FCA of Messrs Howard and Stapleton, the taxpayers' chartered accountants, from Mr John Stuart Gwyer of Messrs Levy Gee, from Mr Jonathan Charles Jude an Inspector of Taxes at Southend 1 District, from Mr James Michael Preston, an assistant district Inspector of Taxes at Euston Park District and from Mr Robin Michael Cuthbert, until recently District Inspector at Southend 1 District.
Documentary evidence consisted of a large agreed bundle (B1) and a smaller bundle (B2) consisting mainly of business economic exercises carried out by the Inland Revenue. I also inspected one of the Lion Brand books maintained by Mrs Scott and several photographs of the restaurant premises.
The limited statement of agreed facts reads as follows:-
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1. The taxpayers are Mr Trevor David Scott and Mrs Vivienne Anne Scott trading as Farthings Steak House. The business is the restaurant known as Farthings Steak House situated at 513, Southchurch Road, Southend-on-Sea, Essex.
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2. The description of the premises. The premises consisted of a two storey building, on the ground floor there is a restaurant kitchen and next to this a small area for washing up. The toilets are situated at the side and to the rear of the building and are reached by an outside path. On the other side of the pathway are a pond and a variety of shrubs. The garden extends beyond the end of the building and is mainly laid to lawn. There is a small greenhouse sited near the end of the garden. The first floor consist of two bedrooms, a bathroom, WC and a sitting room. This floor is reached by an external wooden staircase. There are no cooking facilities on this floor.
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3. Inspection of the premises. The whole of the premises was inspected by the Revenue on 31 October 1994.
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4. Proprietorship and history. The proprietors Trevor David Scott and Vivienne Anne Scott are husband and wife and partners in the business. They have been in business since 16 August 1982 originally in joint partnership with M Morcher and Mrs A Morcher. Mr and Mrs Scott became the only partners on 15 August 1984. Accounts are drawn up to 15 August each year and had been submitted on an annual basis to H M Inspector of Taxes. Mr Scott had previously been a self-employed decorator, a washer-upper and then a cook for Whitbread Brewery at one of the Beefeater Restaurants. Mrs Scott previously worked as a waitress at the Beefeater Restaurant. Mr Scott is the only cook at Farthings and Mrs Scott works in the business as a waitress.
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5. Private records. Private records made available have been bank statements relating to a joint current account operated by Mr and Mrs Scott at National Westminister Bank Plc, paying-in books and some cheque stubs, also a pass book for an account held by Mrs Scott with the Abbey National Building Society. The records stated above have been seen and inspected by HM Inspector of Taxes.
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6. Purchase of property 245 Henley Road, Ilford. Mr Scott's late widowed mother, Mrs E Scott lived at the above property until her death in June 1994. In 1988 the deceased had the opportunity to buy the property from the council for £29,000. Mr and Mrs Scott acquired a 100 per cent mortgage from the Local Authority to buy the property. The purchase took place in November 1988 and Mr and Mrs Scott and the deceased were the legal joint owners. Mr and Mrs Scott paid the mortgage repayments from their private bank account. The annual insurance payment was paid from the business bank account. On Mrs Scott's death the property was sold for £48,000 gross, £18,430 nett. The net proceeds were retained by Mr and Mrs Scott.
I supplement those facts from the oral evidence:-
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1. There is no till at the restaurant. All cash is handled solely by Mrs Scott. Waitresses employed casually on Fridays and Saturdays do not handle cash.
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2. Copies of customers' bills were not retained until recently. During the greater part of the investigation period they were discarded by Mrs Scott after she had recorded the relevant details from them. This she did by entering such details at the end of each day's trading in the Lion Brand or similar exercise books, each of which have been seen by the Inland Revenue. She was following the practice which she observed at the Whitbread Beefeater Restaurant where she worked previously. That restaurant had no till for food sales.
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3. Casual waitresses were employed on Fridays and Saturdays. On those days all tips were handed by Mrs Scott to the waitresses. Mrs Scott kept none. On other days when Mrs Scott was the sole waitress, tips were added to the bar takings and recorded in the Lion Brand books.
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4. At weekly intervals Mrs Scott completed the Evrite Account Books. She did so in what the Inland Revenue regarded as an unorthodox fashion, using net of VAT figures.
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5. All banking was done by Mrs Scott. She rarely banked coins, but saved them and converted them into notes via the Petty Cash at intervals. Occasionally, particularly near Christmas, deposits for advance party bookings were accepted and banked.
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6. Mr Scott controlled the ordering of steak and other meats. He had problems with his suppliers over the years and had to dispose of a significant proportion of the steaks supplied. Wastage was high. He also controlled the supply of keg beer and again wastage was high.
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7. During the lifetime of Mr Scott's mother and after the completion of the purchase of her former council house by her and the taxpayers, she contributed her share of the mortgage payments in cash to the taxpayers at quarterly intervals. She also possessed a hoard of cash, only discovered by the taxpayers after Mrs Scott senior's death.
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8. The taxpayers had a very frugal lifestyle. They ate only one meal per day at lunchtime six days per week. On Mondays they visited and lunched with one or other of Mrs Scott's mother or Mr Scott's mother. They have no children and at the...
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