[2009] UKFTT 240 (TC)

TC00189

Appeal Number: LON/2006/0909 
						   LON/2007/2062   

FIRST TIER TRIBUNAL TAX

 VAT – ASSESSMENT & VOLUNTARY DISCLOSURE – dispute concerned the proportion of standard rated food sales – HMRC’s assessment based on the Appellant’s records – Appellant adduced no persuasive evidence to undermine the assessment or support his voluntary disclosure – Appeal dismissed

DECISION NOTICE (Full Reasons) 
Rule 35(2) The Tribunal Procedure (First Tier Tribunal) (Tax Chamber) Rules 2009 

	Mr BARRY TRISCOTT	Appellant

	- and -

         THE COMMISSIONERS FOR
	HER MAJESTY’S REVENUE and CUSTOMS	Respondents

			Tribunal: MICHAEL TILDESLEY OBE	
				      ANGELA WEST FCA

Sitting in public at Plymouth on 23 April and 25 August 2009

Appellant appeared in person on 23 April but did not appear on 25 August 2009

Gloria Orimoloye of the Solicitor’s office of HM Revenue & Customs, for HMRC

© CROWN COPYRIGHT 2009

DECISION
The Appeal
1.	The Appellant was appealing against two HMRC decisions which were:
(1)	An assessment for unpaid VAT in the sum of £142 for the quarter ending 10/02 dated 11 October 2005.
(2)	A decision dated 22 October 2007 rejecting the Appellant’s voluntary disclosure for the VAT payable covering the period 1 April 2003 to 31 March 2006.
Background
2.	The Appellant had been registered for VAT since 1 November 1997. Since the effective date of registration he carried on a business known as Quality Snacks running a café and sandwich bar from premises situated at 17 Victoria Road, St Budeaux, Plymouth except for the period January 2003 to May 2004. During that period he leased the premises to his daughter, Mrs Campbell, and ran a separate business of a sandwich bar from 16 Devonport Road under his VAT registration. Meanwhile Mrs Campbell registered separately for VAT, and declared takings independently for Quality Snacks.  In August 2004 the Appellant closed the business at 16 Devonport Road and recommenced trading under his registration at 17 Victoria Road with his daughter as an employee.
The Chronology of the Dispute
3.	The origin of the dispute stemmed from a visit by Alex Blair, HMRC Officer, to the Appellant’s business. At the time of the visit there were eleven outstanding VAT returns covering the periods 04/02 to 04/05. The sole VAT return submitted by the Appellant was a repayment return for period 10/02. 
4.	The dispute was essentially about the proportion of standard rated sales from the Quality Snacks business. Officer Blair considered that the standard rated sales amounted to about 45 per cent of the total sales, whereas the Appellant believed the proportion to be lower. Mr Blair accepted the Appellant’s view that it would take time to build up a business with the result that he decided to stagger increases in the proportion of standard rated sales over several time periods. The staggered increases were as follows:
(1)	25 per cent of takings standard rated to 30 April 2003
(2)	35 per cent of takings  standard rated to 30 April 2004
(3)	45 per cent of takings standard rated from 1 May 2004
5.	Officer Blair found that the Appellant had treated all sales from Devonport Road sandwich bar as zero-rated. Officer Blair did not consider that to be correct as the Appellant sold standard rated confectionary from the sandwich bar. Officer Blair considered that a 20 per cent mark up on confectionary purchases was reasonable. In those circumstances he assessed the amount of output tax on confectionary sales by multiplying the VAT on confectionary purchases by 120 per cent. 
6.	Officer Blair drew up a schedule entitled revised VAT summaries for the Appellant’s business for periods 04/02 to 04/05. The schedule recited the takings for the business recorded on the Appellant’s spreadsheets and the input tax from the summaries kept by the Appellant. Officer Blair applied the staggered percentage for standard rate sales to the takings for Quality Snacks, and the 20 per cent mark up in respect of confectionary sales from Devonport Road Sandwich Bar to arrive at a figure for the VAT due for each quarter. On 8 August 2005 Officer Blair supplied the Appellant with a copy of the schedule so that he could complete the missing VAT returns.
7.	The Appellant did not file the missing VAT returns because he could not afford to pay the VAT due on them. On 21 September 2005 Officer Blair met with the Appellant and assisted him with the completion of the returns using the prepared schedule. 
8.	On 11 October 2005 Officer Blair issued an assessment in the sum of £142 for the period 10/02.  The return for this period had been submitted on time with the Appellant declaring a VAT repayment. Officer Blair decided in the light of his investigation that the Appellant had under-declared the VAT on sales which gave rise to the assessment.  
9.	On 17 January 2006, the Appellant’s Member of Parliament wrote on his behalf to the Paymaster General expressing the Appellant’s concerns about being overcharged on his VAT returns. The Paymaster General responded giving the background and outlining the options open to the Appellant. 
10.	On 25 August 2006 the Appellant appealed to the Tribunal. On 12 September 2006 HMRC wrote to the Appellant advising him that he could not appeal against his own VAT return declarations. The only Appealable matter was the assessment for the period 10/02. He could, however, submit a voluntary disclosure if he believed that the figures completed on the VAT returns with the assistance of Officer Blair were incorrect. 
11.	On 8 October 2007 the Appellant submitted a voluntary disclosure for the periods 06/03 through to 03/06, which showed a sum of £691.65 in VAT due to HMRC.
12.	Alan George Graham, HMRC Officer, carried out the investigation of the Appellant’s voluntary disclosure. On 8 October 2007 Officer Graham visited the Appellant to check the supporting evidence for the disclosure.  The Appellant did not provide any paperwork or new evidence, and as a result Officer Graham rejected the voluntary disclosure which was formally recorded in a letter dated 22 October 2007. Following the formal rejection, Officer Graham gave the Appellant’s three further opportunities to supply documentary evidence to substantiate the details of the voluntary disclosure. On each occasion the Appellant failed to provide the necessary evidence. 
13.	On 5 December 2007 the Appellant appealed to the Tribunal against HMRC’s decision rejecting the voluntary disclosure.
The Hearings
14.	On 23 April 2009 the Tribunal heard evidence from the Appellant and Officer Blair. A witness statement of Officer Graham and a bundle of documents were received in evidence. After hearing the evidence the Tribunal decided that it was in the interests of justice to give the Appellant one further opportunity to produce documentary evidence in support of his voluntary disclosure. The Tribunal adjourned the Appeal part heard until 25 August 2009. The Tribunal issued directions specifying the documents required from the Appellant by no later than 4pm on 28 July 2009. The Appellant failed to comply with the directions.
15.	On 20 August 2009 the Tribunal received a letter from the Appellant dated 2 August 2009. The letter stated that
“I have tried to fulfil the directions of the Tribunal regarding records, sadly I cannot find that information. Also my health has deteriorated over the past few months, so I did not feel up to attending the hearing in August. What I would like the panel to do is to come up to a decision using their very best judgment regarding this case, with all the information made available to them. I feel that contending this case over the past five years has not helped my health”.
16.	The Appellant did not attend the resumed hearing on 25 August 2009. Mrs Orimoloye was in attendance for HMRC. The Tribunal decided to proceed with the hearing. The Appellant was aware of the adjourned date and that it was in the interests of justice to conclude the hearing.
 The Appellant’s case
17.	The Appellant regretted signing the missing VAT returns and   entering Officer Blair’s calculations in them. According to the Appellant, Officer Blair told him that he could not appeal against the returns unless he signed them.
18.	The Appellant considered the figures in the VAT returns inaccurate. Further he was prevented from reclaiming VAT in the sum of £3,450 incurred on the purchase of equipment.
19.	The Appellant disagreed with Officer Blair’s assessment of the percentage of standard rated sales from Quality Snacks. The Appellant believed that the correct percentage was in the region of 12 per cent rather than 45 per cent decided upon by Officer Blair. The Appellant stated that he had 15 Z readings from 2006 which showed that standard rated sales constituted 12 per cent of all sales. The Appellant did not supply the Tribunal with the Z readings.
20.	The Appellant stated that he opened the café at Quality Snacks around 2001, and it would have taken time to build up the trade. He accused Officer Blair of having predetermined views about the nature of the business. The Appellant said that Officer’s Blair’s first words to him were that his business should be showing 90 per cent  standard rated sales.
21.	The Appellant disputed Officer Blair’s view that he sold standard rated confectionary from the sandwich bar at Devonport Road. The Appellant contended that he sold sandwiches, cold pasties and cakes which were al zero-rated.
22.	The Appellant pointed out that HMRC took an inordinate length of time to carry out an audit of his business. He questioned why HMRC did not visit earlier, particularly in the view of the large number of VAT returns outstanding.
Findings of Fact
23.	The business consisted of a sandwich bar/bakery counter, and a café with a cover of 22.  The sandwich bar sales comprised 70 per cent of the sales, which included some hot food take away food and confectionary.  The Appellant set up the café around 2002. The percentage of standard rated sales prior to the opening of the café was around nine percent. In 01/02 quarter the percentage of the sales increased to 23 per cent which was when the on premises consumption commenced. 
24.	The opening hours of the business were 0800 - 1700 Monday to Friday; 0800- 1530 on Saturday. 
25.	On the first visit of the business by Officer Blair, the Appellant admitted that it was possible that the staff were incorrectly recording some sales through the till, although he was adamant that in the main they understood the VAT liability of the different sales. On Officer Blair’s return visit the Appellant explained that he had made enquiries with members of staff and accepted that errors have been made.
26.	Three Z readings were produced for 17 June 2005, 20 June 2005, and 21 June 2005 in respect of Quality Snacks which showed a proportion of standard rated sales as 48 per cent, 42 per cent and 47 per cent respectively.
27.	Officer Blair prepared a schedule of the Appellant’s VAT liability for the periods from 04/02 to 04/05, using a proportion of 45 per cent for the standard rated sales. Officer Blair compiled the schedule from the spreadsheet records of takings and purchases from 07/03 to 04/05 prepared by the Appellant, and the VAT records from 04/02 to 04/03 kept by the Appellant’s accountants.
28.	Officer Blair had regard to the Appellant’s representations that the café trade at Quality Snacks had evolved over the last three years from 2002. He decided to stagger the standard rate proportion of sales starting with 25 per cent to 30 April 2003, followed by 35 per cent to 30 April 2004, and then 45 per cent from 1 May 2004.
29.	The Appellant had treated all sales from the Devonport Road as zero-rated despite recording purchases of standard rated confectionary.  Although the Appellant claimed that the sales comprised solely of cold takeaway food, the Tribunal concluded that there must have been some sales of standard rated confectionary. Officer Blair estimated the value of standard rated sales by applying a 20 per cent mark up to the standard rated purchases.
30.	 The assessment for period 10/02 was made within one year after evidence of facts sufficient in the opinion of Officer Blair to justify the making of an assessment, and within the overall three year time limit after the end of the prescribed accounting period.
31.	The figures for Quality Snacks’ takings supplied in the Appellant’s voluntary disclosure corresponded with those in Officer Blair’s schedule. There were variations between the two documents in respect of the takings for Devonport Road. This variation, however, was not significant because the disputed output tax for the periods applicable to Devonport Road was calculated by applying a mark up to standard rated purchases. Officer Blair allowed the Appellant a greater amount for input tax than the amount claimed in the voluntary disclosure, which worked to the Appellant’s advantage. The principal difference between the two documents was the value of standard rated sales. The Appellant estimated the value at around 10 per cent of total sales as compared with the stagger of 25 – 45 per cent applied by Officer Blair.
32.	Officer Graham gave the Appellant three opportunities to provide documentary evidence substantiating his voluntary disclosure. Likewise the Tribunal adjourned the hearing on 23 April 2009 to enable the production of documentary evidence by the Appellant. No documents have been supplied by the Appellant to back up his assertion about value of VAT sales from his businesses.
Decision
33.	The principal issue in this Appeal was the value of standard rated sales from Quality Snacks and the Devonport Road sandwich bar. The periods in dispute were 10/02 which concerned the assessment, and 07/03 to 01/06 covered by the voluntary disclosure.
34.	Officer Blair took into account the following matters in deciding that the appropriate proportion of standard rated sales for Quality Snacks was 25 per cent to 30 April 2003, 35 per cent to 30 April 2004, and  45 per cent from 1 May 2004:
(1)	The nature of the Appellant’s business with the café contributing about 30 per cent of the total takings.
(2)	The proportion of standard rate sales from the business prior to the opening of the café was about nine per cent rising to 23 per cent immediately following the opening of the cafe.
(3)	The Appellant’s admission that his staff had made errors with the correct VAT liability for hot takeaway food and cold meals.
(4)	The three Z readings which showed an average 45 percentage proportion for standard rated sales.
35.	Officer Blair calculated the VAT due for Quality Snacks by using the Appellant’s figures for takings and input tax. 
36.	Officer Blair considered unrealistic the Appellant’s assertion that there were no VAT sales from the Devonport Road sandwich bar. He arrived at the value of VAT sales from the sandwich bar by applying a 20 per cent mark up to the value of standard rated purchases.
37.	The Tribunal is satisfied that Officer Blair’s assessment of the value of standard rated sales from Quality Snacks and the sandwich bar was reasonable and derived from available evidence. Officer Blair took into account the Appellant’s representations regarding the time required to build up the café trade by staggering the proportionate increase in standard rated sales from Quality Snacks. Equally the Tribunal agreed with Officer Blair’s view of the unrealistic nature of the Appellant’s assertion that there were no VAT sales from the sandwich bar. The Appellant adduced no evidence to displace the conclusions reached by Officer Blair. The Appellant failed to take up opportunities given to him by HMRC and the Tribunal to supply the necessary documents to support his statements about the value of VAT sales from his businesses
38.	The Tribunal holds that the Appellant has failed to prove on the balance of probabilities that the assessment issued for 10/02 period was excessive or otherwise incorrect, and the accuracy of the VAT declared in the voluntary disclosure submitted on 8 October 2007. The Tribunal, therefore, dismisses the Appeal.

                                

                                 MICHAEL TILDESLEY OBE
TRIBUNAL JUDGE
RELEASE DATE: 16 September 2009

LON/

Notes
1. A party wishing to Appeal this decision to the Upper Tribunal must seek permission by making   an application in writing to the Tribunal within 56 days of being provided with full written reasons for the decision. An application for permission must identify the alleged error(s) in the decision and state the result the party making the application is seeking.