[2010] UKFTT 590 (TC)

TC00840

“Assessment – best judgment – unexplained receipts – assessment based on analysis of bank statements – assessment reduced following explanations from book keeper – whether best judgment – yes – whether excessive – no – VATA 1194 s73(1)”

	Appeal number LON/2007/1927

In the Value Added Tax and Duties Tribunal

London Centre

	REHNCY SHAHEEN AND CO	Appellants

	- and -

	THE COMMISSIONERS OF HER MAJESTY’S
	REVENUE AND CUSTOMS 	Respondents

				TRIBUNAL: 	Peter Petherbridge (Chairman)
						Gareth Jones (Member)

Sitting in public in London on 11th March 2010 

No appearance of the Appellant

Ms G Orimoloye HMRC Advocate  

© CROWN COPYRIGHT 2010

DECISION

The Appeal

1.	The Appellant was appealing against an assessment dated the 8th August 2005 for VAT in the sum of £15,051 in respect of VAT periods from December 2000 to December 2002, there being just one assessment.
2.	The Respondent asserts that there is no appealable decision.   It relies upon Section 83 of the Value Added Tax Act 1994 (P) that for an appeal to lie to a Tribunal in respect of an assessment – it may do so under:
(i)	Under section 73 (1) or (2) in respect of a period for which the Appellant has made a return under this Act; or
(ii)	Under sub-section (7) of that section; or
(iii)	Under section 75; or
(iv)	The amount of such an assessment
3.	In the absence of the Appellant or any representatives on their behalf, the Tribunal took the view that it should determine the substantive merits of the appeal on the grounds that if the appeal was to be dismissed, the question of whether there was a appealable decision would not be relevant and if the appeal were to be allowed the Respondent’s position as to whether there was an appealable decision could be reserved for further argument by way of adjourning the present Hearing.    
The Hearing
4.	We heard evidence on behalf of the Respondent from Geraldine Jane Martin and Kamljeet Cheema, Officers of HMRC both based at Valiant House, 1 Park Road, Uxbridge, Middlesex UB8 1RW.
5.	We received witness statements of the Respondent’s representatives, together with their respective bundle of documents.
The dispute
6.	The disputed decision of the Respondent is an assessment for under declared output tax made under Section 73 (1) of the Value Added Tax Act 1994.   The assessment had been issued on the 8th August 2005.
7.	The Tribunal was not concerned as to the amount, if any, of the disputed assessment that had been paid by the Appellant.
Background 
8.	The Appellant is a partnership carrying on business as a firm of Chartered Accountants from premises at 1276/1278 Greenford Road, Greenford, Middlesex UB6 0HH.
9.	The partnership consists of two partners:
	Mr J S Rehncy; and
	Mr A M Shaheen
10.	The Appellant registered for VAT on the 9th June 1986 and remains registered under VAT Registration Number 438 4941 23.
11.	Following a number of contact attempts, Ms Martin visited the Appellants’ business premises on the 6th March 2003.   She was unable to gain access.  Later the same day she went with Officer Richard Gelder to the Appellants’ previous premises in Suite 11, The Manor House, The Green, Southall, Middlesex UB2 4BJ.   A short interview was held with the Appellants’ book keeper, Mrs Jakinder Panesar, to try and ascertain the Appellants’ business activities, record keeping and audit trails.  Neither of the business partners was available for interview.
12.	During the interview, Ms Panesar frequently suggested that the officers direct their queries to the business’s partners or another member of staff who was not present at the Southall office.  Ms Martin and Mr Gelder decided to uplift the records available for examination back to their office.
13.	On the 7th October 2003, Ms Martin wrote to the Appellant requesting further information on two points:
(a)	sales invoices relating to the Appellants’ Southall and 	Greenford Offices; and
(b)	explanations, with supporting documentation and evidence, 	regarding discrepancies between bank receipts and the 	outputs plus output tax declared.
14.	On the 11th November 2003, Ms Martin wrote to the Appellant explaining that £27,701.49 relating to an under declaration of output tax would be assessed based on her findings from a bank reconciliation carried out on the bank statements provided to her on the 6th March 2003.   The letter was accompanied by a schedule showing a total difference of £59,705.34 for the periods 03/00 to 12/02 – see document 33 of the Respondent’s bundle – (bank reconciliation).
15.	On the 11th November 2003, Ms Martin raised an assessment of £27,701 plus interest covering periods 12/00 to 12/02 inclusive.
16.	On the 27th June 2005, Ms Cheema wrote to the Appellants advising that she would reconsider the assessment.   She said that the Schedule attached to the letter sent by the Appellants on the 1st February 2005 was meaningless without supporting evidence to back up the explanations given and additionally that the handwritten back up figures were illegible.
17.	On the 22nd July 2005, Ms Cheema wrote to the Appellants stating that as further evidence had not been provided the assessment was upheld and they had 21 days to appeal to the VAT and Duties Tribunal.
18.	On the 8th August 2005, Ms Cheema told the Appellants that she was prepared to accept an adjustment of £893 and reduced the 12/2000 period assessment by £893 (from £3,832 to £2939).   The overall assessment was in turn revised from £27,701 to £26,808 plus interest and an amended Notice of Assessment was issued.
19.	On the 19th September 2005, Ms Cheema notified the Appellants that there had been an error in the calculation by Ms Martin and that the assessment would be reduced by a further £1,842 from £4,210 to £2,368 so that the overall assessment was then reduced from £26,808 to £24,966 plus interest.
20.	On the 3rd October 2005, Ms Cheema met Ms Jatinder Kaur, a representative of the Appellants and following that meeting Ms Cheema agreed to a further adjustment to the assessment to be reduced to the sum of £15,056 plus interest.
21.	On the 20th October 2005, Ms Cheema reduced the assessment for periods 12/00, 03/01, 06/01, 09/01, 12/01 and 12/02.   The overall assessment was for £17,463 plus interest.    
22.	On the 20th October 2005, Ms Cheema again reduced the assessment by £2,412 as a result of a credit due from the Respondent in period 09/02, so that the overall assessment was then reduced to £15,051.
23.	On the 15th November 2007, the Appellants lodged their appeal, dated the 5th October 2007 with the VAT and Duties Tribunal saying this – see document 154 of the Respondent’s bundle:
“We refer to your letter of the 17th September 2007.
1.	Officers assessment
	We are not in agreement with your comments.  We were directed to appeal to the tribunal in the first instance.  Before we submitted our appeal a final attempt was made to resolve the matter and a meeting held at your Uxbridge Office with Mrs Cheema.  Matters were then resolved and Mrs Cheema confirmed via e-mail stating that she had made all the adjustments based on our detailed analysis and only those amounts shown as fees had been included.  On this understanding the remaining amount was cleared by our payment of £14,600.
	However, to protect our interest, we are now submitting an appeal to the tribunal.
.......”
24.	A summary of the final assessment figure is set out at page 8 of the Respondent’s Statement of Case.
The Appellant’s grounds of appeal
25.	The Appellants state in their grounds of appeal that all information and documentation had been provided to HMRC and the matter was settled and that the demand for the above figure [£14,464.95] was being pursued after 2 years.  
The Evidence
26.	In her oral evidence, Ms Martin confirmed that her witness statement of 19th December 2008 was correct in all respects and explained that she had had previous experience working in a bank/building society and was, therefore, in a good position to produce the assessment based on the Appellants’ bank statements by way of the statement reconciliation. 
27.	Ms Martin explained that there was a capping of the Appellants’ liability because extra time had been given to them and that these periods between March 2000 and September 2000 had been lost to a 3-year cap and were ultimately not assessed.
28.	Ms Cheema in her evidence, having confirmed her witness statement of the 8th January 2009 to be correct in all respects, confirmed that at the meeting with the Appellants’ representative – Ms Paul – on the 3rd October 2005 agreed with the final assessment being reduced to £15,051.
29.	Ms Cheema explained that although the final assessment figure discussed with Ms Paul at the meeting on the 3rd October 2005 was said to have been £15,056, this sum had, in fact, been reduced on account of an adjustment of interest to £15,051, which was the final assessment figure.
Findings of fact
30.	We accept that the assessment of unpaid VAT outputs for the period from 12/00 to 12/02 is the sum of £15,051.   We accept that this assessment has been arrived at from the bank statements obtained from the Appellants by the Respondent and that the final assessment figure has been substantially reduced on account of the Respondent accepting the Appellants’ word with regard to their fee income for the period of the assessment.
31.	We accept that Ms Martin had some considerable previous experience of preparing an assessment based upon such limited information as she had and we accept Ms Cheema’s account that the Appellants have at all times been given the benefit of the doubt when arriving at the final assessment figure.
The Law
32.	Section 73 (1) of the Value Added Tax Act 1994 sets out the Respondents’ power to assess for unpaid VAT:
“Where a person has failed to make any returns required under 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.”
33.	Section 83 (b) of the 1994 Act deals with the Tribunal’s powers on appeal in respect of an assessment, which can be summed up as follows:
“First, whether the assessment has been made under the power conferred under that Section; and 
Second, whether the amount of the assessment is the correct amount for which the taxpayer is accountable.”
34.	Lord Justice Carnwath in Customs and Excise Commissioners v Pegagus Birds Limited [2004] STC 1509 stated that the Tribunal’s primary task on an appeal against an assessment of VAT was to find the correct amount of tax.  Lord Justice Carnwath offered the following advice (per curiam) to Tribunals when dealing with issues of best of judgement:
“When faced with “best of judgement” arguments in future cases the Tribunal should remember the following four points:
(1)	Its primary task is to find the correct amount of tax, so far as possible on the material properly available to it, the burden resting on the taxpayer.  In all but very exceptional cases, that should be the focus of the Hearing, and the Tribunal should not allow itself to be diverted into an attack on the Commissioners’ exercise of judgement at the time of the assessment.
(2)	Where the taxpayers seeks to challenge the assessment as a whole on “best of their judgement” grounds it is essential that the grounds are clearly and fully stated before the Hearing begins.
(3)	In particular, the Tribunal should insist at the outset that any allegation of dishonesty or wrong doing against those acting for the Commissioners should be stated unequivocally; that the allegation and basis for it should be fully particularised; and that it is responded to in writing by the Commissioners.  The Tribunal should not in any circumstances allow cross-examination of the Customs’ officers concerned until that is done.
(4)	There may be a few cases where a “best of their judgement” challenge can be dealt with shortly as a preliminary issue.  However, unless it is clear that time will be saved thereby, the better course is likely to be to allow the Hearing to proceed on the issue of amount and leave any submissions on failure of “best of their judgement”, and its consequence to be dealt with at the end of the Hearing.”
35.	The notion of “best judgement” under Section 73 (1) of the 1994 Act, was considered in Van Boekel v Customs and Excise Commissioners [1981] STC 290.  Woolf J, giving judgement indicated at 292 that in fulfilling their duties under Section 73 (1) the Respondents:
(i)	had to perform their functions honestly and bona fide;
(ii)	had to have some material upon which they could base their judgement;
(iii)	were not required to do the work of the taxpayer in order to form a conclusion as to the amount of tax, which in the Respondents’ best judgement was due.
36.	Chadwick LJ in Pegasus Birds at paragraph 80 rejected the submission that where a Tribunal has substantially reduced an assessment it must inevitably follow that the assessment was not made to “best of judgement”: 
Reasons for decision
37.	The assessment was based initially on HMRC’s reconciliation of bank deposits with sales invoices as disclosed by the Appellants.  These showed unexplained receipts which HMRC took to be undisclosed outputs.  The initial assessment for [£27701] was adjusted downwards to [£15051] following an interview with the Appellant’s bookkeeper.  The outcome of the interview was that HMRC accepted that there was an innocent explanation for some [£12650] of the amounts deposited with the bank.
38.	The Appellants did not attend the Hearing and were not represented.  The grounds for their appeal, as set out in the Notice of Appeal, were as set out in paragraph 23 ante.  
39.	From what we could discern from the correspondence we could see no challenge to the assessment on best of judgment grounds.
40.	We move on, therefore, to the next step in the Pegasus Birds approach.  This requires us to determine the correct value of the Appellant’s supplies during the period covered by the assessment.  No evidence was produced to us that indicated that the amount to be assessed should be anything other than the amount determined following the meeting with the bookkeeper.
41.	We think the assessment was in the correct amount and, therefore, dismiss the appeal.
Decision
42.	We find that the correct amount of VAT payable for the periods 12/00 to 12/02 is the sum of £15,051.
43.	The Hearing having taken place in the absence of the Appellants, the Appellants have a right to apply for this decision to be set aside. The Appellants have a right to apply for permission to appeal against this decision pursuant to Rule 39 of the Rules.   The parties are referred to “Guidance to accompany a Decision from the First-tier Tribunal (Tax Chamber)” which accompanies and forms part of this decision notice.
44.	This is a full decision of the Tribunal issued pursuant to Rule 35 of the Rules.

TRIBUNAL JUDGE
RELEASE DATE: 24 November 2010