“The majority of the time, our zero-rated sales came very close to 15% but in order to be careful we used 12% of our total sales as zero rated.”
“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. Clearly they must perform that function honestly and bona fide. It would be a misuse of that power if the commissioners were to decide on a figure which they knew was, or thought was, in excess of the amount which could possibly be payable, and then to leave it to the taxpayer to seek, on appeal, to reduce that assessment. 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.”
“The approach which tribunals should adopt on appeals under s 83(p) of the 1994 Act [42] In the final paragraph of his judgment in Rahman (No 1)[1998] STC 826 at 840 Carnwath J drew attention to the dangers of ‘an over-rigid adherence to the two-stage approach’. He said: ‘I do not wish to diminish in any way from the importance of guidance given by Woolf J [in the Van Boeckel case] to Customs officers as to how to exercise their best judgment when making assessments. However, when the matter comes to the tribunal, it will be rare that the assessment can justifiably be rejected altogether on the ground of a failure to follow that guidance. The principal concern of the tribunal should be to ensure that the amount of the assessment is fair, taking account not only the commissioners’ judgment but any points raised before them by the appellant.’ I respectfully agree with those observations. [43] It is inherent in the structure of the legislation that a taxpayer can challenge, on an appeal under s 83(p) of the 1994 Act, both the fact that an assessment under s 73(1) of the 1994 Act has been made and the amount of that assessment. There will be cases where the power to make an assessment ought not to have been exercised; because the pre-conditions to the exercise of the power (failure to make returns; failure to keep documents or afford facilities for verification; incomplete or inaccurate returns) were not satisfied. I suspect that those cases will be rare; but the tribunal can address them if and when they arise. There will also be cases where it is apparent on the face of the material before the tribunal that the power to assess has not been exercised in accordance with the ‘best judgment’ requirement; for example, where the commissioners have not taken into account information which was made available to them by the taxpayer before the assessment was made, or can put forward no basis upon which the assessment can be supported. Again, I suspect that those cases will be rare. [44] In the usual case the tribunal will have the material before it from which it can see why the commissioners made the assessment which they did; and may have further material which was not available to the commissioners when the assessment was made. In such cases, as it seems to me, a tribunal would be well advised to concentrate on the question ‘what amount of tax is properly due from the taxpayer?’ taking the material before it as a whole and applying its own judgment. If that leads to the conclusion that the amount of tax properly due is close to the amount of the assessment, the tribunal may well take the view that it would be a sterile exercise to consider whether the commissioners exercised best judgment in making their assessment. The tribunal has power ‘on an appeal against a decision with respect to any of the matters mentioned in section 83(p) [of the 1994 Act]’ to give a direction specifying the correct amount of the tax due; and where such a direction is given the assessment has effect as an assessment of the amount specified in the direction (see s 84(5) of the 1994 Act). [45] It is in cases where the amount of tax found by the tribunal to be properly due is substantially different from the amount assessed by the commissioners that the tribunal may think it appropriate to investigate why there is that difference; and to seek an explanation. That investigation may—but, often (as in the present case) will not—lead to the conclusion that the commissioners did not exercise best judgment in making their assessment. The tribunal may take the view, in such cases, that the proper course is to discharge the assessment. But even in cases of that nature, as it seems to me, the tribunal could choose to give a direction specifying the correct amount—with the consequence that the assessment would have effect pursuant to s 84(5) of the 1994 Act. It could not be criticised for doing so. The underlying purpose of the legislative provisions is to ensure that the taxable person accounts for the correct amount of tax.”
“Even if the process of assessment is found defective in some respect applying the Rahman (2) test, the question remains whether the defect is so serious or fundamental that justice requires the whole assessment to be set aside, or whether justice can be done simply by correcting the amount to what the tribunal finds to be a fair figure on the evidence before it. In the latter case, the tribunal is not required to treat the assessment as a nullity, but should amend it accordingly.”
“14. In considering an appeal against an assessment under section 73(1), the approach to be adopted was set out in two Court of Appeal decisions, Rahman (t/a Khayam Restaurant) v Customs and Excise Commissioners[2002] EWCA Civ 181 , and Pegasus Birds Ltd v Customs and Excise Commissioners[2004] EWCA Civ 1015 . The law was more recently summarised by the Upper Tribunal in Mithras (Wine Bars) Limited v HMRC[2010] UKUT 115 (TCC). 15. The first stage is for the tribunal to consider whether, at the time such an assessment was made, it was made to the best judgment of the Commissioners. At this stage, the tribunal’s jurisdiction is akin to a supervisory judicial review jurisdiction. As stated by Chadwick LJ (as he then was) in Rahman (at [32]): ‘In such cases…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’. 16. Chadwick LJ observed (at [43]) that instances of a failure to exercise best judgment would be rare. As he stated at [36]: ‘…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.’ 17. Where the tribunal is satisfied that the Commissioners have used their best judgment in making the assessment, the second stage for the tribunal is to consider whether the amount assessed is correct. As Mithras makes clear, in relation to this second stage the tribunal has a full appellate jurisdiction. It can therefore consider all available evidence, including material not available to HMRC at the time when the assessment was made, in substituting its own judgment as to the correct amount of the assessment. 18. The courts have emphasised that in most appeals against a best judgment assessment the tribunal’s focus should be on determining the correct amount of VAT. As Carnwath LJ stated in Pegasus Birds (at [38]): ‘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.’”
“Assessment where loss of tax discovered or determination of amount discovered to be incorrect 41 (1) If an officer of Revenue and Customs discovers as regards an accounting period of a company that— (a) an amount which ought to have been assessed to tax has not been assessed, or (b) an assessment to tax is or has become insufficient, or (c) relief has been given which is or has become excessive, he may make an assessment (a “discovery assessment") in the amount or further amount which ought in his opinion to be charged in order to make good to the Crown the loss of tax. … Restrictions on power to make discovery assessment or determination 42 (1) The power to make— (a) a discovery assessment for an accounting period for which the company has delivered a company tax return, or (b) a discovery determination, is only exercisable in the circumstances specified in paragraph 43 or 44 and subject to paragraph 45 below. … General time limits for assessments 46 (1) Subject to any provision of the Taxes Acts allowing a longer period in any particular class of case no assessment may be made more than 4 years after the end of the accounting period to which it relates. (2) An assessment in a case involving a loss of tax brought about carelessly by the company (or a related person) may be made at any time not more than 6 years after the end of the accounting period to which it relates (subject to sub-paragraph (2A) and to any other provision of the Taxes Acts allowing a longer period). (2A) An assessment in a case involving a loss of tax— (a) brought about deliberately by the company (or a related person), … may be made at any time not more than 20 years after the end of the accounting period to which it relates (subject to any provision of the Taxes Acts allowing a longer period).”
“(1) s 29(1) refers to an officer (or the Board) discovering an insufficiency of tax; (2) the concept of an officer discovering something involves, in the first place, an actual officer having a particular state of mind in relation to the relevant matter; this involves the application of a subjective test; (3) the concept of an officer discovering something involves, in the second place, the officer’s state of mind satisfying some objective criterion; this involves the application of an objective test; (4) if the officer’s state of mind does not satisfy the relevant subjective test and the relevant objective test, then the officer’s state of mind is insufficient for there to be a discovery for the purposes of sub-s (1); (5) s 29(1) also refers to the opinion of the officer as to what ought to be charged to make good the loss of tax; accordingly, the officer has to form a relevant opinion and such an opinion has to satisfy some objective criterion; (6) although s 29(1) directs attention to the position of the actual officer, s 29(5) refers to the position of a hypothetical officer: Sanderson v Revenue and Customs Comrs[2016] STC 638 at [25]; (7) although there might be some points of contact between the real and the hypothetical exercises required by sub-s (1) and sub-s (5) respectively, the tests for the two exercises are different: Sanderson at [25]; (8) the actual officer referred to in s 29(1) is not required to consider whether the test required for s 29(5) is satisfied: Hankinson v Revenue and Customs Comrs[2012] STC 485 ,[2012] 1 WLR 2322 ;”
“it cannot be said to be premature for an officer to ‘discover’… something even when he knows he is not in possession of all of the relevant facts and does not know how relevant points of law will be resolved.”
“In Sanderson, Patten LJ described the power under s 29(1) in this way (at [25]): ‘The exercise of the s 29(1) power is made by a real officer who is required to come to a conclusion about a possible insufficiency based on all the available information at the time when the discovery assessment is made.’ We consider, with respect, that this test is in accordance with the earlier authorities. This passage describes the test somewhat briefly because, of course, that case concerned s 29(5) rather than s 29(1). Having reviewed the authorities, we consider that it is helpful to elaborate the test as to the required subjective element for a discovery assessment as follows: ‘The officer must believe that the information available to him points in the direction of there being an insufficiency of tax.’ That formulation, in our judgment, acknowledges both that the discovery must be something more than suspicion of an insufficiency of tax and that it need not go so far as a conclusion that an insufficiency of tax is more probable than not.”
“The officer’s decision to make a discovery assessment is an administrative decision. We consider that the objective controls on the decision making of the officer should be expressed by reference to public law concepts. Accordingly, as regards the requirement for the action to be ‘reasonable’, this should be expressed as a requirement that the officer’s belief is one which a reasonable officer could form. It is not for a tribunal hearing an appeal in relation to a discovery assessment to form its own belief on the information available to the officer and then to conclude, if it forms a different belief, that the officer’s belief was not reasonable.”
“In our judgment, no new information, of fact or law, is required for there to be a discovery. All that is required is that it has newly appeared to an officer, acting honestly and reasonably, that there is an insufficiency in an assessment. That can be for any reason, including a change of view, change of opinion, or correction of an oversight. The requirement for newness does not relate to the reason for the conclusion reached by the officer, but to the conclusion itself.”
“whether there is a discovery for the purposes of s 29(1) depends upon the state of mind of the individual officer of the Revenue who decides to make the assessment. For these purposes there is no concept of the Revenue having collective knowledge such that if one officer makes a discovery that is to be regarded as a discovery made once and for all by the Revenue as a whole. The result, according to Ms McCarthy’s submission, is that a second or third officer (and so on) can also make the same discovery for themselves, so that each of them becomes entitled serially to issue a discovery assessment.”
“Anything… begun by… one officer of Revenue and Customs may be continued by… another”, noting that: 101. “This would allow for one officer to begin consideration of a file under s 29(1) of the TMA and make a discovery and then pass it on to another to complete the exercise of assessment without the second having to revisit the opinion of the first officer that there was an insufficient assessment to tax in the return.”
“I believe that the company’s self-assessment tax calculation for the above periods are inaccurate. This is because of the reasons set out in the letter sent to you on16 May 2018 by my VAT colleague Mr Beard. The checks carried out by my colleague have revealed that the turnover declared in the company accounts is inaccurate… My colleague has explained the basis upon which he has arrived at the revised figures in his letter.”
“Reductions for disclosure 9(1) A person discloses an inaccuracy or a failure to disclose an under-assessment by— (a) telling HMRC about it, (b) giving HMRC reasonable help in quantifying the inaccuracy or under-assessment, and (c) allowing HMRC access to records for the purpose of ensuring that the inaccuracy or under-assessment is fully corrected. (2) Disclosure— (a) is “unprompted” if made at a time when the person making it has no reason to believe that HMRC have discovered or are about to discover the inaccuracy or under-assessment, and (b) otherwise, is “prompted”. (3) In relation to disclosure “quality” includes timing, nature and extent. 10(1) Where a person who would otherwise be liable to a 30% penalty has made an unprompted disclosure, HMRC shall reduce the 30% to a percentage (which may be 0%) which reflects the quality of the disclosure. (2) Where a person who would otherwise be liable to a 30% penalty has made a prompted disclosure, HMRC shall reduce the 30% to a percentage, not below 15%, which reflects the quality of the disclosure. (3) Where a person who would otherwise be liable to a 70% penalty has made an unprompted disclosure, HMRC shall reduce the 70% to a percentage, not below 20%, which reflects the quality of the disclosure. (4) Where a person who would otherwise be liable to a 70% penalty has made a prompted disclosure, HMRC shall reduce the 70% to a percentage, not below 35%, which reflects the quality of the disclosure. …”
“Cash sales have been suppressed and under reported in the VAT return. In addition, you have not provided any evidence to demonstrate the zero rated sales claimed.”
“355. No evidence was provided to demonstrate an audit trail for the zero-rated sales declared in the returns.”
“The disclosure was Prompted because you didn’t tell us about the Inaccuracy before you had reason to believe that we’d found out about it, or were about to find out about it.”
“Telling I have allowed 5% for telling. Whilst you have provided information regarding the business in general, you have not admitted to any inaccuracies. Helping I will allow 10% for helping. During the enquiry, you only provided Bank Statements. Subsequently in the Caseworker Reconsideration, you have provided sales information for three VAT periods only, despite repeated requests for all the information requested under a Schedule 36 Information Notice. Giving I will allow 10% for giving access to your records. During the enquiry, you only provided Bank Statements. Subsequently in the Caseworker Reconsideration, you have provided sales information for three VAT periods only, despite repeated requests for all the information requested under a Schedule 36 Information Notice.”
“Behaviour and quality of disclosure remain as per original Penalty.”
“Over claiming Input Tax. During the enquiry, you provided no evidence to demonstrate Input Tax has been claimed correctly, whilst the purchases and Input Tax claimed in the VAT Returns are significantly greater than the purchases noted in the Annual Accounts.”
“Telling I will allow 5% for telling. In this respect, you have not provided any explanations for the over claimed Input Tax. Helping I will 10% for helping. [sic] Whilst no information was provided during the enquiry, despite the issuance of a Schedule 36 Information Notice, you have subsequently provided some Purchase Invoices and Ledgers during the Caseworker Reconsideration for 11 periods. Giving I will allow 15% for giving access. Whilst no information was provided during the enquiry, despite the issuance of a Schedule 36 Information Notice, you have subsequently provided some Purchase Invoices and Ledgers for during the Caseworker Reconsideration for 11 VAT periods.”