Tang (t/a Man Ying) v Revenue & Customs [2006] UKVAT V19524 (04 April 2006)

19524
	ASSESSMENT – under declaration of output tax – penalty for dishonest conduct – dishonesty admitted in correspondence – appeal against both assessment and penalty dismissed 

DRAFT 

MANCHESTER TRIBUNAL CENTRE

 

MR SZE MAN TANG trading as MAN YING	Appellant

- and -

THE COMMISSIONERS FOR
HER MAJESTY’S REVENUE AND CUSTOMS	Respondents

Tribunal:	Lady Mitting (Chairman)
Member: 	Peter Whitehead
Susan Stott

Sitting in public in Manchester on 27 February 2006

 The Appellant did not appear and was not represented  

Ben Collins of counsel, instructed by the Acting Solicitor for HM Revenue and Customs for the Respondents 

	© CROWN COPYRIGHT 2006

DECISION

1.	The Appellant appeals against first, an assessment to tax in the sum of eighty seven thousand seven hundred and sixty nine pounds (£87,769) plus interest, the assessment being notified on 19 December 2000 and secondly against a penalty for dishonest conduct should under section 60(1) Value Added Tax Act 1994 in the sum of seventy eight thousand and eighty three pounds (£78,083) issued on 26 February 2001.
2.	When the case was called on for hearing, the Appellant was not present and neither was his Representative Mr M Feng.  We checked that the hearing had been properly notified to Mr Feng and the clerk also telephoned Mr Feng’s office only to be told that he was not in and was not on his way to the tribunal.  Mr Collins told us that officers of the Respondents had phoned Mr Feng’s office on numerous occasions but had never been able to speak to him and promised return calls were not made.  Mr Collins himself had tried to speak to Mr Feng the previous week to ascertain if the case was being contested but again he could not speak to Mr Feng and was merely told that his message would be passed on.  In the light of all this information we decided it was appropriate to continue to hear the case in the absence of the Appellant, which we did under Rule 26(2) Value Added Tax Tribunals Rules 1986.
3.	It was the Respondents’ case that throughout the entire period covered by the assessment, Mr Tang and his wife, Mrs Ying-Tang, traded in partnership as the Man Ying Restaurant.  That there was a partnership for the entire period was disputed by the Appellant in circumstances, which we describe more fully below.  However, we raise this point at this stage to clarify the identity of the Appellant.  The Notice of Appeal was in the name of Mr Tang only.  The assessment had been issued against the Restaurant but the dishonesty penalty had been issued against and notified to Mr and Mrs Tang jointly.  Apart from the Notice of Appeal, all subsequent pleadings in the case were in the name of Mr Tang and his wife and we therefore, in this decision, treat both Mr and Mrs Tang as appealing and both as Appellants.  Oral evidence was given on behalf of the Respondents by Ms Helen Weston of the Fraud Unit. 
Was the decision properly notified ? 
4.	This issue arose out of an earlier hearing on a preliminary point before Mr J David Demack.  On this hearing, which took place on 5 January 2004, the Appellants, through counsel, had argued that a number of the earlier assessments were out of time.  After a full hearing that contention was dismissed and Mr Demack held that each and every assessment had been made timelessly.  However, in concluding his decision, Mr Demack drew attention to the Details of Assessment, which had been attached to the Notice of Assessment.  The first of the assessments was a global assessment in the sum of forty thousand two hundred and eighteen pounds (£40,218) the Details of Assessment contained no period to which the assessment related and there was no indication of the dates from and to which the assessment ran.  Pointing out that a tax payer had to be informed in plain and unambiguous terms the period covered by the assessment, Mr Demack directed the Appellants should, within 30 days of the release date of his decision, inform the tribunal centre whether they accepted this assessment had been properly notified.  In response to this direction, counsel on behalf of the Appellants advised that they did not accept the assessment was properly notified and invited a ruling by the tribunal.
5.	It was obviously accepted by the Respondents that the Details of Assessment did not itself give the Appellants sufficient information as to the period covered by the global assessment.  It was explained that this was because the computer did not allow sufficient details to be inserted into the document.   However, we were referred to a schedule, which had accompanied the Notice of Assessment.  Not only did this schedule give a period by period breakdown of the global assessment but it was also annotated by hand to bracket together the individual periods covered by the global assessment and to insert alongside the figure forty thousand two hundred and eighteen pounds (£40,218).
6.	We are therefore perfectly satisfied that the assessment was properly notified and the Appellants were given sufficient detailed information of how the global assessment was made up and the individual periods to which it related. 
The Dishonesty Penalty 
7.	Mr Collins opened the Respondents on the basis that dishonesty had been admitted by the Appellants.  In the absence of the Appellants to confirm this, we examined the correspondence passing between the parties.  Some of the letters discussed, not only the issue of dishonest, but also the possible grounds for a settlement, which discussions were of course without  prejudice.  We were therefore shown the relevant correspondence with large parts of it blanked out so that in effect the only details of any correspondence we saw were those, which related to the issue of dishonesty.   
8.	By letter dated 15 September 2004 from Mr Feng to the Respondents, he advised that his clients had admitted suppressing “between 65 per cent to 70 per cent based on the level of cash takings for weekly wages and a small amount for cash purchases at Manchester China Town (“MCT”).
9.	In response, by letter dated 9 November 2004 the Respondents reiterated the above statement and added:-  
‘I appreciate that this statement was made in a letter containing an offer to settle but it is not apparent that it was made without prejudice.  May I ask you to confirm that your clients admit dishonesty’.  
10.	By fax dated 16 November 2004, Mr Feng responded as follows:- 
‘when my clients admitted having suppressed a percentage of their cash takings, that quite clearly was an admission of dishonesty.  I do not think we need to belabour this point any further”. 
11.	In response, by letter also dated 16 November 2004, the Respondents noted 
“confirmation has been made that your clients admit dishonesty”.
12.	There was no further response or challenge to that letter. 
13.	From this sequence of correspondence, we take it that dishonesty has been admitted and it is not therefore something upon which we heard evidence or made a decision. 
The Assessment 
14.	In March 1998, Mrs Helen Coar, an officer of the Respondents, carried out a routine visit to the Appellants’ business premises and carried out an equally routine credibility check known as a drinks to meals exercise, aimed at establishing whether the ratio between drinks and meals fell within normal or expected parameters.  As a result of this exercise, Mrs Coar concluded that the ratio was so disproportionate that business takings had to be being suppressed.  Mrs Coar then arranged a series of observations and test purchases, which took place on 12 June 1998, 16 July 1998 and 4 November 1998.  When the Appellants records were subsequently uplifted for examination, it was found that throughout the total of the three observations, 6 of the 13 bills paid by the officers for their own meals had not been declared; 18 of the 36 bills paid by observed groups of dinners had not been declared and 17 of the 24 bills paid for take away meals observed had not been declared either.  Mrs Coar passed her findings onto Ms Weston who took the view that reliance on these three days alone would not be sufficient basis for an assessment and further observations and test purchases were carried out on 24 August 1999, 18 September 1999 and 31 October 1999.  The Appellants’ records were uplifted and extensive suppression was identified. 
15.	By this time, Ms Weston had in front of her observations and test purchases carried out on six different days of the week representing each trading day that the business was open and, to Ms Weston, most importantly a Saturday night when the bulk of trading took place.  The observations were also carried out over a period of some fifteen months.  Ms Weston separated the take away meals, an analysis of which produced a suppression rate of 59.45 per cent.  She then carried out four separate calculations based on restaurant meals.  Two calculations were carried on the basis of numbers eating, one calculation to include officer’s meals and the second calculation excluding them.   Secondly, she carried out similar calculations on the basis of bills declared.  The differing rates of suppression varied between 44.98 and 35.89, the latter, being the lowest of the four figures, was the rate which Ms Weston then adopted as representing the suppression rate and upon which the assessment was eventually to be based.
16.	Ms Weston then had to establish the percentage split between takeaways and restaurant meals.  This was done by taking 30 random trading days between 26 May and 1 November 1998.  An analysis of the bills declared revealed a split of 89.86 per cent restaurant meals and 10.14 per cent takeaways.
17.	Using all this information, the calculated suppression rate apportioned between meals and takeaways was then applied to the declared output tax for each trading period from commencement of trading in October 1999 to August 2000.
18.	Our starting point in considering the assessment is to state first that, each observing officer has prepared and served a witness statement, none of the witness statements have been challenged and we therefore take it that there is not challenge to the results of the observations and test purchases and we treat them as fact. 
19.	The assessment as calculated, appears to us to be quite clearly to best judgement.  The combination of the two sets of observations has ensured that each and every trading day is covered, thus allowing for slack days and busy days.  Throughout the many calculations carried out, the figures most favourable to the Appellants have been used and all possible calculations have been based upon the Appellants’ own records and bills actually declared.   A very detailed Defence was put in by Mr Feng but no alternative calculations have ever been put forward and no actually mathematical challenge to the calculations carried out by the Respondents.  In the absence of any other evidence before us and in particular without the benefit of hearing from the Appellants, we find that the assessment was raised to best of judgement.  We accept the quantum of the assessment as notified and the appeal against the assessment is dismissed.
The Dishonesty Penalty   
20.	We deal with this against the background of dishonesty already having been conceded in correspondence.  An interview with the Appellants had taken place in June 2000.  We were not shown a transcript of the interview but were told, and have no reason to doubt, that throughout the Appellants denied any suppression and consequently of course any dishonesty.  It was not in fact until some four years later that an admission of suppression was eventually made.  By the time Ms Weston raised a dishonesty penalty therefore, all the Appellants had done was attend an interview in which Ms Weston believed they had been untruthful and had produced their records.  She therefore was not able to give them any mitigation for any co-operation in establishing the true amount of the arrears or in giving an early and truthful explanation of why the arrears had arisen and the extent of them.   All they had done was to attend an interview and produce the records asked of them.  For this Ms Weston allowed 10 per cent mitigation.
21.	We believe the mitigation allowed is perfectly fair and the Appellants have not produced any evidence that they are entitled to anymore.  We therefore uphold the dishonesty penalty as assessed and as mitigated and the appeal against the penalty is dismissed.  
Did the Appellants trade throughout in partnership?
22.	We raise and deal with this issue, in fairness to the Appellants, as it was raised by Mr Feng in paragraph 2.1(a) in the Defence when he stated that the Appellants were in partnership from the start of their business on 22 October 1995 to 5 April 1998. 
23.	We understand that the first intimation to the Respondents, Mr and Mrs Tang had ceased to trade in partnership was during the course of the interview in June 2000 when a bald assertion had been made that there had been a change in the ownership of the business.  Following this assertion, Ms Weston wrote to Mr Feng on 6 July 2000 asking for evidence of the change of legal entity and the date on which it occurred as the commissioners had still not received any official notification of the same.  Having received no response to this request, Ms Weston wrote again on 27 July 2000 reminding him that she was still awaiting information regarding the change of legal entity.  Mr Feng made no further mention of the change and no evidence was produced before Ms Weston came to raise the assessment in December 2000 and the penalty in February 2001.  Mrs Coar had visited the business only a matter of days before the apparent resignation of Mrs Tang but there had been no intimation to her that there was to be any change in the ownership or that Mrs Tang was to cease to be a partner.  The business remained registered as partnership and Ms Weston therefore felt fully justified in assuming that the partnership was continuing and the assessment and the penalty were therefore raised against both.  
24.	The next that happened was on 9 May 2001, Mr Feng wrote to the Amendment Section advising that he had recently been appointed as accountant to the business and enclosing a letter dated 22 March 1999 which merely informed the commissioners that as from 6 April 1998 Mrs Tang was no longer a partner in the business and apologising for not in forming them sooner.  The origin of this letter is completely unclear.  It bears no signature and it bears no heading as to the sender so who is supposed to have sent it is not known but the respondents are quite certain that they never received the letter of 22 March 1999.  On receipt of the letter of 9 May 2001, the Respondents wrote to the business asking them to complete the necessary forms of transfer.  These forms were returned but were not accepted without accompanying evidence and the change of ownership was never formally made by the Respondents.  In fact we are told that the business de-registered on 23 August 2001 and it was de-registered as a partnership. 
25.	In the absence of any evidence from the Appellants there is insufficient information before us to establish whether or not Mrs Tang did resign as a partner and if so on what date.  We cannot therefore find that Mrs Tang retired as a partner at any time before the end of the period assessed.
26.	In summary therefore the Appellants’ appeals against both assessment and the dishonesty penalty are dismissed.  Mr Collins made an Application for the costs of the appeal, which we grant.   In making the order for costs, we are particularly mindful of the failure of the Appellants to attend the hearing and yet have a no time either themselves or through Mr Feng advised the Respondents that the appeal was not being pursued.  If costs cannot be agreed then they should be fixed by a chairman sitting alone.  

LADY MITTING 
CHAIRMAN
Release Date: 4 April 2006
MAN/01/363