“(2) It was ultimately agreed that the officer’s witness statement with exhibits would be admitted and the Application for Disclosure would not be pursued on the basis that HMRC had confirmed that:- (a) There had been proceedings against officers of The Italian Wine Company (“TIWC”) which had been pursued both in Italy and in the Crown Court at the Central Criminal Court. There is little detail about the Italian prosecution but it is understood to have focussed on misdescription of both wine and the export of wines. The prosecution in the UK related to the fraudulent evasion of Excise Duty in terms ofSection 170(2) Customs and Excise Management Act 1979 , the fraudulent evasion of VAT in terms ofSection 72(1) Value Added Tax Act 1994 and money laundering in terms ofSection 327(1) Proceeds of Crime Act 2002 . (b) TIWC had retained physical records relating to trading activities which had been declared. There was no documentary evidence of off record sales. (c) In the course of the prosecutions a computer server, which had been in Italy, was seized and exported to the United Kingdom. A word search of a digital copy of the server was conducted. That server included Daily Delivery Sheets which were excel documents with a sheet for each working day labelled with the day and date. Redacted examples are annexed in the Appendix to the witness statement, one of which is at page 17 and entitled “Ford 1383”
“(2) The Tribunal may— (a) admit evidence whether or not the evidence would be admissible in a civil trial in the United Kingdom; or (b) exclude evidence that would otherwise be admissible where— … or (iii) it would otherwise be unfair to admit the evidence.” (a) admit evidence whether or not the evidence would be admissible in a civil trial in the United Kingdom; or (b) exclude evidence that would otherwise be admissible where— … or (iii) it would otherwise be unfair to admit the evidence.”
“16. The practical application of Rule 15(2)(a) in an MTIC appeal was considered by this Tribunal in another decision in the Megantic litigation: Megantic Services Ltd v Revenue and Customs Commissioners [2011] UKUT B2 (TCC). In that case, Mr Justice Arnold stated as follows: ‘78. Megantic’s second ground is that the [Bank] evidence is unreliable and that the judge made an error in law in admitting it. Megantic contends that the [Bank] evidence is unreliable for two reasons. First, because [HMRC Officer] Downer’s evidence amounts to non-expert opinion. Secondly, because no positive evidence has been adduced by HMRC as to the authenticity, integrity or accuracy of the documents obtained from the [Bank] server. On the contrary, Mr Letherby has stated in three witness statements in other proceedings (only one of which was shown to me) that some of the records are missing and others are damaged. ‘78. Megantic’s second ground is that the [Bank] evidence is unreliable and that the judge made an error in law in admitting it. Megantic contends that the [Bank] evidence is unreliable for two reasons. First, because [HMRC Officer] Downer’s evidence amounts to non-expert opinion. Secondly, because no positive evidence has been adduced by HMRC as to the authenticity, integrity or accuracy of the documents obtained from the [Bank] server. On the contrary, Mr Letherby has stated in three witness statements in other proceedings (only one of which was shown to me) that some of the records are missing and others are damaged. 79. In my judgment there are two short answers to these contentions. First, the judge’s decision to admit the evidence discloses no error of law. It was a case management decision which was well within the ambit of his discretion. I agree with the view expressed by Norris J in Goldman Sachs that this tribunal should exercise extreme caution before interfering with the Tribunal’s case management decisions. 80. Secondly, rule 15(2)(a) of the Tribunal Rules allows the Tribunal to admit evidence whether or not the evidence would be admissible in a civil trial. It follows that the Tribunal is entitled to admit evidence which would not be admissible in a court and give it such weight, if any, as the Tribunal considers that it is worth. What weight should be given to the evidence is a matter for the Tribunal to decide in the light of all the evidence at the hearing. Even if Mr Downer is not qualified to give expert evidence, that would not prevent his opinion evidence being received by the Tribunal. As for the reliability of the [Bank] evidence, Mr Letherby’s statement in these proceedings does contain some evidence as to the reliability of the [Bank] documents. Furthermore, I am quite unpersuaded that the other statement of Mr Letherby relied on by Megantic demonstrates beyond argument that the FCIB evidence is unreliable. It may well provide material for cross-examination of Mr Letherby in due course, but that is another matter.’”
“Where a person has failed to make any returns required under this Act ... or to keep any documents and afford the facilities necessary to verify such returns, or where it appears to the Commissioners that such returns are incomplete or incorrect, they may assess the amount of VAT due from him to the best of their judgment and notify it to him.”
“The contentions on behalf of the taxpayer in this case can be summarised by saying that on the facts before the tribunal it is clear, so it is contended, that the assessment in question was not valid because the commissioners had taken insufficient steps to ascertain the amount of the tax due before making the assessment. Therefore it is important to come to a conclusion as to what are the obligations placed on the commissioners in order properly to come to a view as to the amount of tax due, to the best of their judgment. As to this the very use of the word 'judgment' makes it clear that the commissioners are required to exercise their powers in such a way that they make a value judgment on the material which is before them… Secondly, clearly there must be some material before the commissioners on which they can base their judgment. If there is no material at all it would be impossible to form a judgment as to what tax is due. Thirdly, it should be recognised, particularly bearing in mind the primary obligation, to which I have made reference, of the taxpayer to make a return himself, that the commissioners should not be required to do the work of the taxpayer in order to form a conclusion as to the amount of tax which, to the best of their judgment, is due. In the very nature of things frequently the relevant information will be readily available to the taxpayer, but it will be very difficult for the commissioners to obtain that information without carrying out exhaustive investigations. In my view, the use of the words 'best of their judgment' does not envisage the burden being placed on the commissioners of carrying out exhaustive investigations. What the words 'best of their judgment' envisage, in my view, is that the commissioners will fairly consider all material placed before them and, on that material, come to a decision which is one which is reasonable and not arbitrary as to the amount of tax which is due. As long as there is some material on which the commissioners can reasonably act then they are not required to carry out investigations which may or may not result in further material being placed before them.”
“In addition to the conclusions drawn by Woolf J in Van Boeckel earlier tribunal decisions identified three further propositions of relevance in determining whether an assessment is reasonable. These are, first that the facts should be objectively gathered and intelligently interpreted; secondly, that the calculations should be arithmetically sound; and, finally, that any sampling technique should be representative and free from bias.”
“It is instructive, also, to note the way in which Mr Justice Woolf applied that test to the facts in the Van Boeckel appeal. He rejected the criticism that the commissioners had acted arbitrarily in extrapolating results over a five week period to the whole period of assessment. As he said (ibid, 295h): ‘It is perfectly proper for the commissioners, if they choose to do so, to make a test over a limited period such as five weeks, and take the results which are thrown up by that period of five weeks into account in performing their task of making an assessment in accordance with the requirements of s 31 [of theFinance Act 1972 , now section 73(1) of the 1994 Act].’ He rejected, also, the criticism that the commissioners had not made sufficient investigation into the way in which the taxpayer's business (in that case, a public house) was run. He said this, (ibid, 296a-b): ‘As I have indicated, unless the situation is one where no material is before the commissioners on which they can reasonably base an assessment, the commissioners are not required to make investigations. If they do make investigations then they have got to take into account the material disclosed by those investigations. Obviously, as a matter of good administrative practice, it is desirable that the commissioners should make all reasonable investigations before making an assessment. If they do that it will avoid, in many cases, the necessity of appeals to the tribunal. However to try and say that in a particular case a particular form of investigation should have been carried out, is a contention which, in my view, as a matter of law, bearing in mind the wording of s 31(1), is difficult to establish.’” ‘It is perfectly proper for the commissioners, if they choose to do so, to make a test over a limited period such as five weeks, and take the results which are thrown up by that period of five weeks into account in performing their task of making an assessment in accordance with the requirements of s 31 [of theFinance Act 1972 , now section 73(1) of the 1994 Act].’ ‘As I have indicated, unless the situation is one where no material is before the commissioners on which they can reasonably base an assessment, the commissioners are not required to make investigations. If they do make investigations then they have got to take into account the material disclosed by those investigations. Obviously, as a matter of good administrative practice, it is desirable that the commissioners should make all reasonable investigations before making an assessment. If they do that it will avoid, in many cases, the necessity of appeals to the tribunal. However to try and say that in a particular case a particular form of investigation should have been carried out, is a contention which, in my view, as a matter of law, bearing in mind the wording of s 31(1), is difficult to establish.’”
“…But the fact that a different methodology would, or might, have led to a different—even to a more accurate—result does not compel the conclusion that the methodology that was adopted was so obviously flawed that it could and should have had no place in an exercise in best judgment.”
“It should be noted that the shorthand ‘best judgment’, as used in some of the cases, may be misleading, if it is taken to imply a higher standard than usual. The statutory words ‘to the best of their judgment’ are used in a context where the taxpayers’ records may be incomplete, so that a fully informed assessment is unlikely to be possible. Thus the word ‘best’, rather than implying a higher than normal standard, is a recognition that the result may necessarily involve an element of guesswork. It means simply ‘to the best of (their) judgment on the information available’ (Argosy Co v IRC[1971] 1 WLR 514 , 517 per Lord Donovan).”
“Generally, 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).” ‘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).”
“ … the relevant question is whether the mistake is consistent with an honest and genuine attempt to make a reasoned assessment of the VAT payable; or is of such a nature that it compels the conclusion that no officer seeking to exercise best judgment could have made it. Or there may be no explanation; in which case the proper inference may be that the assessment was indeed arbitrary.”
“… 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. … There may be a few cases where a ‘best of their judgment’ challenge can be dealt with shortly as a preliminary issue. However, unless it is clear that time will be saved thereby, the better course is likely to be to allow the hearing to proceed on the issue of amount, and leave any submissions on failure of best of their judgment, and its consequences, to be dealt with at the end of the hearing.” (Emphasis added)
“… once the Inspector comes to the conclusion that, on the facts which he has discovered, the taxpayer has additional income beyond that which he has so far declared to the Inspector, then the usual presumption of continuity will apply. The situation will be presumed to go on until there is some change in the situation, the onus of proof of which is clearly on the taxpayer.”
“In our view this quotation [from Jonas v Bamford] expresses no legal principle. It seems to us that it would be quite wrong as a matter of law to say that because X happened in Year A it must be assumed that it happened in the prior year. An officer is not bound by law and in the absence of some change to make or to be treated as making a discovery in relation to last year merely because he makes one for this year. This tribunal is not bound to conclude that what happened this year will happen next year. It seems to us that Walton J is instead expressing a common sense view of what the evidence will show. In practice it will generally be reasonable and sensible to conclude that if there was a pattern of behaviour this year then the same behaviour will have been followed last year. Sometimes however that will not be a proper inference: there will be occasions when the behaviour related to a one off situation, perhaps a particular disposal, or particular expenses; in those circumstances continuity is unlikely to be present.”
“Itis clear from the cases that a default by directors can and should be assessed to tax in a company. We are satisfied from the evidence before us that Mr and Mrs Drzymalski were aware that some of the company’s income was not being paid to the Company’s account and that such amounts withheld should be treated as loans under section 419 ICTA.”
“That penalty applies if the inaccuracy in the relevant document is due to a failure on the part of the taxpayer (or other person giving the document) to take reasonable care. We consider that the standard by which this falls to be judged is that of a prudent and reasonable taxpayer in the position of the taxpayer in question.”
“Should the Tribunal find that there were no off record purchases from TIWC then the Respondents contend that in accordance with the presumption of continuity adjustments to the returns for the APE’s31 March 2103 and31 March 2014 are still required based on the stock flow exercise.”
“63. In our view, a deliberate inaccuracy occurs when a taxpayer knowingly provides HMRC with a document that contains an error with the intention that HMRC should rely upon it as an accurate document. This is a subjective test. The question is not whether a reasonable taxpayer might have made the same error or even whether this taxpayer failed to take all reasonable steps to ensure that the return was accurate. It is a question of the knowledge and intention of the particular taxpayer at the time.”