[2011] UKFTT 191 (TC)

TC01060

Appeal reference: TC/2010/00103

VAT – assessment raised in 2000 – records no longer available – did Commissioners’ delay in enforcement avail Appellant – no – was assessment raised to best judgment – yes – appeal dismissed

FIRST-TIER TRIBUNAL
TAX

				            ROSANNA JAYNE GORDON	Appellant

- and -

	THE COMMISSIONERS FOR
				HER MAJESTY’S REVENUE AND CUSTOMS	Respondents

Tribunal: 	Lady Mitting (Judge)
			
Sitting in public in Birmingham on 21 February 2011

Mr. S Swaffield for the Appellant

Mr. J Winkley instructed by the General Counsel and Solicitor to Her Majesty’s Revenue and Customs for the Respondents

© CROWN COPYRIGHT 2011
DECISION

1.	Mrs. Gordon appeals against an assessment to Value Added Tax in the sum of £28,652 plus interest. The assessment covers periods 02/99 to 02/00 inclusive and I set out details of how the assessment was made up later in this decision.
2.	I heard oral evidence from Mrs. Gordon and from the assessing officer Mrs. Helen Dawn Nolan.
Chronological background to the proceedings
3.	Mrs. Gordon traded as a publican running the Samson & Lion public house from November 1998 to November 2001 when she left the public house premises.  It was the Commissioners’ case, although this was not accepted by Mrs. Gordon, that the assessment was raised and notified in November 2000.  A local reconsideration was immediately requested by Mrs. Gordon’s accountant, Mr. Alan Barrett, and correspondence between Mr. Barrett and the Commissioners ensued throughout 2001, the assessment being at all stages upheld.  The Commissioners heard nothing further from Mrs. Gordon or Mr. Barrett after August 2001.
4.	On 23 January 2003, a statutory demand was sent to Mrs. Gordon’s home address, a letter she maintained she did not receive.  In September 2003, the Commissioners commenced enforcement proceedings through independent solicitors.  Mrs. Gordon was then listed as a missing trader after the solicitors claimed not to have been able to trace her, even though they had been given her home address at which she had resided at all times since leaving the pub and indeed still does to this day.  The next step taken by the Commissioners was a letter dated 12 May 2008 in which further demand for payment was made of Mrs. Gordon.  Mrs. Gordon received this letter and immediately took professional advice and notified the Commissioners that the debt was not due.  On 11 July 2008, a Statutory Demand was served and on 1 September 2008 a bankruptcy petition was issued, Notice of Opposition being filed by Mrs. Gordon on 10 November 2008.  In the bankruptcy proceedings, it was Mrs. Gordon’s case that the debt was not due.  A number of hearings were listed and adjourned to allow Mrs. Gordon to take advice and to challenge the assessment, something which of course the bankruptcy court was not able to deal with.  
5.	Mrs. Gordon lodged a Notice of Appeal with the Tribunal on 7 December 2009 and by direction dated 28 June 2010, Mrs. Gordon was given permission to appeal out of time and the hearing of her appeal is now the matter before me.  In view of the time it was going to take for Mrs. Gordon’s appeal to be heard by the tribunal, the Commissioners withdrew the bankruptcy petition after she had been given leave to appeal in order to save further costs to the public purse and to save court time.
6.	Because it is now over ten years since the assessment was raised, during which time Mrs. Gordon ceased to trade and the Commissioners transferred from a manual to an electronic system of record-keeping, both parties were hindered by an absence of records.  Bar a small amount of correspondence, Mrs. Gordon had nothing.  The Commissioners produced a number of vision prints from their electronic database from which we were able to piece together a lot of information about the assessments.  What the Commissioners have not been able to produce are the supporting schedules which would have demonstrated precisely how Mrs. Nolan arrived at the assessed figures.  The Commissioners also still had on file Mrs. Nolan’s visit report from which she gave her oral evidence.  She quite rightly accepted in cross-examination that she remembered very little of her visit and her evidence was in effect based on a re-reading of her report and on the vision prints.
The evidence and findings of fact
7.	There was basic agreement between the parties as to much of the factual background, but there was a dispute on a number of critical issues.  I set out below the facts which were agreed and where there was a dispute, I set out the evidence and record with reasons my findings of fact.
8.	Mrs. Gordon took the tenancy of the Samson & Lion from 5 November 1998 and she registered for VAT from that date.  She had not previously run a pub or indeed any business and had never been VAT registered.  From the outset she was advised and guided by her accountant, Mr. Barrett, in whom she placed total trust and reliance.
9.	The premises were effectively derelict and trade almost non-existent.  A huge amount of refurbishment work was carried out over the next few months and the pub began trading in March 1999.  All the workmen used in the refurbishment were chosen and instructed by Mr. Barrett.  The evidence as to how they were paid was somewhat confusing, but it appears that they were either paid by Mr. Barrett and he would merely ask Mrs. Gordon for reimbursement – in which case Mr. Barrett would keep the paperwork and Mrs. Gordon would never see it.  Others would seek payment from Mrs. Gordon direct.  She would pay by cash or by cheque according to whichever method the workman preferred.  She always sought an invoice / receipt which she then would keep and hand to Mr. Barrett when she next saw him.
10.	VAT returns were sent to the pub and Mrs. Gordon would again hand them to Mr. Barrett when he came into the pub, which I am told he did on a regular basis.  He would complete the returns and either sign them himself or give them to Mrs. Gordon to sign.  Although the actual returns were no longer available, vision prints recording the details of the returns were before the tribunal in respect of all relevant periods.  The first return for 02/99 was a repayment return as it reclaimed the input tax incurred on the refurbishment.  Output tax of £4,732 was declared against which input tax of £23,230was reclaimed, making a net repayment due to Mrs. Gordon of £18,497.  The vision prints show the return was received on 17 March 1999 and the repayment in the sum claimed was authorised on 8 April.  Precisely how the repayment was dealt with was critical to Mrs. Gordon’s case and was the first major area of dispute between the parties.
11.	It was Mrs. Gordon’s case that the repayment return had been checked, audited and verified by the Commissioners before being paid out, and the Commissioners had therefore seen and been satisfied with all supporting documentation.  It was the Commissioners’ contention that the payment had been made automatically on receipt and had not been verified.  Mrs. Gordon’s evidence for her view was that when the return was submitted, Mrs. Gordon asked Mr. Barrett how long she would have to wait to be paid out and was told by Mr. Barrett that the Commissioners would “have to check the book work” before they would make the repayment.  When she had not received the repayment after a week or so, she asked Mr. Barrett about it and he told her that it had “all been sorted” and the Commissioners just needed her banking details to make the payment, which Mrs. Gordon gave to him.  She did not ask for and he did not volunteer any further information as to how matters had been “sorted” and she therefore had and still has no idea what steps, if any, the Commissioners had taken to clear the claim for repayment.  Mr. Swaffield also relied upon evidence from the vision prints.  It took from 17 March to 8 April for the repayment for 02/99 to be authorised – some three weeks.  In cross-examination, Mrs. Nolan had told the tribunal that a repayment without enquiry would normally take some seven to ten days but could take longer depending on, for example, holidays or pressure of work.  Equally a repayment enquiry could be done on the same day and repayment therefore need not necessarily take any longer.  Mr. Swaffield pointed out that the repayment return for 08/99 had been turned round in just eight days, and he contended the longer period for 02/99 was consistent with an audit having taken place.  Mrs. Nolan did not accept that this was so.  She said that if an enquiry had been conducted into 02/99, she would not have been asked to include it in her visit checks.  She also took the tribunal to a vision print headed “visits – trader listing” which records just one visit as having ever taken place and that being in April 2000.
12.	I conclude and find as a fact that the repayment for 02/99 was made without enquiry.  The only evidence to the contrary, Mrs. Gordon’s conversation with Mr. Barrett, really shows nothing of any evidential value.  The time difference between the repayments being made in 02/99 and 08/99 in inconclusive either way but I find the evidence of the vision print persuasive, and this leads to the only conclusion that the Commissioners did not inspect the books and records and saw no supporting invoices before making the repayment.
13.	In early 2000, Mrs. Nolan carried out a routine credibility check on Mrs. Gordon by visiting the offices of Mr. Barrett.  Mrs. Gordon never knew anything of these visits and the evidence of them is to be found in Mrs. Nolan’s oral evidence and her visit report.
14.	Mrs. Nolan made a non-effective visit on 7 March and a further pre-arranged one on 3 April.  The visit report records that the only records there were a lot of purchase invoices.  It is recorded that Mr. Barrett told Mrs. Nolan that he had discovered discrepancies and it was his intention to prepare a summary of these when compiling the 2/00 return.  A further visit was arranged for 2 May, when Mrs. Nolan was told that further prints and records would be available.
15.	On 2 May some printouts were available but it was unclear to which tax period they referred and crucially it is recorded that there was within the records no information as to how the original VAT return figures had been compiled.  It is recorded that Mr. Barrett told Mrs. Nolan that Mrs. Gordon had been making cash payments which should have been included as part of the daily gross takings which would now have to be increased by the amounts which he had been able to identify as cash purchases and expenses.  It appears from the visit report that Mr. Barrett then put his revised calculations to Mrs. Nolan but that for periods 5/99 and 8/99 the revised figures showed that the output tax which he was now contending for was not as high as that declared on the original returns.  Mrs. Nolan told Mr. Barrett that she could not accept the new figures unless he could provide the basis of his original calculations so that she could make a comparison.  Mr. Barrett is recorded as agreeing to provide this information.  An analysis of the available purchase invoices showed that the total differed from those declared on the original returns and Mrs. Nolan also found that there were no invoices available for any of the refurbishment work.  Mr. Barrett told Mrs. Nolan that this was due to the originals having been returned to the liquidator and the police who were investigating the supplier, and he had not kept copies.  On the final visit, Mr. Barrett had undertaken to provide further information which the visit report indicated was never received.  The report which was updated as events took place, records that a reminder letter was sent to Mr. Barrett on 13 July and nothing having been heard from him a letter was then sent directly to Mrs. Gordon on 10 October 2000, again eliciting no response.  Neither of these letters were available but that they were sent was not challenged.
16.	Mrs. Nolan’s evidence was that having received no response from either trader or accountant, she proceeded to make the assessments.  That the assessment was made and notified is not accepted by the Appellant so I will set out here the Commissioners’ evidence.  The assessment forms are no longer available so again it is a question of piecing together the available evidence.  A vision print was produced to the tribunal headed “Officer’s Assessment Details”.  I was told that this document would show every assessment ever issued to that registration and it records an assessment in the sum of £28,652 being calculated on 7 November 2000 and issued on 9 November.  I understand that the entries onto this print would have been made contemporaneously and would have been triggered by the actions themselves being carried out.  I was also told that the system is set up in such a way that assessments are always notified to the trader.  It is not possible for this to be overridden to notify the representative instead.  Mrs. Nolan had nothing to do with the actual issue of the assessment, her role being complete when she had completed a form 641 which would have gone to the Input Section to set the wheels in motion for the issue of the assessment.
17.	The evidence of the breakdown of the assessment was found in several printouts which were before the tribunal, but what was totally missing was the evidence of how each component figure was arrived at.  It is necessary to go into the details of the individual periods constituting the assessment as this was material to Mr. Swaffield’s submission that the assessment had not been raised to best judgment.
18.	In period 02/99, it is recorded that Mrs. Nolan increased the output tax declared by £893 and disallowed input tax of £12,222.  For 5/99, input tax was disallowed by £2,603.  In 08/99 input tax was disallowed by £2,111.  In 11/99, no return had been submitted and there was a central assessment on file for £507.  Mrs. Nolan increased this by £4,839.  Similarly in 02/00, there had been no return, a central assessment was on file for £481 and Mrs. Nolan assessed additionally by £5,984.  It was Mrs. Nolan’s oral evidence that the input tax which she disallowed would have been where she could not find any supporting invoices.  In other words she allowed such input tax as was supported by the records.  In respect of the final two periods, the additional Officer’s Assessments which she raised would have been taken from the figures supplied by Mr. Brown.  In Mrs. Nolan’s words, he would have established the figures and she would have had firm evidence in front of her before she would have raised those additional assessments.
19.	Mrs. Nolan’s visit report concludes with the following two paragraphs:
“Credibility of cash traders always gives cause for concern, a concern in this case that has been proven by accountant’s explanation that cash purchases had been made and that DGT figures were incorrect.
At this stage I do not propose to take further action re: records as I feel sure the value of the assessment will bring about some response from trader and may even have some effect in improving the bookkeeping.”
20.	It was to be Mr. Swaffield’s assertion that these comments showed that the assessment was not raised based on actual figures but merely as an attempt to kick the taxpayer into some form of action.  He put it to Mrs. Nolan that after having spent six hours with a somewhat incompetent Mr. Barrett she must have been getting rather impatient, Mrs. Nolan replied “possibly”.
21.	Beyond the production of the vision prints, further evidence was put before the tribunal that an assessment had actually been raised and notified.  Mr. Barrett wrote to the Commissioners by letter dated 23 November 2000 asking for further time and could his letter be treated a formal appeal if that were required.  Between that date and 18 April 2001, the Commissioners wrote no fewer than five letters of reminder to Mr. Barrett but heard nothing and by letter dated 25 May 2001 wrote to confirm that the reconsideration had been closed and the assessment upheld.  Also before the tribunal were two documents headed “reconsideration case”.  One was dated 4 December 2000 and the other 29 May 2001.  These documents were the handwritten forms which the officer would complete on a reconsideration.  Both forms refer quite clearly to the assessment and would hardly have been able to come into being had there been no assessment to reconsider.  The final document to which the tribunal was referred was a letter dated 21 August 2001 from Mrs. Gordon to the Commissioners advising that she had appointed new accountants, Churchfield Accounting Services, and that the Commissioners were to give them any information they required “in settling my VAT appeal”.  It was Mrs. Gordon’s evidence that she did not in fact write the letter.  It was written for her and she merely signed it, not having read it first.  She did not know to what the phrase “settling my VAT appeal” referred.  The Commissioners wrote to Churchfield by letter dated 17 September 2001 setting out full information of the state of Mrs. Gordon’s VAT account but they never heard anything further.
22.	The above paragraphs set out the evidence which the Commissioners put forward in support of their contention that an assessment had been raised and notified.  In response, Mrs. Gordon’s case was that she had never received an assessment.  She really had no other evidence than that to support her submission that the assessment had not been raised and notified.
23.	The evidence to support the fact that an assessment had been raised is quite overwhelming.  The combination of the vision prints, correspondence and the reconsideration documents lead to the inevitable conclusion that an assessment must have been raised and indeed must have been served.  I accept the Commissioners’ evidence that the system is set up in such a way that the taxpayer would always receive notification of an assessment and I therefore find that, having been raised, the assessment was then notified to Mrs. Gordon.  I am not suggesting that Mrs. Gordon is lying.  My guess is that on receipt of the assessment, she merely handed it to Mr. Barrett to deal with, probably not even realising the significance of the document.
24.	In her oral evidence, Mrs. Gordon told the tribunal that she knew nothing of the visit of Mrs. Nolan to Mr. Barrett, had no idea that any query was being raised on her entitlement to the refurbishment input tax and had no knowledge of the post-assessment correspondence passing between Mr. Barrett and the Commissioners.  Mrs. Gordon passed all her records on a regular basis to Mr. Barrett and left him to deal with them.  She accepted that she would on occasion be making cash payments for purchases but would always obtain a receipt and would pass the receipt on to Mr. Barrett.  She never knew how he calculated the figures that went into her VAT returns.  By August 2001, it was clear that business was not good enough to support the continuation of the pub and she ceased trading in November.  She understood that Mr. Barrett had dealt with all the necessary cessation formalities.  She told the tribunal that she knew she had to deregister and believed that a deregistration form had been submitted by Mr. Barrett.  When pressed on this she accepted that she could in fact not remember signing it but that if Mr. Barrett had held it out for her to sign then sign it she would have done.  When she walked away from the pub at the end of 2001 she believed that there were no outstanding VAT liabilities and that all the VAT formalities had been completed.  It was a bolt out of the blue to her when in 2008 she received a return.  She immediately contacted the Commissioners and was then sent a further deregistration form which she completed and submitted herself.
25.	There was a great deal of correspondence passing between Mrs. Gordon’s representatives and the Commissioners post-2008 but I do not consider this of relevance to the issue before the tribunal and need not therefore set it out.
Submissions
26.	I was referred by both parties to the case of Van Boeckel v Commissioners of Customs and Excise 1981 [STC 290].  Woolfe J in Van Boeckel set out what in effect became the test as to whether or not the Commissioners had exercised their best judgment in raising an assessment.  The Commissioners were required “to consider fairly all material put before them by the taxpayer and on that material make a decision which was reasonable as to the amount of tax due.  They were not required to make investigations so long as there was some material on which they could reasonably base an assessment, but if they did make any investigations, then they had to take into account the material disclosed by the that investigation”.  Woolfe J went on to say, and this was strongly relied upon by Mr. Swaffield:
“As to this, the very use of the word “judgment” makes it clear that the Commissioners are required to exercise their powers in such a way that they make a value judgment on the material which is before them.  Clearly they must perform that function honestly and bona fide.  It would be a misuse of that power if the Commissioners were to decide on a figure which they knew was, or thought was, in excess of the amount which would possibly be payable, and then leave it to the taxpayer to seek, on appeal, to reduce that assessment”.
27.	Mr. Winkley’s contention was that the assessments had been properly made and were to best judgment.  He believed there was clear evidence of under-declaration of output tax and an over-claim of input tax sufficient to justify Mrs. Nolan in deciding to assess.
28.	It was Mr. Swaffield’s contention that Mrs. Nolan had not acted in best judgment.  First, he submitted that she cherry-picked the evidence which was favourable to the Commissioners, ignoring that which was not.  Mr. Barrett had produced calculations for Mrs. Nolan which showed that output tax had originally been over-declared.  This Mrs. Nolan rejected without good reason but quite happily accepted that input tax had been over-claimed.  He submitted that the assessment was arbitrary and further that it was raised for the wrong reasons.  It was not raised to make good tax which she could possibly have genuinely believed was due but was issued because her patience was exhausted and she wished to give Mr. Barrett and Mrs. Gordon a kick.  Although not developed at all in oral submission, Mr. Swaffield in his skeleton argument did submit that Mrs. Gordon’s Convention rights had been breached in that such was the delay in the Commissioners’ seeking to enforce the debt that there could no longer be equality of arms.  Had the Commissioners acted expeditiously records would still have been available and the assessment would have been capable of being contested by Mrs. Gordon.  As it was the records still available were insufficient and do not show the basis upon which Mrs. Nolan thought she could reverse the declarations made in the VAT returns.  
Conclusions
29.	I deal firstly with the question of delay and I have to say I find the conduct of the Commissioners quite extraordinary.  Communication with Mrs. Gordon’s representative died in mid-2001.  At that stage there was a validly-raised, unappealed assessment – a debt clearly due to the Commissioners and yet nothing constructive was done to seek to enforce that debt until 2008.  In the meantime, the Commissioners believed Mrs. Gordon was “missing” even though she had never left her home address throughout the whole period.  However, I do not believe this delay can avail Mrs. Gordon in her challenge to the assessment which is the sole issue before this tribunal.  The Commissioners’ tardiness goes to the enforcement proceedings.  At the time the assessment was raised and notified, there was true equality of arms.  Both parties would still have had all their records available to them and that was the time for Mrs. Gordon to make her attack on the assessment and indeed her representative did take up the matter on her behalf but unfortunately never pursued it to appeal.  From Mrs. Gordon’s evidence it would appear that blame clearly lies with Mr. Barrett but neither can that be of any avail now to Mrs. Gordon.  The taxpayer carries the responsibility for his or her tax affairs and the responsibility thus lies with Mrs. Gordon.
30.	Section 73(1) VAT Act 1994 empowers the Commissioners to raise an assessment against a taxpayer where, inter alia, it appears to them that the taxpayer’s returns are incomplete or incorrect.  Mrs. Nolan had clear evidence that Mrs. Gordon’s returns fell into that category.  Not only had Mr. Barrett told her quite unequivocally that the returns were incorrect and that he would be preparing a corrective summary in the 2/00 return, but Mrs. Nolan also on her own cross-checks found discrepancies and input tax claimed unsupported by invoices.  She was therefore fully entitled to raise the assessment for such periods as she felt necessary.
31.	Mr. Swaffield accuses Mrs. Nolan in effect of raising the assessment arbitrarily and without foundation.  I reject that contention.  Of course we do not now have the supporting schedules but I accept Mrs. Nolan’s evidence and conclude that she would have carried out calculations based upon the evidence presented to her by Mr. Barrett.  She cannot be criticised for refusing to accept some of his figures whilst accepting others because that statement slightly misrepresents what she in fact did.  What she did in respect of 5/99 and 8/99 was to advise Mr. Barrett that she could not accept lower figures for output tax than those originally returned without the supporting evidence for the original figures because everything she had been told by Mr. Barrett would have led her to have expected his new figures to be higher than the original ones.  She had been presented with a perversity, but she did not just reject the new figures out of hand.  Her mind was not closed and she sought clarification and evidence from Mr. Barrett but received neither.  She chased him up twice when he failed to provide further figures to her but again to no avail.  What more could she do?  In other respects, Mrs. Nolan made it clear that her output tax assessments were based on summaries produced to her by Mr. Barrett.  As far as the disallowance of input tax was concerned, there was not a blanket disallowance.  Again her mind was not closed and her notes make it clear that Mr. Barrett was going to seek out the missing invoices but again he did nothing, leaving her with no alternative than to assess.  Mrs. Nolan checked what supporting invoices there were, allowed the input tax that was supported but rejected the unvalidated.
32.	I also rejected Mr. Swaffield’s submission that this assessment was raised for the wrong reasons – namely to give Mrs. Gordon “a kick”.  Mrs. Nolan’s concluding comments in her visit report are totally consistent with her quite understandable exasperation that the account had produced nothing to her.  Her figures were properly reached and she quite properly expressed the hope that Mr. Barrett would realise the magnitude of events and start cooperating.  It does frequently happen that when an assessment is raised, it concentrates minds and this is what Mrs. Nolan was hoping for.
33.	I am fully satisfied that the assessment as raised by Mrs. Nolan was raised quite fairly on material put before her by Mr. Barrett.  When she could not accept Mr. Barrett’s figures she told him so and she told him what she needed, but nothing was produced to her, leaving her with no alternative but to raise the assessment on the basis of the information which she did have.  If Mrs. Gordon is correct in that Mr. Barrett not only failed to cooperate with Mrs. Nolan but told her, Mrs. Gordon, nothing of what was going on then he clearly betrayed the total trust and reliance that Mrs. Gordon had placed in him.  I must however reject any suggestion that Mrs. Nolan abused her power by alighting on a figure which she knew and thought was excessive.  In summary I find the Commissioners were entitled to assess and the assessment was raised to best judgment.  The Appellant has produced nothing to lead me to think there should be any variation in quantum.
34.	The appeal is dismissed and there is no order as to costs.
This document contains full findings of fact and reasons for the decision. Any party dissatisfied with this decision has a right to apply for permission to appeal against it pursuant to Rule 39 of the Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009.   The application must be received by this Tribunal not later than 56 days after this decision is sent to that party.  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.

LADY MITTING
JUDGE
Release Date: 18 March 2011