Wholesale Clearance UK Ltd v Revenue and Customs (VAT - ASSESSMENTS : Best judgment) [2016] UKFTT 252 (TC)

FTT-Tax
Wholesale Clearance UK Ltd v Revenue and Customs (VAT - ASSESSMENTS : Best judgment)
[2016] UKFTT 252 (TC) · 2016-04-13
[7]In Khan v HMR C [2006] EWCA Civ 89 , Carnwath LJ (as he then was) said, at [69] “The position on an appeal against a "best of judgment" assessment is well-established. The burden lies on the taxpayer to establish the correct amount of tax due:
"The element of guess-work and the almost unavoidable inaccuracy in a properly made best of judgment assessment, as the cases have established, do not serve to displace the validity of the assessments, which are prima facie right and remain right until the taxpayer shows that they are wrong and also shows positively what corrections should be made in order to make the assessments right or more nearly right." ( Bi-Flex Caribbean Ltd v Board of Inland Revenue (1990) 63 TC 515, 522-3 PC per Lord Lowry). That was confirmed by this court, after a detailed review of the authorities, in Customs and Excise Commissioners v Pegasus Birds Ltd [2004] STC 1509 ; [2004] EWCA Civ 1015 . We also cautioned against allowing such an appeal routinely to become an investigation of the bona fides or rationality of the "best of judgment" assessment made by Customs: "
The tribunal should remember that its primary task is to find the correct amount of tax, so far as possible on the material properly available to it, the burden resting on the taxpayer. In all but very exceptional cases, that should be the focus of the hearing, and the Tribunal should not allow it to be diverted into an attack on the Commissioners' exercise of judgment at the time of the assessment." (para 38(i)) It should be noted that this burden of proof does not change merely because allegations of fraud may be involved (see e.g. Brady v Group Lotus Car Companies plc [1987] STC 635, 642 per Mustill LJ).” 8. Although he was unable to attend in person Mr Karl Baxter, the Managing Director of the Company who gave oral evidence via telephone, explained that the Company had used a small firm of accountants, which he described as “effectively a one-man band”, for all of its routine bookkeeping, the completion of its VAT returns and preparation of its accounts. The Company had provided the firm with all of its financial information including original invoices etc on a weekly basis. However, because of a personal tragedy suffered by the accountant, it was not possible to obtain any documentary evidence in relation to periods for which the assessments were made. This lack of evidence, he said, had also prevented the Company from establishing that it was due a repayment of approximately £18,000 from HMRC in relation to input tax incurred on stock in hand held at the date the Company left the VAT Flat Rate Scheme. He says that it is unreasonable for HMRC to revisit periods included in a previous enquiry in the knowledge that the Company does not hold the records for the period which has prevented it from claiming a refund to which it otherwise be entitled. 9. However, as is clear from Khan v HMRC , the burden is on the Company to establish the correct amount of tax due and unless and until it can establish otherwise the assessments “remain right”. We have no doubt that in making the assessment, the basis of which was explained in his letter of 22 April 2013 (see paragraph 3, above), Mr Jones of HMRC properly exercised his judgment. For reasons with which we understand and sympathise the Company has not been able to establish that these assessments are wrong or positively show what corrections should be made to make them “right or more nearly right”. 10. Therefore the only course open to us is to dismiss the appeal and confirm the assessments. 11. We should add, in case of any further appeal, that in the absence of any clarification prior to the hearing as the grounds of appeal merely state that the assessments are “estimated, excessive and unsustainable” we did not permit Mrs Debono or Mr Arthur to attack the assessments on ‘best of their judgment’ grounds. It is clear from Carnwath LJ’s “guidance to the Tribunal” at [38] in Pegasus Birds that if such a challenge is to be made “it is essential that the grounds are clearly and fully stated before the hearing begins.” 12. 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. JOHN BROOKS TRIBUNAL JUDGE RELEASE DATE: 15 APRIL 2016