[2011] UKFTT 189 (TC)

TC01058

Appeal number: TC/2009/16182

Appeal against compulsory VAT registration – appeal against assessments arising from VAT registration - appeal dismissed

FIRST-TIER TRIBUNAL

TAX 

	KHAN TANDOORI II & 
	KHAN TANDOORI (NW) LTD	Appellant

	- and -

	THE COMMISSIONERS FOR HER MAJESTY’S
	REVENUE AND CUSTOMS	Respondents

				TRIBUNAL: Ms. J. Blewitt (Judge)
						Ms. S. Stott (Member)

					
Sitting in public at Manchester on 23 February 2011

Mr. K. Shahabuddin and Mr. I. Shahabuddin for the Appellant

Mr. B. Haley, instructed by the General Counsel and Solicitor to HM Revenue and Customs, for the Respondents

© CROWN COPYRIGHT 2011

DECISION

1.	This is an appeal by the Appellant against the decisions of HMRC contained within  letters to the Appellant dated 3 July 2008 and 3 August 2009, and subsequently confirmed in a letter dated 8 September 2008 for the compulsory registration for Value Added Tax in respect Mr Mamunr Rashid Khan and Khan Tandoori (NW) Limited with effect from 1 December 2002 to 30 November 2005 and 1 December 2005 respectively, and assessments arising in lieu of VAT returns. 
2.	The Appellant appealed by Notice of Appeal dated 8 October 2009. The Grounds of Appeal are contained in a letter of the same date annexed to the Notice of Appeal. In summary, there are three principle areas of dispute:
(a)	whether meal book slips examined by HMRC relate to one days takings or, as the Appellant contends, two to three days takings;
(b)	 the accuracy of estimates prepared by HMRC in respect of chicken and meat sales for the period September 2006 to July 2007; and
(c)	The accuracy of estimates prepared by HMRC in respect of wastage/fat trimmed.  
Background and Undisputed Facts
3.	The Appellant owned and ran a takeaway business at 315 Brodie Avenue, Allerton, Liverpool until 21 November 2009. The status of the business changed from sole proprietor to Limited Company on 1 December 2005. 
4.	Mr Duxbury, an assurance officer of HMRC, and his colleague Ms Dickinson made an unannounced visit to the Appellant’s premises on the evening of 2 February 2008 to determine the extent of the evening’s sales and compare with the previous Saturday’s trade. 
5.	The Appellant, who has suffered ill health for a number of years, was not present, having left early due to feeling poorly. The Appellant’s brother was running the takeaway in his absence. The Appellant’s brother informed the HMRC officers that there were two full time staff and one part time. He stated that there was no till operated at the premises; instead a cash drawer was used. The Appellant’s brother stated that the Appellant had taken the cash takings for the evening with him when he left. The HMRC officers examined a duplicate numbered receipt book which had numbers 1 to 22 torn out. Numbers 23 to 64 were still contained within the book and had orders noted on them. Mr Duxbury left his contact details and requested that the Appellant telephone him.
6.	The Appellant duly telephoned Mr Duxbury and a convenient time to visit the Appellant’s premises was arranged. On 19 February 2008 Mr Duxbury attended the Appellant’s place of business and was given the receipt book referred to at paragraph 5 above by the Appellant.
7.	Using values contained within the receipt book, combined with estimates where no values could be identified, Mr Duxbury conducted an analysis of takings for 2 February 2008, which he estimated as £639.95.
8.	On 27 February 2008 Mr Duxbury uplifted records from the Appellant’s accountants which showed that the takings for 2 February 2008 had been declared as £302.00. Further concerns arose as a result of irregular purchase patterns and turnover.
9.	As a result of Mr Duxbury’s investigations, the effective date of registration was calculated by uplifting the turnover for the year ended 31 March 2003 and applying the percentage increase of 111% determined from the calculations in respect of the visit on 2 February 2008 and adding together the monthly averages until the VAT threshold of £55,000 was breached. On this basis, the turnover to 31 October 2002 was calculated as £58,451 and having applied the 30 day allowance for registration a date for registration of 1 December 2002 was arrived at.
10.	 As a result of the Appellant’s compulsory registration as a sole proprietor for the period 1 December 2002 to 30 November 2005, and in lieu of a VAT return for this period, the Appellant was assessed in the sum of £41,400. The limited company was registered for VAT with effect from 1 December 2005 and no returns have been submitted. In lieu of the returns, the limited company was assessed in the sum of £10,200.  
Evidence
11.	We were provided with witness statements from the Appellant Mr Mamunr Khan, the Appellant’s brother Mr Aminur Khan, Mr John Duxbury of HMRC and Ms Beryl Blades, an Appeals and Reviews Officer with HMRC. We heard oral evidence from all of the witnesses save for Ms Blades.
12.	Mr Duxbury presented as a credible witness. He confirmed that he had visited the Appellant’s business premises on 2 February 2008 with his colleague, Ms Dickinson. Mr Duxbury stated that a numbered duplicate meal bill book was being used to record orders and that he specifically asked the Appellant’s brother about the book. We accepted Mr Duxbury’s clear recollection that the Appellant’s brother had stated to him that the meal bill orders were torn out of the book at the end of each evening. Mr Duxbury stated that numbers 1 to 22 had already been torn out and that on the evening of the visit, at about 22.20, numbers 23 to 64 contained orders, some with a sales value and others without. 
13.	At the hearing, Mr Duxbury produced his written note of the visit which had not been included within the bundle. The note recorded for 2 February 2008 corroborated Mr Duxbury’s oral evidence to us that he had confirmed with the Appellant’s brother that the meal bill orders contained within the book were for the orders on 2 February 2010. 
14.	We accepted Mr Duxbury’s evidence that the Appellant had also confirmed, in a telephone call on 8 February 2008 at 15.55, that the meal bill book contained the orders for 2 February 2008. This oral evidence was corroborated by a note of the telephone conversation annexed to Mr Duxbury’s statement. We rejected the contention by the Appellant that Mr Duxbury could not prove that the meal bills related to the takings for 2 February 2008 as they contained no dates and there had been no takings at the premises during the visit. We accepted that Mr Duxbury had been told orally by both the Appellant and his brother, on separate occasions, that the meal bills did relate to the day’s takings and that the Appellant’s brother had told Mr Duxbury that there were no takings for the evening at the premises when the visit was made.
15.	Mr Duxbury explained the analysis of the meal bill book which he had conducted following receipt of the book on 19 February 2008. He explained that where meal details were not contained on the pages, he had used estimates based on the minimum prices on the Appellant’s menu. Mr Duxbury stated that when he later examined the Appellant’s records and found the declared takings to be £302, he believed that the figure for the evening’s takings should have been higher on the basis of the meal bill book. We accepted Mr Duxbury’s evidence in this regard and found that his analysis of the meal bill book had been fair and as accurate as an estimation could be in such circumstances.
16.	Mr Duxbury took us through the “Business Economics Exercise” he had undertaken, which he described as an “indicator or estimation of turnover”. He stated that the estimated sales figure had been calculated from the limited purchase invoices supplied by the Appellant by marking up raw purchases and comparing the figure arrived at against the declared sales. The estimated sales figure calculated by Mr Duxbury for the period September 2006 to July 2007 was £129,697. Although it was conceded that a figure for wastage had not been deducted, Mr Duxbury stated that the there appeared to be missing purchases, for example no purchases for rice or meat for several weeks at a time (there being no evidence of bulk buying within the records) and only one purchase of ten chickens for tandoori chicken dishes over the course of one year. Mr Duxbury also noted that there were large purchases of meat for main meals which indicated to him that the business traded significantly above the declared turnover.
17.	In cross examination Mr Duxbury was referred to the letters of Ms Blades of HMRC, who had reviewed and upheld the decision to register the Appellant for VAT on 23 April 2009 and 3 August 2009. It was put to Mr Duxbury that Ms Blades had accepted the figures asserted by the Appellant in respect of waste and cost of meat purchases. Mr Duxbury, properly in our view, declined to comment on the decision making process of his colleague but referred us to a letter from Ms Blades to the Appellant dated 8 July 2009 and annexed to her statement, which stated:
“You state that your client’s chicken purchases were in 20kg amounts rather than the 30kg in Mr Duxbury’s calculations and that the meat purchased was also higher in price. Taking your figures into consideration...taking both of these into consideration still puts your client above the registration limits...”
18.	We accepted Mr Duxbury’s evidence that the “Business Economics Exercise” was used solely as an indicator in assessing the level of the Appellant’s turnover. We found as a fact that Mr Duxbury had been as accurate as possible in conducting this exercise and had based his calculations on the limited records provided by the Appellant. We found as a fact that the correspondence from Ms Blades to the Appellant’s representative did not assist the Appellant; the point being that even when calculations were based on figures (unsupported by any evidence) provided by the Appellant, the VAT threshold was still crossed.
19.	No issue was taken with the way in which HMRC had calculated the date of registration for VAT and consequently we accepted that the Appellant had been registered in accordance with the relevant legislation.
20.	We then heard oral evidence from the Appellant’s brother, Aminur Khan. Mr Khan confirmed that he had told Mr Duxbury that his brother had taken the day’s takings with him when he left at approximately 20.30/21.00. Mr Khan was adamant that he had not told Mr Duxbury that the meal bill book related to the evenings takings and stated that when he had shown Mr Duxbury the book, he had stated it covered 3 or 4 nights. 
21.	 We noted that this oral evidence was inconsistent with Mr Aminur Khan’s witness statement dated 24 August 2010 which had annexed to it a statement addressed to the Appellant’s representatives, dated 3 July 2009 which stated:
“I would like to confirm that I never told HM Revenue and Customs officer Mr John Duxbury that the duplicate book slips 23 – 64 were for the takings for that evening only. So far I remember, I told him that these were the takings for 2 – 3 days.”
And we found as a fact that this indicated the unreliable nature of Mr Aminur Khan’s evidence.
22.	In cross examination Mr Aminur Khan went on to state that he did not know the usual practice of his brother in ripping out pages of the meal bill book and that he did not know whether the takeaway had been busy prior to his arrival and therefore could not say with any certainty that the meal bills contained within the book were not from that evening’s takings. 
23.	He accepted that he did not have much involvement with his brother’s business, other than helping out on odd occasions when his brother was ill, and that he was never responsible for cashing up at the end of an evening, but would leave any takings in the money drawer for his brother to deal with the following day. 
24.	We found Mr Aminur Khan’s evidence to be vague and inconsistent as compared with the clear and cogent evidence of Mr Duxbury and for that reason we preferred Mr Duxbury’s evidence.
25.	We then heard from the Appellant. The Appellant told us that he would record the takings each evening by counting the cash at the end of the night and recording it on a piece of paper and then onto a summary sheet. The Appellant said that the cash was then kept in a hidden safe in the takeaway. We noted that this was inconsistent with the information provided by the Appellant’s brother to Mr Duxbury on 2 February 2008, and recorded in Mr Duxbury’s note of the visit, and also the oral evidence of Mr Aminur Khan that the Appellant had taken the cash with him. We also noted the discrepancy in Mr Aminur Khan’s witness statement dated 24 August 2010 which stated that he did not know the where the money was kept. A further account had been given by the Appellant in his telephone call to Mr Duxbury on 8 February 2008, the contents of which were noted and exhibited by Mr Duxbury, in which the Appellant had stated “the money was next to the till/drawer.” 
26.	The Appellant explained that the meal bill book was mainly used to assist the chefs as to the meals ordered. He stated that the book was quite large and the duplicate pages would often cause problems by flipping back due to their volume, a problem which he remedied by tearing out the pages although there was no pattern to the frequency with which he did this. Under cross examination the Appellant could not explain why the duplicate pages of 23 to 64, which made up a significant part of the meal bill book, had not been torn out if such problems regularly occurred. 
27.	The Appellant stated that he was 100% certain that he had not told Mr Duxbury that the meal bill book pages 23 – 64 related to the takings for 2 February 2008 and that he believed he had said they covered 2 to 3 days takings. We noted the Appellant’s  witness statement dated 24 August 2010 which had annexed to it a statement addressed to the Appellant’s representatives, dated 3 July 2009 which stated:
“I would like to confirm that I never told HM Revenue and Customs officer Mr John Duxbury that the duplicate book slips 23 – 64 were for the takings for that evening only. So far I remember on the 8 February 2008 I told him over the telephone that these were the takings for 2 – 3 days.”
28.	The Appellant’s witness statement also made reference to the telephone call made by the Appellant to Mr Duxbury on 8 February 2008 and repeats the Appellant’s assertion that he clarified for Mr Duxbury that the meal bill book related to orders for 2 to 3 days. 
29.	We did not accept that the Appellant’s evidence was accurate. We found that the statement dated 3 July 2009 contained a degree of uncertainty and that there were inconsistencies in the Appellant’s account of where the money was kept. Having heard oral evidence from both Mr Duxbury and the Appellant, we preferred the evidence of Mr Duxbury which was corroborated by a note of the telephone conversation.
30.	The Appellant stated that since receiving Mr Duxbury’s analysis he had made his own calculations and that 8 to 10 ounces of meat was used for each meal and that he would sometimes give a free dish to regular customers, which had not been taken into account by Mr Duxbury. We noted that this calculation was made after the evening of 2 February 2008 and that on the Appellant’s own evidence the chefs were responsible for preparing meals while he took orders, made deliveries and cashed up. We found as a fact that we could not be certain that the Appellant’s evidence accurately represented the situation on the evening of HMRC’s unannounced visit. Even allowing for a margin of error on the part of Mr Duxbury, who accepted his calculations were an estimate, we noted that the calculations made by Ms Blades referred to at paragraph 17 above took into account the assertions by the Appellant and that the VAT threshold was still crossed. 
31.	The Appellant said that there was approximately 15% wastage and that staff consumption was in the region of 4 to 5 %. No evidence was produced to support these assertions and therefore we found as a fact that these figures could not be relied upon. We noted that Ms Blades had allowed 10% wastage and 5% staff consumption in her letter to the Appellant dated 3 August 2009 and that the VAT threshold was still crossed.
Submissions
32.	The Appellant’s representatives provided a helpful summary of their submissions at the end of the hearing.
33.	It is submitted that the assumption that the meal bill book related to 2 February 2008 is incorrect. Having heard evidence from Mr Duxbury, the Appellant and the Appellant’s brother and for the reasons set out above, we preferred the evidence of Mr Duxbury and therefore reject this submission. 
34.	The Appellant contends that the meal order book cannot be used as a basis of calculation as the pages are undated, some have no price and because the pages are used to assist the kitchen not to record sales. We find as a fact that Mr Duxbury made a fair analysis on the evidence available to him. We took the view that the values attached to meals where no value was contained on the order was calculated using best judgement and that in the absence of any other evidence available to him, Mr Duxbury’s estimate was fair and accurate. We therefore reject the submission that the uplift of 111% is an incorrect estimate.
35.	We do not accept that Mr Duxbury was wrong to base his calculations on 42 orders over the course of 2 February 2008. It was accepted by Mr Duxbury that only one order was placed during HMRC’s visit to the premises, but we accept his evidence that he was told by both the Appellant and the Appellant’s brother that the meal order book pages contained in the book related to orders on 2 February 2008. The submission that Mr Duxbury’s calculation is not supported by cash found at the premises is, in our view, misconceived as the Appellant’s brother had confirmed that the takings had been taken by his brother. Mr Duxbury could not take into account evidence which was not available to him.
36.	We reject the submission that the Appellant’s takings sheet supports the assertion that the sales were made over a 2 to 3 day period. The takings sheet shows a total of £680.70 for the period 31 January to 2 February 2008. Mr Duxbury’s estimate of sales using the meal bill book was £639.95. The Appellant gave evidence that there was no pattern to tearing out pages from the meal bill book and therefore could not say with any certainty the days to which the pages contained in the book related. The Appellant’s brother gave inconsistent evidence stating in his witness statement that the book contained 2 to 3 days sales and in oral evidence 3 to 4 days sales. The Appellant also gave evidence that not all orders were recorded in the book, which was primarily used to assist the chefs. We therefore find that even on the Appellant’s evidence, it could not be said that the takings sheet supports the proposition that he meal bill book reflected the sales specifically for 31 January to 2 February 2008.
37.	We accept that the Appellant offered Mr Duxbury the opportunity to visit the premises again and that this offer was not taken up. There was no obligation on Mr Duxbury to re-visit the premises and we do not accept that this invalidates his analysis and conclusions. 
38.	The Appellant asserts that Ms Blades, in reviewing Mr Duxbury’s calculations, accepted that errors had been made and reduced the turnover estimation from £127,297 to £62,485. We do not accept this to be the case. It is clear from Ms Blades correspondence with the Appellant’s representatives that she was solely reviewing the issue of compulsory VAT registration. In doing so, Ms Blades fairly took into account the assertions by the Appellant as to wastage, staff consumption and portion size, but found that the VAT threshold was still crossed. We do not accept that Ms Blades’ evidence went any further than to uphold the decision that the Appellant should be registered for VAT.
39.	It is contended that using the figures asserted by the Appellant, that the VAT threshold is not crossed. We do not accept this submission; there was no documentary evidence from the Appellant in support of the figures asserted and we did not accept the oral evidence of the Appellant as reliable or accurate.
40.	The Appellant contends that no assessment was received prior to demands for payment in respect of the Limited Company on 29 May 2009 and in respect of the sole trader on 24 June 2009. The Appellant submits that no formal assessment or calculation has been provided and that if the flat rate scheme of 12% is applied to the figures, a turnover below the VAT threshold is reached. We do not accept this submission. There is no legislative provision requiring the notification of such assessments. We note the letter from HMRC to the Appellant dated 25 September 2008 which clearly notifies the Appellant of his requirement to be VAT registered and the assessment payable by him and find that this was sufficient to enable the Appellant to be fully aware of his situation. We do not accept the Appellant’s submission in respect of the flat rate scheme as applicable to the Appellant as he had not registered for VAT or the flat rate scheme at the relevant time.
41.	The Appellant argues that the assessments are out of time under the VAT Act 1994 and that HMRC have failed to follow their own guidance CH51820 which states that an assessment relating to an accounting period of more than 2 years should be raised within 12 months from the date of evidence. We do not accept this submission. Section 83 VAT Act 1994 states:
...an appeal shall lie to a tribunal with respect to any of the following matters...
(p) (i)...in respect of a period for which the appellant has made a return under this Act..
There is therefore no provision to appeal the assessments as no returns were made by the Appellant. We do not accept the Appellant’s argument that the assessments are out of time and that HMRC have breached their own policy. The Notice CH51820 referred to by the Appellant exists as guidance and therefore even if breached, in our view this would not be fatal to HMRC’s case. In any event, the guidance relates to assessments raised following an error discovered in a taxpayer’s VAT records. This does not apply to the Appellant as there were no VAT records submitted and therefore no discovery made. We find that HMRC have acted properly in respect of the assessments. 
Decision
42.	We dismiss the appeal.
43.	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.

TRIBUNAL JUDGE
RELEASE DATE: 17 March 2011