19517

ASSESSMENT – Whether assessment excessive – Appeal dismissed – VATA 1994 section 83(p)

LONDON TRIBUNAL CENTRE

	MS SHIRLEY CHUA (T/A NEW YOUNG CHEUNG RESTAURANT)	           Appellant

-	and –

	THE COMMISSIONERS FOR HER MAJESTY’S REVENUE & CUSTOMS 	 Respondents

				Tribunal:	CHARLES HELLIER (Chairman)
						TONY RING CTA(F)

Sitting in public in London on 27 February 2006

Mr F F C Wong of Wong Lang & Co, for the Appellant 

Jonathan Holl, instructed by the Acting Solicitor for HMRC, for the Respondents

© CROWN COPYRIGHT 2006

DECISION

1.	This is an appeal by Ms Chua against nine assessments made on 26 August 1999 in respect of the Chinese Restaurant business carried on by her at 76, Shaftesbury Avenue, London, W1V 7DG.

2.	The assessments were made after observation of, after test purchases at, and after a visit was made on 18 May 1999  to, the premises by the Respondents.

3.	After his visit to the premises on 18 May 1999, Mr Heath, one of the Respondents’ officers, wrote to Mr Wong, the Appellant’s accountant, on 19 May 1999 and indicated that his visit had revealed a discrepancy between the declared takings for the period to 31 January 1999 and the amount of the takings which appeared from his examination of the records for that period. There followed correspondence and meetings between Mr Wong and the Respondents’ officers.

4.	Mr Wong’s principal complaint before us was that he had acted promptly and properly in relation to this issue but the Respondents had waited until a late stage in the proceedings before they let the Appellants know that their concerns were also based on test purchases and other observations. Mr Wong said he had substantial experience in dealing with HMRC and had never before seen anything handled as this had been. Had the test purchases and other observation results been made clear to the Appellants at an earlier stage the matter would have settled much more quickly.

The Evidence

5.	We heard evidence from two of the Respondents’ officers, Robert John Phillips, who gave evidence of his observation of the restaurant from outside and of a later visit to the restaurant; and from Jonathan Charles Nicholas Heath who had been responsible for the investigation of the business and the later dealings with Mr Wong.

6.	We had before us a bundle of documents which included correspondence between the parties, various witness statements and manuscript notes. The witness statements included one by Mr Phillips, and also statements by Mr Rhodes and Karen Walker. Neither Mr Rhodes nor Ms Walker gave oral evidence. Mr Holl said that the Respondents were not relying upon the witness statements of Mr Rhodes and Ms Walker. They had been included in the bundle for information. We did not use them to reach our conclusions.

7.	Mr Wong provided us with a bundle of papers dealing with issues surrounding the discrepancy alleged by Mr Heath in his letter of 19 May 1999. Neither Ms Chua nor any other persons gave oral evidence for the Appellant. Mr Wong, however, made some helpful submissions and gave some useful explanations of the figures in relation to the alleged cash and takings discrepancy.

8.	We find the following facts.

(i)	The Appellant’s premises were situated on two floors. When Mr Heath visited the ground floor had 10 tables with seating for a maximum of  26 customers, and the basement floor 12 tables with seating for a maximum of a further 35 customers.

(ii)	Mr Phillips conducted an external observation of the restaurant between 6 p.m. and 6.30 p.m. on 29 October 1998. During that period he observed 29 customers enter the premises.

(iii)	Mr Phillips’ external observations were part of a series of observations of the premises managed by Mr Heath conducted on Thursday 29 October 1998 between 6.00 p.m and 8.00 p.m. by officers of the Respondents. Mr Heath’s record of the reports of those officers showed that 137 persons entered the restaurant in that period, and 6 takeaways were taken away.

(iv)	Following those observations the Respondents decided to carry out a more extensive observation. This was managed by Mr Heath. Officers of the Respondents visited the premises to take meals throughout the day. Each of them was required to keep a record of the meal he or she consumed (and its price) and of the customers entering the premises throughout his or her stay. The officers paid in cash. The observations were undertaken on two days, Tuesday 6 April 1999 and Saturday 24 April 1999. 

(v)	On 24 April 1999 Mr Phillips and a colleague visited the restaurant and ate a meal there as part of that programme of investigation.. They were there between 9.45 and 11.25 p.m. and were charged £28.90 for their meal. They paid in cash and left a tip of £1.10. They were seated on the ground floor and noted the number of customers who entered the restaurant and whether they dined or took a take-away. They left the bill behind.

(vi)	Following the visits Mr Heath collated the information from the officers. This collation showed that on 6 April 1999 a minimum of 107 bills had been issued for meals for 435 customers and on 24 April a minimum 186 bills for 442 customers. The summary schedule for each of the days had some unexplained gaps. For 6 April the schedule covered only 5 hours 10 minutes out of a 9 hour 40 minute day. For 24 April no information was recorded from which the number of bills could be ascertained in the period 1.50 to 3.50 p.m. The figure of 186 bills for that day excludes therefore any bills delivered relating to customers who entered the restaurant in that period. Mr Ring pointed out arithmetical errors in Mr Heaths’ summary schedule in relation to the periods 12.30 to 13.50 and 18.40 to 20.10 on 24 April for which Mr Heath could provide no convincing explanation.

(vii)	Mr Heath made a formal visit to the restaurant on 18 May 1999. At that visit he made a record of the bills recorded in the restaurant’s books for 24 April 1999 and 6 April 1999 and noted details of the cash purchases by the restaurant, wages paid, cash drawings, and bankings from the restaurant’s books.

(viii)	Of the 8 purchases made by the Respondents’ officers on 24 April 1999 - 6 appeared on the Respondent’s records and 2 did not. Of the purchases so made on 6 April, 7 appeared on the records and 1 did not, and in addition purchase made on that day by another customer, details of which were recorded by an officer, were not in the Appellant’s declared records. This information suggested to Mr Heath that the true level of bills might be 18 - 23% higher than the level in the records used for the VAT returns.

(ix)	Mr Heath also conducted an exercise in which he looked at the drinks component of the bills for 6 April and 24 April which he had examined on his visit to the premises. He calculated the fraction of the total bills which related to drinks. Using the figure of the input VAT claimed in relation to drink and the mark-up applied to it he estimated the total drink sales for the quarter. From this and the drinks fraction calculated above he estimated what the total sales should have been. His estimate suggested sales had been under-stated by about 13%.   

(x)	Mr Heath’s notes for 6 April 1999 indicate that 141 bills appeared in the records. This number he compared with the observed total of 101 bills for approximately 5/9ths of the day. Mr Heath calculated that if bills had been issued evenly over a day, the figure of 101 for 5/9ths of a day would suggest 182 bills during the day: a figure 28% higher than those in the records produced to him. The missing periods were between 12.35 and 2.50 p.m., and 5 and 7.15 p.m.

(xi)	For 24 April 1999 Mr Heath’s manuscript note of his inspection of the Appellant’s records shows 162 bills together with their amounts. These bills included Mr Phillips’ bill of £28.90. The number of bills which the results of the Respondent’s observations suggested (186) was therefore 15% more than the number disclosed in the Appellant’s records for that day.

(xii)	Mr Heath also extracted the following figures from the cash book for the period to 31 January 1999:

	£	
Cash purchases	33,995.16	
Wages paid	20,252.31	
Drawings taken	3,900.00	
Bankings	82,477.57	

(xiii)	The total of these amounts, being the use to which cash received was recorded as having been put, should, he considered, be the amount of the receipts of the business in the period - in other words the value of the supplies made by it. The total is £140,625.04; the supplies recorded on the VAT return were £114,392.48.

(xiv)	Following Mr Heath’s visits to the premises he wrote to Mr Wong. There followed a meeting with Mr Wong and further correspondence. Thereafter an assessment for £21,722 plus interest was notified to the Appellant on 26 August 1999. The assessment represented an assumed under declaration of supplies equal to 15%of the declared supplies.

Mr Wong’s Submissions

9.	Mr Wong explained the apparent cash discrepancy thus:

(i)	he accepted the accuracy of Mr Heath’s figures set out above at paragraph (xii);

(ii)	he explained that although the sum of those figures was the cash which left the business during the period, the amount of the cash inflow could only be determined by taking account of the cash in hand at the beginning and end of the period. The cash in hand at the beginning of the period was £11,353.03, and at the end was £4,645.11; thus the total cash received in the period was £140,625.04 + £4,645.11 - £11,353.03 = £133,917.12;

(iii)	from this sum there needed to be deducted £17,350.00. This was an amount received in respect of an insurance claim. After deducting this amount the net cash inflow from sales was £116,567.12.

10.	Thus the discrepancy was £2,174.64 and not £26,232.56.

11.	Mr Wong showed that he had provided a schedule to the Respondents reconciling the figures in the cash book records shown as bankings with the figures on the business’ bank statements.

12.	Mr Wong’s principal submission however was that when Mr Heath had visited the premises he had not make any mention of the test purchases. This we took to be both (a) a suggestion that the exercise had not in fact been conducted, and (b) a complaint about the conduct of the Respondents.

Discussion

(a)	The assessment

13.	Section 83(p) VAT Act 1994 provides for an appeal both against an assessment and against the amount of the assessment. It is however for the Appellant to satisfy the tribunal that, on the balance of probabilities, the assessment is excessive. That is because unless he so proves the assertion that the assessment is wrong there is nothing on which the tribunal can find that any error arose in the assessment. The facts are known to the Appellant: it is not unjust to ask that he make them known to the tribunal before it accepts the appeal.

14.	Even if we accept Mr Wong’s submissions as to the proper manipulation of the figures in relation to the cash book and the bankings, there was no evidence before us upon which we could conclude that those figures represented the matters they were said to represent, or as to the completeness or accuracy of the recording of the relevant amounts in the records of the business.

15.	The very most we could possibly conclude on the evidence before us is that for the period to 31 January 1999, there was an unexplained discrepancy between the declared VAT outputs and the amount which, from the figures before us, appears to be the cash received for supplies made in the period, of £2,174.64.

16.	Even this conclusion would be insufficient for us to conclude that the Appellants have proved that the assessment was incorrect. We heard no evidence as to the veracity, completion or accuracy of the Appellant’s records, and no evidence to cast any doubt on the tests carried out by the Respondents.

17.	Mr Wong expressed surprise and concern that the Respondents had not put the results of their test purchase exercise to the Appellant at the meeting on 18 May 2005. Mr Heath told us that this was because the issue had been referred to the Fraud Investigation Team. He told us that if that Team were to take the case on, its investigation could be hampered if the Appellant was made aware of the specific test purchases. Accordingly, he did not make the Appellant aware of those tests at that meeting. Later, the Fraud Investigation Team declined to take the case because the information gathered to date was not sufficiently complete and because of resourcing issues. On 23 June 1999 after they had so declined Mr Heath told Mr Wong about the test purchases exercise. Mr Heath referred again to it in his letter of 29 June, although no detail of the exercise appears to have been provided at that time.

18.	We accept Mr Heath’s explanation of the reasons why he did not confront the Appellants with evidence of the test purchases on 18 May. We do not find that the failure to put the issues to the Appellant at that time casts any doubt upon whether the exercise was actually conducted or upon its results as they appeared in evidence before us.

19.	We find that there was no evidence before us on which we could determine with any degree of reasonable confidence an assessment different from that determined by the Respondents.

20.	On the evidence before us therefore the Appellant has failed to discharge the burden of proving that the assessment was wrong or excessive, and we find that the assessment was not excessive and should not be reduced.

(b) 	Best Judgment

21.	Mr Wong made no express submission that the assessment was not made to the best judgment of the Respondents.

22.	For the reasons above we do not find Mr Heath’s failure to refer to the test purchase exercise suspicious.

23.	We do not believe that that failure casts any doubt on the bona fides or judgment of the Respondents. It seems to us that the Respondents had information on which to make the assessment, made a reasonable judgment on the basis of the material available to them, and did so honestly and not vindictively or capriciously.

24.	Accordingly, even if Mr Wong’s submission were taken as a suggestion that the commissioners did not exercise their best judgment in making the assessment, we would hold that it was made to their best judgment.

25.	Accordingly we dismiss this appeal. Our decision is unanimous.

26.	We should record that we accept that Mr Wong replied promptly and helpfully to the correspondence and questions put to him in the early part of the investigation by the Respondents. He conducted the Appellant’s case calmly and concisely before us.

Costs

27.	Mr Holl explained that Mr Heath was on secondment in Malta. It had been necessary for him to come back to the UK to give evidence. He asked therefore, if, were the Respondents successful in the appeal, that we should award the costs of his travel.  Mr Holl acknowledged however that the Appellant had not been made aware before the hearing that these additional costs would have had to be incurred. Thus the Appellant had not had an opportunity to accept a witness statement from Mr Heath in lieu of his attendance. In the circumstances we decline to award costs to the Respondents.

CHARLES HELLIER
CHAIRMAN

RELEASED: 29 March 2006

LON/02/746