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	United Kingdom VAT & Duties Tribunals Decisions
You are here: BAILII >> Databases >> United Kingdom VAT & Duties Tribunals Decisions >> MacKay & Anor (t/a The Black Horse) v Revenue & Customs [2009] UKVAT V20928 (16 January 2009) URL: http://www.bailii.org/uk/cases/UKVAT/2009/V20928.html Cite as: [2009] UKVAT V20928

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20928

VAT – ASSESSMENT – evidence of suppressed sales – Appellants' explanations of use of live transactions during staff training and uncorrected errors not credible – Appeal dismissed – Assessment and misdeclaration penalties upheld.

LONDON TRIBUNAL CENTRE

PETER ROBERT CIARAN MACKAY & SIMON JUSTIN CORRELL Appellant

Trading As

THE BLACK HORSE

- and -

HER MAJESTY'S REVENUE and CUSTOMS Respondents

Tribunal: MICHAEL TILDESLEY OBE (Chairman)

DIANA WILSON (Member)

Sitting in public in London on 14 November 2008

The Appellant did not appear

Jonathan Holl of the Solicitor's office of HM Revenue & Customs, for the Respondents

© CROWN COPYRIGHT 2008


 


DECISION

The Appeal

1. The Appellant was appealing against

(1) A Notice of Assessment dated 20 January 2006 in the sum of £30,365 for the periods 1 December 2003 to 31 May 2005.

(2) An amendment of the VAT return for the period 08/05 which related to unrecorded sales for the period and an incorrect claim of input tax relating to business entertainment expenses.

(3) Mis-declaration penalties for periods 05/04, 11/04 and 02/05 in the sums of £730, £832, and £788.

2. The grounds of Appeal were that the assessment was incorrect and excessive. Further the assessment did not take into account VAT on expenses and refurbishment during the period.

The Hearing

3. The Respondents applied for the Appeal to be dismissed for want of prosecution or in the alternative to be heard in the absence of the Appellants. The Respondents considered that the Appellants were abusing Tribunal procedures by their failure to attend the hearing particularly as the Appeal had been adjourned on three previous occasions to give them an opportunity to attend.
4. We were satisfied that the Appellants were abusing Tribunal procedures. We decided to hear the Appeal in the absence of the Appellants. We considered that we had no jurisdiction to dismiss for want of prosecution since the Respondents had given the Appellants no prior notice of its Application in accordance with Tribunal Rules.
5. We heard evidence from Dean Walton, the Officer who made the assessment. We received a bundle of documents in evidence.

The Facts

6. The Appellants operated a public house/night club from premises at 168 Mile End Road, London E1 4LJ under the trading name of The Black Horse. The opening hours were 1900 to 0200 Monday – Thursday; 1800 to 0300 Friday and Saturday; 1400 to 0000 Sunday.
7. Officer Walton visited the Appellants' premises on 29 September 2005 to carry out an inspection of their business records. The Appellants were unable to produce a complete set of till readings because they had been accidently destroyed by contractors when the bar and cellar areas were cleared for refurbishment. Officer Walton was presented with till readings for three weeks of May 2005 and for the period 29 July 2005 to 31 August 2005. Mr Walton examined the till readings for May 2005 and found that the weekly takings for the weeks for which Z readings had been produced were significantly higher than the declared takings when no Z readings had been retained. He considered that the Appellants had suppressed their weekly takings.
8. Mr Walton's uncovered a cumulative Z reading dated 31 August 2005 which showed that takings of £573,865.46 had been rung into the till since its installation on 4 June 2003. This figure was £257,360.74 greater than the declared takings of £316,504.72. Mr Walton decided that the value of unrecorded sales for the period ending 31 August 2003 through to 31 August 2005 was £257,360.74 from which Mr Walton derived average quarterly sales of £63,762 and under-declared output tax of £38,329 for the whole period. On 4 October 2005 Mr Walton issued a proposed assessment of £38,329, on which he invited the Appellants' comments.
9. On 7 November 2005 the Appellants explained the reasons for the discrepancy of £257,360.74 between the takings recorded on the cumulative Z reading and the declared takings. The first reason was the use of the till for staff training. The business experienced a high staff turnover. When training new members of staff the Appellants did not use the training button on the till but treated the training transactions as if they were live ones, which accounted for £143,040 of the discrepancy. The second reason was mistakes made by members of staff which consisted of two major errors of £50,000 and £40,000 accidently rung in for amounts of £50 and £40 respectively, and minor till ringing errors of £10,992.
10. On receipt of the information from the Appellants, Mr Walton carried out further investigations which included an examination of the Appellant's credit card sales processed by HSBC. He calculated that credit card sales formed 14 per cent of the total sales of the business for the period 3 October 2005 to 13 November 2005, which was the only period when there were complete records of the Appellant's Z readings, cash and credit card reconciliations. Using this percentage and the value of credit card transactions for the period 31 August 2004 to 28 October 2004 (£6,810.65), he arrived at an estimated takings of £73,000 per quarter which confirmed his initial view that the Appellants had been suppressing sales.
11. Mr Walton placed no weight on the Appellants' assertions that live till transactions had been used for training staff. The Appellants provided inconsistent accounts of the training. On the 29 September 2005 they stated that training was done on the job. Members of staff were run through how to use the till but did not actually ring live transactions. The Appellant supplied a different version of using live transactions for training staff in a phone call of 30 September 2005 and their letter of 7 November 2005. The Appellants' different version was not supported by records showing the level of live transactions apparently rung in during training sessions.
12. According to the Appellants the high level of till errors was due to members of staff not using the void function on the till. Mr Walton tested the Appellants' proposition by reviewing the declared takings with the Z readings for 2 May 2005 to 22 May 2005 and 29 July 2005 to 31 August 2005 which showed a difference of £69.15 and that voids had been rung in to a total of £1,542.30. Mr Walton concluded that the void function was being used correctly, and that the value for over-rings was minimal. Mr Walton allowed a 2.13 percentage deduction for over-rings.
13. Mr Walton did not allow for the two major errors totalling £90,000. The Appellants supplied no documentation to support their assertion of major errors. Further the evidence indicated that members of staff and the manager regularly corrected errors with the use of the void function. Finally the till used in the business had a PLU (price look up) function which avoided the need to record directly the value of the transaction on the till. The PLU function had to be overridden by a member of staff to enter a sale with the value of the transaction. Mr Walton considered it improbable that members of staff would override the PLU function, in which case the likelihood of wrong cash till entries was extremely remote.
14. Mr Walton was sceptical about the Appellants' claim that the business was closed in November 2004. The examination of the credit card receipts revealed that the Appellants traded during November 2004.
15. During the period covered by the proposed assessment Mr Walton disallowed input tax claims for business entertainment which he worked out at £26 per quarter, and a claim of £50 for a car rental hire in November 2004. Apart from these two items Mr Walton did not challenge the Appellants' repayment claims including the VAT incurred on the refurbishment costs for which credit had been given.
16. Mr Walton issued a revised assessment dated 20 January 2006 in the sum of £30,365 for the periods 1 December 2003 to 31 May 2005. Mr Walton amended the Appellant's VAT return for period ending 08/05 by reducing the input tax claim to £2,215.36. The amendment was necessary to reflect the unrecorded sales for the period and the incorrect claim of input tax relating to business entertainment expenses. Mr Walton also issued an assessment for a misdeclaration penalty in the sum of £2,350 for periods 05/04, 11/04 and 02/05. Mr Walton did not mitigate the penalty because he received no co-operation from the Appellants with his enquiries.
17. The Appellants' supplied copies of business accounts for the years ending March 2003, 2004, 2005 and 2006. Mr Walton had not been presented with these accounts during his investigation. He did not consider them relevant because they were not signed and they showed that the business was operating at a significant loss for each year of operation.

Reasons for Decision

18. Section 73 of VAT Act 1994 empowers the Respondents to raise assessments for unpaid VAT where it appears to them that the taxpayer's returns are incomplete or incorrect or to recover VAT which has been wrongly repaid or credited as input tax to the taxpayer.
19. Under section 73 the Respondents are required to consider fairly all material placed before them by the Appellants, and on that material, come to a decision which is reasonable and not arbitrary as to the amount of tax due. The Respondents are under no obligation to do the work of the Appellants by carrying out an exhaustive investigation of the Appellants' VAT returns and accounting journals.
20. In this Appeal we consider that Mr Walton had reasonable grounds for suspecting that the Appellants' VAT returns were inaccurate. Mr Walton formed his view from an analysis of the Appellants' Z readings with the Appellants' declared takings which showed that the value of the sales recorded by the Z readings were significantly higher than the sales declared in the VAT returns. The onus was upon the Appellants to give a satisfactory explanation for the discrepancy in the sales figures. Essentially the Appellants offered two reasons for the discrepancy: the recording of live till transactions during the training of staff; and failures by staff to cancel incorrect transactions recorded on the till, in particular two transactions which totalled £90,000 instead of the correct figure of £90.
21. We found that the Appellants' explanations for the discrepancy unconvincing. The Appellants supplied no documentary evidence to support their assertions of use of live transactions in staff training, and uncorrected errors. Further Mr Walton's examination of the Z readings demonstrated that the Appellants were using the void function on the tills to correct suspect transactions. Finally we considered it improbable that members of staff would override the PLU function on the till to enter actual cash values of transactions.
22. We are satisfied that Mr Walton based his assessment on reliable evidence which was the cumulative Z reading. He corroborated his finding on sales suppression by conducting an analysis of the Appellants' credit card receipts which produced an estimated quarterly sales figure higher than the one used by Mr Walton for the purposes of the assessment. The Appellants' explanations for the discrepancy between the quarterly sales figure relied upon by Mr Walton and the declared sales in the VAT returns were not credible. The Appellant did not challenge Mr Walton's disallowance of input tax claims for business entertainment and for the car hire charge in November 2004. In those circumstances we conclude that the assessment was made to best judgment, and that the Appellant has failed to demonstrate on the balance of probabilities that the assessment made, and the amendment to the VAT return for the period 08/05 were incorrect and excessive.
23. The Appellant put forward no reasonable excuse for not declaring the correct amount of VAT due. We agree with Mr Walton that there are no grounds to mitigate the misdeclaration penalty. On the evidence before us the Appellants did not co-operate with Mr Walton's enquiries.

Decision

24. For the reasons given above we dismiss the Appellants' Appeal. We uphold the following:

(1) The Assessment dated 20 January 2006 in the sum of £30,365 for the periods 1 December 2003 to 31 May 2005.

(2) An amendment of the VAT return for the period 08/05 which corrected the amount repayable to £2,215.36.

(3) Mis-declaration penalties for periods 05/04, 11/04 and 02/05 in the sums of £730, £832, and £788.

25. The Respondents made no application for costs, we make no order

MICHAEL TILDESLEY OBE

CHAIRMAN

RELEASE DATE: 16 January 2009

LON/2006/0197