Whitfield v Revenue and Customs (VAT - ASSESSMENTS : Best judgment : Rev 1) [2016] UKFTT 685 (TC)

FTT-Tax
Whitfield v Revenue and Customs (VAT - ASSESSMENTS : Best judgment : Rev 1)
[2016] UKFTT 685 (TC) · 2016-07-27
[16]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).”
Discussion and conclusion. 17. Although Mrs Whitfield’s appeal to the Tribunal was not made within 30 days of the decision to uphold the assessment as required by s 83G VATA, HMRC did not object to the appeal being admitted out of time. Therefore, having regard to the overriding objective of the Procedure Rules we allowed the appeal to proceed notwithstanding it was late. 18. It is accepted that there were errors in Mrs Whitfield’s VAT returns during the VAT accounting periods covered by the assessment because of the application of a zero-rate of VAT to sales that should have been standard rated. Therefore, as is clear from Khan the primary task of the Tribunal in an appeal such as this is to determine the correct amount of VAT. 19. Mr Jones, on behalf of Mrs Whitfield, contends that in doing so we should prefer the figures that she recorded in March 2015 as these are over a longer period than those used by Mr Mantle in the assessment. However, given the evidence of a decline in standard rated sales since the assessment period we do not consider that much assistance can be gained from these figures which have been compiled almost a year after the period under assessment. That said, we are concerned by the approach adopted by Mr Mantle in that he has taken an average of the percentage of two days invigilation and an average of six days percentages as recorded by Mrs Whitfield and then used a simple average of the two average percentages to reach his conclusion. 20. First, the average percentages of the two days invigilation would only be accurate if the turnover was the same for each day, which it was not; and secondly, the simple average percentage over six days would only be accurate with the same turnover on each day. Fortunately, we have the turnover figures and amount of standard rated sales for the invigilation undertaken by HMRC although not on the days where the percentage of standard rated sales was provided by Mrs Whitfield. On the first day of the invigilation, 28 August 2014, the turnover was £139.10 of which £58.90 was standard rated. The turnover for the second day, 2 September 2014, turnover was £200.50 of which £105.20 was standard rated. Therefore, over the two days standard rated sales accounted for 48% of the turnover. 21. Using these percentages, it is possible to make the assessment “more nearly right” (to use language of Lord Lowry in Bi-Flex Caribbean Ltd v Board of Inland Revenue cited by Carnwath LJ in Khan ). If standard rated sales are taken to be 48% of turnover on each of HMRC’s two days invigilation and then taking an average of the whole eight days which, rounded down, is 34% (ie 48 + 48 + 38 + 18 + 25 + 25 + 49 + 24 = 275/8 = 34.37). 22. If this percentage is applied, adopting the method used by Mr Mantle in making the assessment, the output tax under declared by Mrs Whitfield is £17,841 (see table 2 in the appendix). We therefore conclude that the assessment should be reduced accordingly. 23. Therefore, to the extent that the assessment is reduced from £20,239 to £17,841, the appeal is allowed in part. Appeal Rights 24. 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: 27 OCTOBER 2016 Appendix Table 1: Summary of Output tax due as stated in HMRC’s letter dated 22 September 2014 (see paragraph 11, above). Period Gross sales 38% S/R Output tax Less Output tax declared Output tax due 09/10 31208 11859 1766 374 1392 12/10 21911 8326 1240 325 915 03/11 29471 11198 1866 402 1464 06/11 16284 6187 1031 443 588 09/11 8490 3226 538 133 405 12/11 11571 4397 733 61 672 03/12 26476 10060 1677 51 1626 06/12 20808 7907 1318 39 1279 09/12 27085 10292 1715 65 1650 12/12 21159 8040 1340 131 1209 03/13 22612 8592 1432 80 1352 06/13 26578 10099 1683 126 1557 09/13 28861 10967 1828 112 1716 12/13 25428 9594 1599 111 1488 03/14 25428 9594 1599 94 1505 06/14 24507 9312 1552 131 1421 Total 20239 Table 2: “More nearly right” s ummary of Output tax with 34% of sales at standard rate (see paragraph 21, above). Period Gross sales 34% S/R Output tax Less Output tax declared Output tax due 09/10 31208 10610 1580 374 1206 12/10 21911 7449 1109 325 784 03/11 29471 10020 1670 402 1268 06/11 16284 5536 922 443 479 09/11 8490 2886 481 133 348 12/11 11571 3934 655 61 594 03/12 26476 9001 1500 51 1449 06/12 20808 7074 1179 39 1140 09/12 27085 9208 1534 65 1469 12/12 21159 7194 1199 131 1068 03/13 22612 7688 1281 80 1201 06/13 26578 9036 1506 126 1380 09/13 28861 9812 1635 112 1523 12/13 25428 8645 1440 111 1329 03/14 25428 8645 1440 94 1346 06/14 24507 8332 1388 131 1257 Total 17841