20623

VAT - registration date - hot food takeaway - meeting of Customs with Appellant and accountant -  subsequent unannounced visit - later acknowledged that till rolls produced had been fabricated - examination of information available - suppression of takings - percentages considered - appeal dismissed 

MANCHESTER TRIBUNAL CENTRE

HAMID REZA SAFAEI  T/A PIZZA PLACE	    Appellant

- and -

 				THE COMMISSIONERS FOR 
HER MAJESTY’S REVENUE AND CUSTOMS		Respondents

Tribunal: Elsie Gilliland (Chairman)
   Christine Owen (Member)

Sitting in Manchester on 15 January 2008

Andrew Breary, Tax Consultant, for the Appellant

Richard Chapman, counsel, instructed by the General Counsel and Acting Solicitor for Her Majesty’s Revenue and Customs for the Respondents

DECISION

1. The appeal heard by the tribunal was that of Hamid Reza Safaei trading as  Pizza Place (the Appellant). The issue was as to the proper date of registration for VAT purposes. The date required by the Respondents was 1 March 2002; the date requested by the Appellant through his then accountant, M. Ashraf, in a letter of 28 March 2007 was 1 November 2006 which at the hearing was changed to an effective date for registration of 1 February 2007. Although the Appellant was present he did not give evidence to the tribunal. No objection was taken to the witness statements of the two Customs officers who had handled the matter. They were in attendance at the hearing but were not called. We admitted the witness statements of Marc Andrew Nelson Pither dated 30 October 2007 and Martin Richard Nutter dated 30 October 2007. The Appellant did not provide a witness statement.   

2. The business at 5 Market Square Woodhouse Sheffield S13 7JX was a fast-food takeaway which Andrew Breary who represented the Appellant described as a pizza establishment which also sold kebabs and which was in a poor rundown area. He said that the Appellant who was a graduate in engineering had taken over the business from his brother in 2001. There was an issue between the parties as to which month in 2001 the Appellant had acquired the business and commenced trading with Customs putting this as March 2001 whilst the Appellant claimed in a trader questionnaire which he had completed and signed on 21 August 2006 that it was in August 2001. Mr Breary informed us also the Appellant and his family received working tax credits and child credit and that both the Appellant and his wife suffered from depression.

3. Two particular matters were brought to the attention of the tribunal at an early stage. First that on 26 April 2006 the Appellant was stopped at Manchester Airport by HM Revenue and Customs and found to have on him £6600 which was seized under the Proceeds of Crime Act 2002 and held on an application for forfeiture. Mr. Breary in the bundle of documents he presented to the tribunal produced an incomplete copy Consent Order in the Trafford Magistrates Court (undated and without a Case number) to the effect that the sum of £6600 and accrued interest be surrendered to Customs to offset any Vat liability of the Appellant in relation to Pizza Place.

4. The second matter was an acknowledgement that till rolls produced on behalf of the Appellant at a meeting with Customs officers on 11 October 2006 had been, as Mr. Breary put it, “fabricated” by the Appellant. The Appellant and Mr. Ashraf had attended and the officers present had been Mr. Pither and Katie Pinder.

5. The representatives of the two parties are not agreed on the nature of the role of the tribunal in respect of the determination of the proper registration date for the business. Mr. Breary has submitted that the decision of Customs to register the Appellant with effect from 1 March 2002 was not based on best judgment in that the material on which the decision was based was incorrect. Counsel for Customs has submitted that this is not a matter involving best judgment in that there has been no assessment and the tribunal should therefore consider the reasonableness of the decision and whether is one which a reasonable body of Commissioners could not have taken. We shall deal with this point further later.

6. There are two substantial issues in the case. The first is whether the Appellant has suppressed his takings since he commenced trading in 2001; the second is, if suppression did occur, was that suppression sufficient to bring the Appellant within the requirement to register from 2002. The view taken by Customs was that there had been a suppression of takings from the Appellant taking over the business whilst the Appellant contends that there has been no suppression and it was not until December 2006 that the registration limits were exceeded making the effective date for registration 1 February 2007.

7. There had been two visits to the premises by officers of Customs  namely on 14 August 2006 when the premises were found to be closed and on 19 October 2006 when the operation of the business was observed , as well as the meeting on 11 October 2006 referred to in 4 above. Initially the matter had been dealt with on behalf of the Appellant  by Mr. Ashraf of Ashraf & Co. Accountants of 30 Crescent Road Sheffield the Appellant’s accountant who entered into correspondence with Customs.  Mr. Breary said that the procedure followed by the business was that there were two coloured pads which although sequentially numbered did not follow on in use; and there was a pad for deliveries; meal tickets were not retained; nor were till rolls which were disposed of when the sales were totalled at the end of the day. The accountant he said added the daily takings into a book and he also dealt with the Appellant’s income tax. Mr. Ashraf had written to Customs explaining that only the first year had been over the registration limit but the Appellant had only taken over in August 2001 and thus there had been two traders involved for that period, the Appellant and his brother from whom he had acquired the business. The Appellant’s business was over the limit in March 2005 but then fell below again until December 2006.

8. The legal position is that if  at the end of any month the value of the taxable supplies in the year then ending exceeded the sum constituting the then threshold using an annualised takings figure then registration is required. 

9. In relation to the year to March 2005 the Appellant on his own monthly figures  had exceeded the then registration limit of £58000 by £570 and Mr. Ashraf on 30 June 2006 wrote requesting an exception from registration permission on the basis that the Appellant had exceeded the limit only once in March 2005  and that in that following year to 31 March 2006 his turnover was £58310 and thus below the limit of £60000 for that year. Permission was given by Customs in a letter dated 12 October 2006 following the submission of monthly figures and the explanation that the Appellant’s accounts had also included some rental income of £50 per week for thirteen weeks. No question was raised that the Appellant’s figures might be inaccurate by reason of a suppression of takings. That possibility only appears to have arisen following an unannounced visit to the Pizza Place on 19 October 2006 by Mr. Pither and Ms. Pinder.  

10. It is clear from the turnover figures produced by the Appellant’s accountants that the Appellant’s turnover was at all material times close to or on occasion in excess of the then registration limits. The figures given in the letter dated  28 March 2007 from Ashraf & Co. for the years ending on 31 March 2002 to 2006 were:

                                                            LIMIT                        RESULT                                  
Y/e 31/03/02        £55500                      £54000                       Excess £1500

Y/e 31/03/03        £51527                      £55000                       Under by £3473 or 6.7% 

Y/e 31/03/04        £56139                      £56000                       Excess £139

Y/e 31/03/05        £59018                      £58000                       Excess £368 after excluding rent of £650  

Y/e 31/03/06        £58310                      £60000                       Under by £1690 or 2.89%   

We have set out the relevant limits and results alongside by way of illustration. Strictly monthly figures and not  the accounting year figures should be used . These can be found at enclosure 8 in the Appellant’s bundle but they show a similar overall picture with two instances of the limit being exceeded in March 2005 and in December 2006. In relation to the figure of £55500 for the year to 31 March 2002, which we are satisfied was the figure produced by the accountants for income tax purposes thus implying that trading by the Appellant had continued for the full year from March 2001, even if the Appellant were correct in saying that he had not actually commenced trading until 8 August 2001, his monthly figures from August 2001 to July 2002 show a turnover of £50902 or some 8.05% below the registration limit. It can also be seen from the monthly figures that as at August 2002 the Appellant’s turnover for the year was £51172 or 7.4% below the limit of £55000. As at March 2004 the Appellant’s turnover was given as £55939  ie. £61 below the limit. This is equivalent to 0.1% below the limit. 

11. We also note ( though this is now said by Mr. Breary  to have been an error ) that on 16 October 2006 the Appellant completed Form VAT1 applying for registration on the basis that his taxable supplies exceeded the threshold  on 30 September 2006. If the monthly figures at enclosure 8 of the Appellant’s bundle are correct this was wrong and the date should have been 31 December 2006. The figures for the following three months to March 2007 also show the threshold being exceeded. It is unclear why VAT1 was submitted when it was. It was suggested by Mr. Breary that it may have been because the Appellant was intending to “appease the VAT people”. On its face VAT1 indicates that the Appellant was saying that he had reached the threshold in September 2006. 

12.Included among the documents in the Appellant’s bundle is a witness statement of Stephen Michael Thomas. He was the officer of Customs investigating the source and purpose of the £6600 which had been seized from the Appellant on 26 April 2006. Among information provided to Mr Thomas by the Appellant was his accounts for the year to 31 March 2005 which Mr. Thomas considered to show sales in excess of the VAT threshold  and he referred the accounts to a VAT team to enquire further into the question of registration. This led to the involvement of Mr. Pither and on 14 August 2006  he and Ms. Pinder visited the Pizza Place. However it was closed and Mr. Pither left a standard questionnaire under the roller shutter. This was returned by the Appellant and was received by Mr. Pither on 24 August 2006. Mr. Pither was not satisfied with the replies because the Appellant’s self-assessment declaration indicated that the threshold had been exceeded. Accordingly he wrote  to the Appellant requesting a meeting. This took place at the offices of Ashraf & Co. on 11 October 2006. Mr. Pither was accompanied by Ms.Pinder and the Appellant and his accountant and another man were present. We accept that Mr. Pither said that he was not satisfied that the Appellant did not need to register and that he invited the Appellant to register  without prejudice from at least  1 May 2005 but that the Appellant declined. It was at this meeting that the Appellant produced the till rolls which it is now accepted were fabricated. Mr. Pither also left a number of self-invigilation sheets with the Appellant and requested him to complete them as meals were sold.

13. Following this meeting Mr. Pither examined the till rolls produced by the Appellant and concluded that they were not an accurate record of the sales made by the business.  We do not need to record the reasons for which Mr. Pither reached this conclusion. They are set out in his witness statement and Mr. Pither as is now admitted was correct in his conclusion. An unannounced visit to the Pizza Place by Mr. Pither and Ms Pinder followed on 19 October 2006 at 18.30 hours. The Appellant was present and he said that he had not completed the invigilation sheets. Mr. Pither and Ms. Pinder examined the meal tickets and the till Z  was read in addition to the orange and green meal tickets. We accept that one telephone order was recorded in a duplicate book at £11.20. The till audit roll was also looked at briefly. A further unannounced visit was made that evening between 10.15 and 10.30 pm. A further Z report was obtained and till receipts were taken with copies supplied to the Appellant next day.

14. On 24 October 2006 based on the information obtained on the two visits on 19 October 2006, Mr. Pither calculated that there had been a suppression of takings. This was founded on two matters. The first was that the Z readings showed total takings of £142.60 but this did not include what he described as two omissions , namely the £11.20 for the telephone order in the duplicate book and a further £6.40 in respect of orange ticket 91. This increased the takings to £160.20. Secondly Mr. Pither then increased this figure to £211.46 on the basis that the income of £160.20 had been generated over a period of 4 hours and 10 minutes whilst the premises were open for 5 hours and 30 minutes (6pm to 11.30pm). Mr. Pither considered that it was reasonable to apply the rate of £160.20 for 4 hours and 10 minutes to the 5 hours and 30 minutes because there was likely to be “a lot of post pub closing income” at the end of the evening. Mr. Pither then used the estimated takings of £211.46 to calculate a suppression rate to the Appellant’s reported takings. He used three different methods.

15. The first method was based on the Z report for the early evening takings of £21.80 on 19 October 2006.  This figure was compared with the income of £28.30 shown on the 5 meal tickets less a deduction of 10p for an under-rung ticket. The deficiency of £6.40 related to orange ticket 91 and indicated a suppression of 22% in the takings. The second method took the  projected income of £211.46 on Thursday 19 October and compared it with the takings of the best Thursday that year of £145 on 27 August 2006. The higher figures of £155, £167, £177 and £169 for 4 Thursdays prior to 31 March in 2006 were not included probably because they related to a previous trading year. The difference of £68.06 between the estimated takings of £211.46 and the recorded takings of £145 on the till roll indicated a suppression of 31% of estimated takings. The third method compared the projected income of £211.46 with the worst Thursdays ( 22 May 2006 and 22 June 2006) of £101 and suggested a suppression rate of 52%. Having made these calculations Mr. Pither on 24 October 2006 wrote to the Appellant saying that he was disappointed that the Appellant had not completed the sales record sheets left with him and that he considered that the Appellant’s sales had been considerably higher than had been disclosed. He then invited the Appellant to re-examine his declarations and to make a voluntary disclosure concerning undisclosed sales. He said he would allow three weeks for the Appellant to review the matter and that if no disclosure concerning undisclosed sales was made he would be obliged  to proceed on the grounds of best judgment and issue an assessment according to his computations. The Appellant did not respond to this letter. However on 18 October 2006 the Appellant’s accountants had submitted the Form VAT1 dated 16 October 2006 on the basis his supplies had exceeded the threshold on 30 September 2006. Mr. Pither then became ill and Mr. Nutter  took over the case on 7 December 2006 and on that day he wrote to the Appellant referring to Mr. Pither’s letter of 24 October and requesting a response within 7 days. Mr. Nutter said that if no information was received he would have no option but to proceed with an assessment using Mr. Pither’s figures. These were not revealed to the Appellant. Again there was no response apart from a telephone call from the Appellant’s solicitors referring to the seizure of the £6600 and enquiring what action was being taken in respect of the VAT. Mr. Nutter explained that the Appellant had potentially run up considerable debts by not registering his business for VAT and commented that because the debt was so large there might be a requirement that the £6600 be used to offset against the VAT debt.

16. In the absence of any response to the letters of 24 October and 7 December 2006               Mr. Nutter on 26 February 2007 forwarded the Appellant’s Form VAT1 to the VAT Registration Unit at Grimsby and using Mr. Pither’s calculation of a 31% suppression altered the registration date from 1 October 2006 to 1 March 2002. On 6 March 2007 the Appellant was registered for VAT from 1 March 2002 . By a letter dated 28 March 2007 the Appellant’s accountants “appealed” this decision and requested registration from 1 November 2006 instead. Mr. Nutter by letters dated 4 and 8 May 2007 said that Mr. Pither’s calculations had indicated approximately 31% of the takings had been suppressed, that the effective date of registration had been calculated on this basis and that the decision to register the Appellant from 1 March 2002 was upheld. The appeal before us is an appeal from Mr. Nutter’s decision.

17.In presenting the Appellant’s case Mr. Breary criticised Mr. Pither’s calculation of the estimated takings of £211.46 for 19 October 2006 as factually inaccurate in that he said that the two items of £6.40 and £11.20 which Mr. Pither described as “known omissions” were not in fact omissions at all. The “£11.20 he said was an unpaid delivery from the previous evening and the £6.40 was a telephone order for collection later and had been included in the till roll between the 2 visits on 19 October. However there is no actual evidence before us to establish either of these matters. As we have indicated no evidence was called by or on behalf of the Appellant  and what Mr. Breary said is not evidence.  It is also significant in our view that  although Mr.Pither was present at the hearing no application was made to cross-examine him on his calculations  or the factual basis on which he had proceeded. We do not accept the suggested explanation which, so far as we know, was only put forward by Mr. Breary at the hearing for the sums of £6.40 and £11.20. We are satisfied on the balance of probabilities that Mr. Pither was correct in treating these items as omissions. There is no trace of these items on any till rolls produced to us. 

18. Mr. Breary criticised Mr. Pither’s use of the figure of  £145 for 24 August 2006 as the best declared Thursday in his calculation of the suppression rate of 31% (method 2, page 30, Customs bundle) because the best Thursday was, he said, 12 October 2006 at £192 followed by £177 on 23 February and by £155 on 12 January 2006. These figures do appear on enclosure 19 in the Appellant’s bundle but it is unlikely that the figure of £192 for 12 October had been made available to Mr. Pither when he made his calculation.  Mr. Pither was not cross-examined on his use of the figure of £145  and as we have already indicated that figure was the highest figure for the trading year from 31 March. No injustice to the Appellant can it seems to us be said to arise from the use of the figure  £145. That figure is in excess of the average figure of £131 for Thursdays for the whole period shown on enclosure 19 (week ending 30 October 2005 to week ending 22 October 2006). It is also in excess of the average  for Thursdays  for the whole of 2006 up to 8 October 2006 (£123.27) or 15 October 2006 (£124.95). Even if the figure of £177 had been taken the calculation would have produced a suppression rate of 19.2% (34/177). 

19. In the instant case, because of the absence for the years back to the start of trading in 2001 of till rolls and of the pads on which orders were received, the only evidence of the amount of the takings are the figures which the Appellant supplied  to his accountant. The book into which the daily takings are said to have been entered has not been produced. When considering whether there has been any suppression of the takings in effect there is only the Appellant’s word  that the amounts reported to his accountant  were correct. These were, we assume, incorporated into the annual accounts drawn up and supplied to Customs for tax purposes and in relation to VAT after the seizure of £6600 on 26 April 2006. The Appellant has not given any evidence to explain why Mr. Pither’s calculations are wrong. It is only recently that enclosures 19 and 21 have been produced. It is noticeable that enclosure 19 records a significant increase in the takings for the weeks ending  15 and 22 October  2006 ( to £1307 and  £1312) against the average of £1155 up until then (or £1149 if the last 2 weeks are excluded). This latter is an increase of over 13% over the previous year up till then. No explanation has been given for this increase. The takings recorded on enclosure 21 show a further increase to an average of £1406 a week from 29 October 2006 to 21 October 2007. This is an increase of over 20% on the average of  £1155 for the previous year.  Again there is no evidence to explain this increase, yet it was very noticeable that the Appellant’s accounts from 2002 showed only modest increases. We have no doubt that the reason for  the significant increase in the declared takings following the week ending 8 October 2006 was connected with the enquiries of Customs and the meeting of 11 October 2006 and the unannounced visits on 19 October 2006. The clear inference in our view is that the Appellant began to make more accurate declarations of his takings because he realised that Customs were serious in enquiring into his affairs. The submission of Form VAT1 dated 16 October 2006 accepting that he had reached the registration threshold in September 2006 is also significant and was probably an attempt to avoid any steps to enquire into the earlier years. Further it is significant that the Appellant did not respond  to Mr. Pither’s letter of 24 October or that of Mr. Nutter of 7 December 2006. Daily record sheets were subsequently provided for 20,21,22,24,25,26,27,28,29 and 31 October 2006 showing the significantly increased takings recorded   on enclosure 21 and it would seem clear that the Appellant did have the information that Mr. Pither and Mr. Nutter had requested. 

20. If these figures are compared with some of the figures on the fabricated till rolls (page 27, Customs bundle) it can be seen that there is likely to have been some suppression. Thus if the recorded takings for Friday  27 October 2006 (£348.28) are compared with the figure given for Friday 22 September 2006 (£305.50) which was the highest Friday on page 27 there is a difference of £42.78 or 14%. A similar percentage of 14% on declared takings results if the figure of £307.80 for Sunday 29 October 2006            is compared with the figure of £268.80 for Sunday 1 October 2006 (on page 27).  Similarly, if the figure of £351.90  for Saturday 28 October is compared with the figure of £306.40 on page 27  for Saturday  30 September 2006  there would be a suppression of 14.8%. Looking at these figures the subsequently recorded takings on pages 42 to 52 are some 14% to 15% higher than the highest recorded on the same day of the week in the previous period. Although the till rolls were fabricated the figures appearing on them were themselves either based on what the Appellant said had been his takings or were themselves fabricated.  On the former basis the figures on pages 41 to 52 strongly suggest a suppression rate of at least 14% to 15%.

21.We must also state that we have found it very unsatisfactory that the Appellant produced on 11 October till rolls  which it was accepted at the outset of the hearing had been fabricated. That can only in our view cast suspicion on any figures produced by the Appellant unless backed up by supporting documentary evidence.

22. Our clear conclusion having considered all the evidence before us is that there was significant suppression by the Appellant of his true takings going back to 2002. Suppression of one order out of five was detected by Mr. Pither as a result of his first visit on 19 October 2006 and that was in our view supported by his calculation (method 2) based on the till rolls for that day indicating that there had been  suppression since March 2002. The precise rate of suppression is not clear  because of the absence of any reliable records from the Appellant. Nor do we propose to seek to calculate an assessment figure. That is for Customs. However we are satisfied  that it was probably of at least of the order of 20% based on takings (see 19 above) and may well have been up to 31% as calculated by Mr. Pither. The burden of proof is on the Appellant  to show that the calculation of 31% is wrong  but that he has not been able to do. In our view Mr. Pither and subsequently Mr. Nutter cannot be said to have been acting unreasonably on the information before them in using a suppression rate of 31% with the result that the Appellant became liable to registration from 1 March 2002. 

23.On the issue whether the fixing of the registration date of  1 March 2002 must be to best judgement  as submitted by Mr. Breary or whether it is sufficient if Customs act reasonably ( in a Wednesbury sense) as submitted by Mr. Chapman, we prefer Mr. Chapman’s submission.  Best judgement is relevant when an assessment  is being challenged but there has not yet been any assessment of the amount of VAT payable. The appeal against the decision to register from 1 March 2002 is against a decision under paragraphs 1 and 5 of Schedule 1 to the Value Added Tax Act 1994. The appeal lies under section 83(a). 

24. As we have already observed, based on the Appellant’s accounts as submitted to Customs and the figures given by the Appellant’s accountants in their letter dated 28 March 2007 (after adjustment to take account of rental income in 2004-5) and even if it were correct that trading did not start until 8 August 2001 only an increase of 8.05% in 2001/02 would have been needed to trigger registration  and lesser increases in relevant subsequent years. We hold that those percentages were exceeded. In any event we consider that the Appellant was trading from March 2001 as his accounts related to the whole year.

25. The appeal is dismissed.

26. Customs have not sought costs and we make no direction as to costs.

MAN/07/0591

Elsie Gilliland
CHAIRMAN

Release date: 17 March 2008