3KH Limited & Ors v The Commissioners for HMRC [2025] UKFTT 748 (TC)

[2025] UKFTT 00748 (TC)

Case No TC09555

FIRST-TIER TRIBUNAL

TAX CHAMBER

Hearing Heard on: 6 –9 May 2025

Date Judgment date: 18 June 2025

Taylor House, London

Appeal reference: TC/2019/06497

TC/2019/06498

TC/2019/06499

VAT – assessment in respect of alleged suppressed sales and over claimed input tax – whether to best judgment – yes – whether overstated – no

CORPORTATION TAX – discovery assessments – whether discovery – yes – whether dishonest conduct – yes – whether overstated – no

PENALTIES – on company and personal liability notices – dishonest conduct – yes – mitigation sufficient – yes

Before

TRIBUNAL JUDGE AMANDA BROWN KC

MR JULIAN SIMS

Between

3KH LIMITEDAppellant

MR MAUHEED JOHNGITAppellant

MR MUHAMMED WAQAS BABERAppellant

THE COMMISSIONERS FOR HIS MAJESTY’S REVENUE AND CUSTOMSRespondent

Mr Ben Blades of Counsel instructed by AKA Accountants for Appellant

Mr Max Simpson litigator of HM Revenue and Customs’ Legal Group for Respondents

DECISION

Introduction

[1]This appeal concerns the following decisions (Decisions)made by HM Revenue & Customs (HMRC):(1) VAT assessments issued to 3KH Limited (3KH)on 12 June 2018 pursuant to section 73 Value Added Taxes Act 1994 (VATA) for VAT periods 10/13 – 01/18 in the total sum of £1,234,237 (VAT Assessments). Such assessments having been subsequently amended on 16 July 2020 such that the total sums now assessed are £1,118,691.

(2) Decisions notified to 3KH on 25 June 2018 pursuant to section 8 Social Security Contributions (Transfer of Functions, Etc) Act 1999 on 25 June 2018 in respect of National Insurance Contributions not accounted for in tax years ended 5 April 2014 – 2017 totalling £14,601 (NICs Decisions).

(3) Penalties issued to 3KH on 25 June 2018 pursuant to regulation 81 Social Security Contributions Regulations 2001 in the total sum of £14,601 (NICs Penalties).

(4) Corporation tax discovery assessments issued on 11 July 2018 pursuant to paragraph 41(1) Schedule 18 to the Finance Act 1998 (Sch 18 FA98) for accounting periods ended 31 July 2014, 31 July 2015, and 31 July 2016. The total sums assessed were £659,276.12.

(5) Corporation tax discovery assessment issued on 18 July 2018 pursuant to paragraph 41(1) Sch 18 FA98 for accounting period ended 30 July 2014 in the sum of £305,441.70.

(6) Further VAT assessments to VAT issued to 3KH under section 73 VATA on 23 May 2019 in respect of periods 04/17 – 07/18 in the additional sum of £559,550 (Further VAT Assessments). These assessments were also reduced on 16 July 2020 and the sum we are invited to uphold is £522,060.

(7) Corporation tax discovery assessment issued on 30 May 2019 pursuant to paragraph 41(1) Sch 18 FA98 for accounting period ended 31 July 2017 in the sum of £894,668.55.

(8) Further corporation tax discovery assessment issued to 3KH on 4 June 2019 for accounting period ended 31 July 2016 in the sum of £247,618.50 (together with the assessments referred to at paragraphs (4), (5) and (7) (Discovery Assessments). Following the amendment of the VAT Assessments and Further VAT Assessments HMRC invite us to amend the Discovery Assessments in accordance with sections 50(6) and (7) Taxes Management Act 1970 such that the total sum we are invited to determine as due is £2,124,250.76

(9) Penalties issued under Schedule 24 Finance Act 2007 (Sch 24 FA07)on 8 July 2019 in respect of the assessments identified at paragraph (1) above and on 13 August 2019 in respect of the assessments identified at paragraph (6). Penalties total £1,096,526.26. Following the amendment to the VAT and Further VAT Assessments HMRC invite us to determine the total penalties in the varied sum of £993,666.71.

(10) Penalties issued under Sch 24 FA07 on 12 July 2019 associated with the corporation tax assessments identified in paragraphs (4) and (5) above. And on 26 July 2019 in respect of the assessment identified at paragraph (7) above. Total of all such penalties being £1,291,003.20. The amended sum in which we are invited to uphold the penalties arising from the corporation tax inaccuracies is £1,301,103.56 (together with the penalties referred to at paragraph (9) above Penalties)

(11) Personal liability notices issued under paragraph 19(1) Sch 24 FA07 allocating to Mr Mauheed Johngir (MJ) 42.5% and Mr Muhammed Waqas Baber (MB) 50% of the penalties identified in paragraphs (9) and (10) above in so far as they related to periods commencing after 14 April 2015 when MJ and MB were appointed as directors. The penalties sums for which MJ and MB were each made liable are £1,042,509 (PLNs). The PLNs were issued to each of MJ and MBon the same dates that each of the Penalties were issued to 3KH

[2]The Decisions arise from an investigation undertaken by HMRC pursuant to which they consider that they identified significant suppression of cash sales leading to an under declaration of VAT and insufficiency in assessment to corporation tax in the periods covered by the Decisions. HMRC contend that the suppressed sales were extracted by MJ and MB.

[3]We set out below the issues agreed to be determined in this appeal (we have reordered and slightly reframed them from the that presented to us as we consider the order and reframing has facilitated a more logical flow):(1) Were sales at Tipu Sultan Moseley (TSM) under declared for VAT purposes? (TSM Suppression Issue)

(2) Did 3KH operate Tipu Sultan Leicester (TSL)? (TSL Issue)

(3) Were the VAT Assessments made to HMRC’s best judgment? (Best Judgement Issue)

(4) Do the VAT Assessments overstate the output tax due on any suppressed sales by 3KH? (VAT Quantum Issue)

(5) Did 3KH overclaim input VAT? (Input Tax Issue)

(6) Did HMRC discover a loss of corporation tax? (Discovery Issue)

(7) Were such sales identified as having been suppressed advanced to MJ and MB, thereby justifying a charge to corporation tax under section 455 Corporation Tax Act 2010 (CTA)and justifying the NICs Assessments/Penalties? (Participation Issue)

(8) Were any errors in the VAT and/or corporation tax returns deliberate? (Deliberate Issue)

(9) Were any deliberate errors attributable to MJ and MB? (PLN Issue)

(10) Was the reduction given to the penalty percentage adequate? (Mitigation Issue)

Brief factual and procedural background

[4]3KH was incorporated on 30 July 2013 and traded as a restaurant under the name Tipu Sultan. At the time of incorporation neither MJ nor MB were shareholders or directors. On 1 August 2014 the shares were transferred to MJ and MB who, from that date held 50 and 100 shares respectively. They were appointed as directors from 14 April 2015.

[5]On 7 November 2015 HMRC undertook covert observations of the restaurant in Moseley between noon and 23:00.

[6]In July and August 2017 HMRC attempted to visit 3KH’s operations at Moseley (there is a dispute between the parties regarding these attempted visits which we address below in the section on the Mitigation Issue). It was not until 14 November 2017 that HMRC were able to access till data and some other business records.

[7]Following examination of the records HMRC, through Officer Beard, formed a view that there had been a suppression of cash (but not credit card) sales from TSM. Limited further records were provided (z readings, bank statements, and purchase invoices for VAT periods 10/15 and 04/17). A review of these documents led Officer Beard to conclude that input tax had been over claimed. Officer Beard also identified a second restaurant, TSL, in respect of which input tax had been claimed but no sales declared. The VAT Assessments and Further VAT Assessments were issued to collect the output tax under declared and input tax over claimed.

[8]Officer Beard highlighted to Officer Pinder that he had identified what he considered to be supressed sales. From this conclusion she considered that that there was an insufficiency of tax declared on the corporation tax returns and that discovery assessments were appropriate. With no evidence as to where the suppressed sales had been used in the business, she concluded they had been extracted by MJ and MB as participators and thus giving rise to a further corporation tax charge and associated NICs charge. Concluding that the insufficiently arose as a consequence of deliberately rendering incorrect returns the Discovery Assessments were issued.

[9]HMRC considered that the errors giving rise to under declaration of VAT and insufficiency of corporation tax arose in circumstances giving rise to a deliberate penalty which was properly attributed to MJ and MB.

Burden of Proof

[10]HMRC bear the burden of proving:(1) They discovered an insufficiency in the corporation tax returned by 3KH;

(2) The insufficiency was due to deliberate conduct by 3KH;

(3) Such deliberate conduct was attributed to the conduct of MJ and MB.

[11]3KH bears the burden of proving:(1) The VAT assessments were not made in exercise of HMRC’s best judgment or that their quantum is overstated;

(2) The Discovery assessments, if validly made, overstate the quantum of corporation tax due.

[12]The standard of proof is to show the requisite matter on the balance of probabilities.

[13]In this judgment we address the evidence received and relevant facts found together with the applicable law on an issue-by-issue basis.

[14]However, we make the following initial and general observations:(1) We were provided with four bundles of documents together containing 26,999 pages. The appeals were listed for four days requiring the parties to indicate whether additional reading time was required but the parties did not indicate any such requirement. We therefore advised the parties (consistent with the guidance given by the Upper Tribunal in Adelekun v HMRC

[2020] UKUT 244 (TCC)

) that we would take our decision only by reference to documents to which we were taken, the relevance of which was explained to us during the hearing, and in respect of which the other party was given an opportunity to address the relevance. Comparatively few pages were referenced and only the witness statement of Officer Pinder was cross referenced to the bundle. We attach as an annex to this judgment a list of the pages to which we were referred (the page numbers identified are the pdf page numbers rather than the bundle page numbers – contrary to the Practice Direction on Electronic Bundles the page numbering between hard copy and pdf were not aligned). Despite, on occasions, being referred only to specific pages of certain documents, where relevant, we read the whole document of which the referenced page formed part. As a consequence of the approach we adopted and of which the parties were made aware, our judgment does not take account of all of the evidence made available to us generally.

(2) Further, in this decision we address only matters articulated as in dispute between the parties either in their skeleton arguments or in submissions. Thus, we do not address matters which apparently, and through the course of correspondence, had been in dispute but which did not feature in the evidence or argument directly presented to us (even where referenced in witness statements).

(3) We heard oral evidence from Officers Beard and Pinder. We found them both to be honest and credible witnesses who had been faced with an uncooperative taxpayer. They did their best to gather information, assimilate it and make assessments based on the evidence they had. As we accept their evidence where it is relevant we simply find facts rather than setting out the evidence provided.

(4) We also heard evidence from MJ and MB. In contrast to Officers Beard and Pinder we found the evidence of MJ and MB to lack credibility and, in the main, we could not accept the truth of their evidence taken. They appeared us to be readily willing to mislead the Tribunal and give evidence that they considered, in the moment, to suit their case. We note that their witness statements were all but identical to one another. At HMRC’s request and with the consent of Appellants’ counsel, MJ and MB were not present for each other’s testimony. Their oral evidence was inconsistent with their statements and, in our view, inconsistent with one another in detail; principally we suspect because of the attempt to make up evidence as the hearing progressed.

[15]For the reasons set out below, we refuse the appeal.

TSM Suppression Issue

[16]This is a factual issue. We therefore set out the evidence, the parties submissions on that evidence and our factual findings. Evidence

[17]In this regard we consider the documentary evidence and the relevant parts of the witness statements of Officer Beard, MJ, and MB.

[18]We start from the agreed position that the Appellant fully declared output tax and included income for corporation tax purposes from credit card sales.

[19]On 7 November 2015, HMRC officers covertly attended at TSM. Each group made contemporaneous entries in their notebooks of the observations made whilst attending at the premises. We extract the following relevant information from their notebooks:(1) Nine pairs of officers visited TSM together consistently providing observations from noon until 22:30.

(2) Due to the size and layout of the premises it was impossible for the officers to coherently or with confidence count customers arriving such that observations were local to an area of the restaurant.

(3) Attempts were made to count staff, notebooks consistently recorded in excess of 10 staff and up to 20 waiting staff plus kitchen staff.

(4) The restaurant became progressively busier as day went on.

(5) Six groups had to wait to be seated, waiting time of one pair was not recorded, those recording noted waiting times of : 2 mins, 12 mins, 5 mins (it having been indicated that wait time may be 20 mins), 20 mins (indicated waiting time 30 mins), 40 mins.

(6) Six pairs of officers recorded that they paid cash as follows: (a) First session - £46.90 bill with £50 cash. (b) Third session - bill was £49.55 which was paid with £55 in cash. (c) Fourth session - bill £52.85 which was paid with £57.00 cash. (d) Fifth session – bill £59.60, each officer paying separately in cash (£28.50 by one and £21.10 by the other). (e) Seventh session - bill was £43.75 which was paid by £50 cash. (f) Ninth session - bill £60.95, £70 cash was paid

(7) Two pairs recorded that they had seen cash payments made by other groups with a total of 3 cash payments observed as made (in addition to their own)

(8) A wedding function was observed as taking place in a room upstairs.

[20]The z reading subsequently provided in respect of takings for takings on 7 November 2015 recorded sales of £10446.68 split as to £8214.35 credit card sales and £2232.53 cash sales. The recorded number of tables served was 237 with 520 drinks and 3062 line items for food. The handwritten annotation on the z reading recorded card sales of £7,740.00 and £728.08 cash sales. The VAT ledger for period 01/16 showed total gross sales as £8.468.08, reflecting that VAT was declared by reference to the handwritten amendment and not the sums shown on the z reading.

[21]A further covert observation and purchase was also made on 20 July 2017. The notebook records attendance between 20:30 and 22:10. It is apparent that two officers attended and the notebook we have references the notebook of the other officer – we were not taken to that other notebook. The bill was £42:65 for which £50 cash was paid. Bill payments were observed by four tables (17 covers) by credit card and one by cash.

[22]Following a series of visits to TSM Officer Beard was able to obtain the following documents:(1) Z readings and some purchase invoices for the period 1 August to 10 September 2017.

(2) Miscellaneous other z readings each of which had a handwritten annotation of “cash” and “card” receipts. We note that the handwritten annotations all appeared to be in the same handwriting.

(3) Bank statements for the period 12 January 2017 to 31 March 2017.

(4) Till journal data (i.e. the data stored by the till) for the period 26 August to 14 November 2017.

(5) Access to merchant acquirer data which was reviewed at the accountant’s office but not uplifted.

(6) Deliveroo receipts

(7) Annual accounts to 31 July 2016 and comparison to 2015.

[23]Officer Beard reviewed these documents and identified:(1) 3KH had changed its till on 26 August 2017 (having placed an order for it on 14 July 2017). The average cash sales shown on the z readings for the period from 1 August – 25 August 2017 averaged £1,080 and 17% of daily sales whereas the average cash sales on z readings from 26 August to 10 September 2017 were £5,066 and 45% of daily sales. Analysis of the till data extracted on 14 November 2017 demonstrated average daily cash sales of £5,113 representing 47.39% of gross daily sales.

(2) No cash was paid into the bank account.

(3) The accountant accepted that the handwritten notation of cash on the z readings was the cash which remained after cash expenses had been paid.

(4) Declared VAT in the period for 10/17 was lower than the amount due by reference to the till data (£643,841 declared as compared to £904,897.06 till data from 26 August 2017 and Z readings from 1 – 25 August).

[24]3KH was given an opportunity to explain the matters identified by lengthy letter sent by Officer Beard on 16 May 2018. 3KH did not respond to that opportunity within the time stipulated in the letter. However, subsequently, on 25 June 2018, via its representative 3KH sought to explain that the apparent increase in cash takings recorded on the new till was due to the opening of a fully serviced banqueting function facility.

[25]In the period up to November 2020, 3KH provided z readings for 2013. When these were examined, it was identified that on 24 December 2013 the old till had been reprogrammed. Prior to that date the z readings had included data from the store table (i.e. the record of items ordered during a meal as a running total from which customer bills are then derived) and the occasions on which the no sale button had been utilised (i.e. the till opened other than in response to a recorded sale). The store table information as recorded on z readings prior to 24 December 2013 demonstrated significant (£180,342.09) under declaration of cash sales for the 01/14 VAT.

[26]Officer Beard also examined the VAT declared for periods 04/18 and 07/18 in the context of the full till data obtained for the period 26 August – 14 November 2017. His evidence was that the declared sales were consistent with the declared sales in 10/17 and 01/18 and thereby concluded that sales in the later period too were under declared.

[27]3KH asserted that cash sales were accurately recorded and sought to explain that the increased cash recorded on the till from 26 August – 11 November 2017 was attributed to two factors:(1) The launch of a full-service wedding/banqueting operation from the upper room from July 2017; and

(2) A 2-for-1 offer in the restaurant during that period.

[28]The evidence said to support the accurate recording of sales was as follows:(1) In the witness statements MJ and MB stated: (a) Each shift was staffed by 3 managers and cashier. (b) Orders from customers were recorded on order slips and then entered into the till. As the order was added to the same process would be followed with each ordered item being added and allocated to the table’s overall order. (c) The customer bill was generated from the till. (d) One of the managers or the cashier would cash up. Cash would be counted and the £100 float removed. Expenses and petty cash paid from the cash takings was said to be recorded on the z reading from which the bookkeeper would prepare the formal records. Order slips were destroyed daily. It was the responsibility of the manager to reconcile the z reading and takings each day. (e) It was asserted, without reference to any written policy or documentary evidence, that there was a zero tolerance on cash shortages, and it was expected that the managers would personally make any shortage.

(2) Their oral evidence on these matters was less clear: (a) MJ’s evidence on the presence of managers on shift was fluid. Apparently not wanting to deny his statement he initially said that there was a rota to which the 6 managers were allocated and that there would always be 3 on shift at any one time. However, that quickly shifted to a statement that the number of managers was dependant on the needs of the business. When asked about HMRC’s visit on 20 July 2017 it was asserted that despite the visit taking place 10 minutes before closing that it was likely that there was no manager on site. When asked about the visit at 13:15 on 23 August 2017 it was claimed that because the restaurant would not have been busy there would have been no manager on site. (b) Contrary to the clarity provided in the witness statement MJ was unclear as to who provided the books and records to the bookkeeper and when and how that took place. He stated he was not familiar with the books or VAT return information. MJ flatly denied ever telling the bookkeeper to report takings which did not reflect the sums shown as having been taken on the printed z readings but did accept that the VAT returns did not reflect the printed z readings. He also claimed that all invoices were provided to the bookkeeper. (c) MB stated that there were 6 managers and 2 cashiers, and it would be ensured that there was a manager on site at all times. He then almost immediately, in the course of cross examination, stated that no manager would have been on site when HMRC attended on either 20 July 2017 (because the restaurant closed at 23:00 and the visit was 22:50) and that no manager would have been there at 13:15 on 23 August 2017 because managers were not expected on site until 15:00. A few minutes later he confirmed that z readings would be done by a manager after the restaurant closed. (d) MB accepted that he and MJ were the interface between the managers and the bookkeeper but denied that he had informed the bookkeeper not to account for the full cash sales as shown on the printed z readings.

[29]As regards the full banqueting service we were provided with the following documentary evidence:(1) By way of a 50-page letter provided to HMRC on 8 November 2019 The letter is undated letter but was prepared by on behalf of the 3KH and sent to Mr White in response to Officer Beard’s enquiries concerning 3KH and other companies also operating restaurants. It refers to HMRC’s letter of 23 May 2019. The letter runs to 50 pages, and it was not readily clear how it related to the individual companies referenced only one of which was 3KH. We have limited our consideration of the letter to the parts of it to which our attention was drawn or those which plainly related to 3KH and the Tipu Sultan restaurants. it was claimed that the banqueting facility had not been operating as a full service offering until approximately July 2017. It was stated that in previous years the upstairs room had been hired out with additional facilities provided by third parties, including catering, as the kitchen on site had capacity only to service the diners in the restaurant. Room hire was charged at £300 – 500 per day. A full wedding service providing all of the facilities that customers required including the provision of food and drink had been introduced in July 2017. Initially a full wedding package was said to be offered at £5-7,000 subsequently rising to £6-8,000; though reference was made to a discounted offer of £3-5000 in early 2018.

(2) As exhibits to that letter: (a) Exhibit E - 9 pages each a series of single page leaflets: (i) Promoting “Full wedding packages now available” including banqueting hall, bridal room, DJ, stage, full decoration, food & drinks, cake, limousine service, video & photography. It announced “Special Introductory Half Price Offer Book Now” valid from 3 July 2017 to 31 December 2017. (ii) Promoting Birthday party venue hire indicating Tipu Sultan was also a perfect venue for small weddings, engagement parties, Mehndi parties, corporate events and must more. This document does not include any date and does not specifically refer to the banqueting hall. (iii) Promoting venue hire (for functions as identified in (2) above) (iv) Identical to 3 save for a different picture. (v) Further promotion for venue hire again a different picture but the same information and a different layout. (vi) Two promotional documents for take away BBQ packs supplied by two companies but not apparently by 3KH. (vii) Two promotional documents for take away sauces by a restaurant other than 3KH. (b) Exhibit F – copy menus: (i) For 2017/18 “We believe in outstanding food. Exceptional service and personal approach… Whether you are getting married and looking for someone to manage all your catering requirements or holding a corporate event you can find the right catering solution for you with Tipu Sultan Outdoor Catering. Having successfully catered for 10 to 2,500 people we are confident we can exceed your expectations at every step with our attentive service and stunning cuisine.” (ii) For 2013.14 and 2015/16:

“Try our range of take home sauces and marinades. Take Home Barbeque Kits available in Marinated Chicken or Steaks. Speak to your Waiter or Manager for further details.” (c) Exhibit J included a single invoice for a wedding dated 17 August 2017. There was no charge for the hall hire. Separately itemised were the costs of food, cake, stage hire, chair covers. The deposit was shown as paid by card (£500) and the balance was to be paid at least 7 days prior to the event by cash or debit card no cheques. (d) Copies of social media posts (provided by HMRC) from which we extract the following: (i) In October 2013 a post 1 star post concerning the restaurant indicated: “maybe a better venue for weddings as long as they allow outside catering” (ii) September 2015: “went for a wedding reception … food was good …” (iii) January 2016 TSM’s own entry stated: “Tipu Sultan Birmingham is a vibrant, majestic, and elegant venue, perfect for that special day in your life … events team can take away the stress of organising the venue for your big day. We can arrange entertainment, flowers and your decoration requirements four year along with any additional extras you may wish to have to ensure your day is perfect. You choose from our extensive menu what you would like to eat on your big day. We use the finest, prime quality ingredient, in all our dishes.”

The contact is an for an event manager. (iv) June 2016 (concerning son’s wedding):

“The food was lovely … The whole experience was great and made the wedding day even better”

[30]In the identical witness statements for both MJ and MB it was stated that in 2014 the banqueting facility (hall) offered at TSM was limited to room hire with the hirers responsible for the sourcing of catering, dressing the room etc as TSM lacked the cooking facilities to cater for such events.

[31]In oral evidence MB did not comment on banqueting and nothing was put to him in this regard; however, MJ asserted that the provision from the banqueting facility evolved from 2014. Initially TSM offered only “dry hire” but when he took over as a director, he came to realise the potential for offering a full package including food. He accepted that there was no business plan prepared for the development. However, with the acquisition of premises at Summer Lane they were able to offer catering and, from summer 2017, a new and full-service model was offered. The offering was launched on a half price basis. Consistent with tradition in the community whilst deposits for a wedding or large event would be paid by credit card the balance would be paid in cash. It was said that it was these cash payments that accounted for the substantially increased cash takings recorded on the new till. Under cross examination MJ refused to accept that the terms on which the social media posts pre-July 2017 were phrased indicated that it was 3KH that provided the food indicating that the events team referenced was simply dedicated to a limited dry hire facility.

[32]In respect of the 2-for-1 offer the only documentary evidence provided to us was by way of a letter apparently authored by MB and sent to Mr Brian White, the Appellant’s then representative in response to correspondence received from Officer Beard dated 10 January 2019 concerning another company of which MB was a director it was stated:

“… when you run a 2 for 1 offer it generates an increase in footfall, but not necessarily any additional income as you have almost halved the income from each table. The promotion is designed to increase awareness, new customers and fresh goodwill to the business, additional revenue is merely collateral. … the shortfall what [Officer Beard] terms as the “suppression” is the actual sales that have been actually taken not allowing for the promotional discount. This perfectly shows that the full sales have been punched in to the till, but when we it comes to payment we knock off the 50% discount off the bill. Incidentally the discount is not applicable on drinks and desserts therefore we mark on each ticket what the discount is. Our tills did not have a 2 for one button and all of this is done manually. Perhaps in hindsight not the best way, but we believe that manual is the best way so that we know what exactly the discount has been given. If we add back the discount, then we can obviously see the success of the campaign as the sales have increased …”

[33]The witness statements of MJ and MB were silent on the 2-for-1 offer. However in oral testimony:(1) MJ stated that the 2-for-1 offer was operational from July 2017 through to January 2018 and applied to main meals but not to starters, desserts, or drinks. As the new till did not allow for discounts the calculation was run manually when the bill was produced for the customer and the relevant information provided to the bookkeeper. He asserted that there were fliers and promotional material available in the restaurant whilst the promotion was offered and that HMRC officers must have missed them. He also stated that the materials had been provided to HMRC as part of Exhibit E and that HMRC must have failed to include them in the bundle (this latter allegation was then later withdrawn by his Counsel). He could not explain, from the documents and records put to him, how it was asserted that the 2-for-1 offer had increased the number of transactions. Nor could he provide a coherent explanation of the process of recording the offer on customer bills or on the till in the face of there being no discrepancy in recorded credit card sales. Despite this he maintained that there was a 2-for-1 offer and it explained, in part, the cash discrepancy.

(2) Having been taken to an overall discrepancy of £80,000 between cash shown as taken on the z readings and that declared for VAT purposes in period 10/17 MB stated that the 2-for1 offer explained the difference. He however, accepted that the letter in which the 2-for1 offer had been raised had been written in respect of multiple businesses and no specific reference had been made to 3KH. Like MJ he accused HMRC of failing to include the relevant material provided to support that a 2-for-1 offer within the bundle. He refused to accept the mathematical challenge put to him that with no increase in the number of transactions in the period it was highly unlikely that there was the desired increase in footfall. Perhaps most astonishingly of all, in the dying moments of re-examination, for the first time and despite having been given the opportunity to advance the suggestion previously in correspondence, MB claimed that the 2-for-1 offer was available only for cash transactions.

[34]Officer Beard’s evidence was that the officers undertaking the covert visit on 20 July 2017 had not been made aware of such an offer and had seen no fliers or other materials advertising the offer. He was clear that the instructions given to officers undertaking covert visits of this type is to fully observe and note matters relevant to the investigation which would include if there had been a 2-for-1 offer of any type. He was also clear that on the occasions that he visited the premises (20 July, 21 July, 23 August, 21 September, 9 and 14 November 2017, and 12 and 28 February 2018) with a view to uplifting information/accessing the till he had not seen or been made aware of the offer. Further the only mention of it was in a letter concerning both 3KH and another associated business.

[35]In correspondence, in his witness statement and in oral evidence Officer Beard also demonstrated that a contention that a 2-for-1 offer was available was contrary to the till data which plainly and clearly showed that no customer paying by credit card took advantage of such an offer. Credit card customers’ bills matched their payments belying any contention that there was a manual adjustment because of an inability to record such an offer when entering orders into the till.

Parties submission

[36]3KH contend that the payment process in the restaurant had been satisfactorily established on the evidence and that the increase in cash payments in August 2017 had been explained. HMRC’s rejection of the explanations was criticised as unfounded and disingenuous.

[37]HMRC contend that there is ample evidence of suppression. Findings of fact

[38]On the evidence before us we make the following findings of fact:(1) There is a significant and material difference between the information stored in the till data for the period 26 August 2017 – 14 November 2017 and the sums declared by 3KH in periods 10/17 and 01/18 (the periods covered by that data) which indicates that cash sales were suppressed in that period.

(2) Given the process by reference to which orders were said to have been taken and bills presented to customers, which accorded with the officers’ observations, it is reasonable to conclude that the individual food and drinks items sold were accurately recorded on the till and stored in the till’s internal ledger.

(3) Similarly, and on the basis that credit card sales were, within the tolerance to be expected of normal human error, correctly recorded within the stored till information, it is reasonable to conclude that the cash takings recorded in that stored information was accurate.

(4) There was no evidence of a 2-for-1 offer and we conclude that no such offer was made at any relevant time by 3KH. The evidence given by MJ and MB in this regard is rejected in its entirety and we note that we consider that MJ and MB actively sought to mislead the Tribunal on at least this issue.

(5) We also reject the contention that the banqueting offering changed materially in July 2017. We do so for the following reasons: (a) From at least January 2016 3KH sought to advertise the facility at TSM including a customer’s ability to “choose from our extensive menu what you would like to eat on your big day.” And that 3KH “use[d] the finest, prime quality ingredient, in all our dishes”. We consider it impossible to interpret that invitation as one that involved the provision of third-party catering. This is so particularly when contrasted with the language in the same advertisement post regarding arranging flowers, entertainment etc. It is also consistent with the reviews which certainly imply that the food at weddings was supplied by 3KH. (b) Officer Beard analysed the declared sales and in the earlier period with a view to establishing situations in which a “dry hire” charge consistent with that asserted to have been charged by 3KH could be identified but on the basis of the average daily cash takings recorded on the z readings. He concluded that the hire, in whatever form, had not been declared (c) By reference to the marketing material provided we accept that in the summer of 2017 and through to January 2018 3KH may have offered functions at half price. However, the effect of running a half price offer in the period is likely to understate the suppression for other periods.

(6) In our view, the evidence conclusively demonstrates that in the period covered by the stored till data sales were suppressed.

(7) As regards the other periods covered by the VAT Assessment and Further VAT Assessments we find: (a) The evidence of the covert all day observations on 7 November 2015 support a conclusion that there was suppression at that time. The cash declared as taken on that day was £728.08. The cash paid by the officers totalled £313.60. The officers observed a further 3 customer groups paying cash and there was a wedding in the upper room. It is inconceivable that only £728.08 cash was taken on that occasion. (b) It is reasonable to conclude that cash sales were suppressed during 2013. The stored table information shown on the z readings up to 24 December 2013 includes the running total of sales recorded into the till through the day exceeded the declared sales. (c) Whilst no till journals were available for periods 04/18 and 07/18 it is reasonable to conclude that the disparity identified between cash sales recorded on the till and declared sales continued given the consistency of sales in those two later periods as compared to 10/17 and 01/18.

[39]We therefore conclude that there is evidence of suppression of takings throughout the periods assessed.

TSL Issue

[40]As with the TSM Suppression Issue this is a factual issue, and we therefore adopt the same approach.

Evidence

[41]Merchant acquirer data was provided to HMRC which indicated that 3KH were in receipt of credit card income from sales made from the TSL premises. From within the purchase invoices provided it was also apparent to Officer Beard that 3KH had claimed input tax in respect of expenditure incurred in connection with TSL.

[42]On 23 January 2019 Officer Beard wrote to 3KH. The letter, in part, concerned TSL. The letter noted that Mr Khan (on behalf of 3KH) had indicated that he understood that TSL was separately registered for VAT purposes, but Officer Beard had established that the TSL was not VAT registered until 24 July 2018. Information was requested and it was intimated either that input tax incurred in connection with the operation of TSL would be denied (on the basis that it related to the operations of a different VAT registered entity) or that output tax for sales from TSL would be assessed as due (and the input tax credit allowed).

[43]3KH’s response to that letter dated 7 February 2019 claimed that TSL was a separate restaurant operating from premises licenced to 3KH. It was explained that the former derelict pub had been refurbished with the intention of being operated by 3KH. The input tax incurred was therefore said to have been validly claimed. However, financial difficulties with TSM in early 2017 meant that the project could not be completed and Mr Rameez Mansoor (RM) approached the directors of 3KH with a view to operating the premises. RM was said to have completed the refurbishment over a period of 18 months starting to trade in July 2017. It was claimed that royalties would be paid by RM to operate under the Tipu Sultan brand and such royalties were due to be payable from year 2 of operation. However, it was stated that at the end of year one the premises were handed back to 3KH who closed the premises for a short period before it was reopened in August 2018 by a different company. It was asserted that any output tax due was the responsibility of RM.

[44]HMRC requested details of the arrangements between 3KH and RM. The response provided by MB claimed that invoices from suppliers to TSL had been paid by 3KH but had been processed by RM as input tax proper to TSL. However, no documentation or further explanation was provided.

[45]HMRC wrote to 3KH on 23 May 2019. Inter alia, the letter communicated HMRC’s position regarding TSL. Officer Beard had established that RM was not VAT registered nor registered with Companies House as a director of any company. Further Officer Beard was unable to identify RM as resident at or owning the property the address for which was recorded on the purported agreements entered by him. It was noted that various claims to input tax had been made by 3KH in connection with the TSL property including for rent paid through to at least September 2017 (after the period from which it had been asserted the business was operated by RM) and in respect of kitchen equipment and food purchases.

[46]A review of social media undertaken by Officer Beard had revealed posts from diners from April 2017 when the premises opened as Tipu Sultan despite the assertion that it had not opened until July 2017.

[47]Merchant acquirer information demonstrated that 3KH’s accounts and card readers had been used by TSL throughout the period April 2017 to July 2018 and sums from the credit card providers had been received into 3KH’s bank accounts for the same period.

[48]Officer Beard considered there was no evidence that RM was connected with TSL in any regard but rather the evidence supported a conclusion that 3KH were running TSL.

[49]In the 50-page letter referred to at paragraph 29(1) above 3KH provided the following explanation/claims in connection with TSL:(1) 3KH had undertaken refurbishment works to a dilapidated pub in 2015 with the intention of running it as a business but had run into financial (but otherwise unexplained) difficulties.

(2) RMand his partner proposed to work together with 3KH to complete the project but not as part of 3KH. RM incurred costs completing the refurbishment works.

(3) It was claimed that there was an intention to proceed for which RM had paid £12,000.

(4) However, rather than proceed in that way there is a somewhat muddled explanation of what was then said to have followed which apparently involved RM purchasing the business, running a franchise, and being loaned £750,000 which was agreed to be repaid once the restaurant was operating and trading, the loan being said to repay what 3KH had invested. The loan was noted at this point in the letter to have been fully repaid by 31 December 2018 from further capital introduced by RM, and profits generated by TSL.

(5) 3KH continued to be responsible throughout 2015 – 2017 as the lessee and held invoices from suppliers based in Leicester.

(6) 3KH also permitted RM and TSL to utilise 3KH’s merchant acquirer account to accept credit cards at TSL. RM was said to have failed a credit check such that he was unable to accept credit card in TSL. All receipts from the credit card transactions were paid directly into 3KH’s bank account.

(7) TSL operated such that cash takings were retained by RM and his partner. Some suppliers were said to be paid from this cash but as the credit card income was paid into 3KH’s bank account RM requested that 3KH meet some supplier invoices from those funds. Invoices to suppliers were not in 3KH’s name but were paid on the request of RM directly to the suppliers. It was claimed that the balance of the credit card receipts were set against the loan obligation. Records of expenditure incurred on behalf of TSL were said to have been retained.

(8) In May 2018 the relationship between RM and his partner broke down and RM was no longer able to operate the restaurant and was unable to repay the loan. At that point it was said that £248,000 remaining outstanding “for the franchise and fit out” having reconciled the credit card receipts and supplier payments, rent and “brand royalties and franchise fee”. The keys were handed back on 28 August 2018.

(9) TSL reopened in early September 2018 after a deep clean and was operated by Mr Johngir Saddiq.

[50]Attached to the letter was the draft franchise agreement (Exhibit U), Exhibit V was the draft sale and purchase agreement. The list of payments made on behalf of TSL is shown in Exhibit S.

[51]The Agreement at exhibit U is dated 30 March 2017 and between 3KH, RM and Naveed Arif (NA). It purports to be a loan agreement pursuant to which 3KH agreed to lend £750,000, interest free, to RM and NA “in respect of the business [TSL]”. The repayment date was 31 December 2018. If not repaid by the repayment date interest then became due on sums outstanding; the loan was otherwise not interest bearing. The loan was also repayable on the occurrence of an “Event of Default” which included where the business or affairs of RM/NA changed adversely to the extent that in 3KH’s opinion the ability to repay was substantially impaired. Clause 8 provided for RM/NA to promptly provide 3KH on request “without limitation audited accounts, financial statements, bank statements, statements of assets, cash flow forecasts” and other documents in connection the development of the TSL property from which TSL was to trade. RM/NA were required register for VAT and pay all taxes.

[52]Exhibit V proceeded the agreement at Exhibit U but was not referred to in Exhibit U. Exhibit V purports to be an “Intent to Proceed” between RM/NA and 3KH dated 10 March 2016. Recital A states:

“The Parties propose entering into a franchise agreement being [3KH] standard form of agreement a draft of which is attached.”

An initial payment of £10,000 plus VAT became payable pursuant to clause 4 of the attached franchise agreement. We were not provided with the draft franchise agreement.

[53]Further materials were provided on 16 December 2020 including an incomplete chain of correspondence between 3KH and RM’s legal advisors. It appears from the correspondence provided that a dispute arose between 3KH and RM/NA. The correspondence implies that RM/NA walked away from TSL, and a dispute arose as to the amounts due between the parties. Reference is made by 3KH to the loan agreement and the requirement to have repaid the capital sum. RM/NA claimed to have invested in the building project and the goodwill of the business operations. There is reference (acknowledged by 3KH in a letter dated 2 April 2019) to a further agreement pursuant to which 3KH had offered to pay £500,000 to RM/NA entered “at the time of the takeover” but that such sum had been agreed without understanding the poor condition of the property and the business. RM/NA demanded details of the funds received and paid out by 3KH on their behalf. It is not apparent that this information was provided, 3KH stating that only RM/NA “know which invoices they were asking [3KH] to pay … they will have a record of [the invoices paid]”. 3KH did however provide the merchant acquirer data of credit card income received. Reference is also made to what is said to have been agreed repayments against the capital of £40,000 per month. We do not know how the dispute was settled.

[54]The annual accounts of 3KH for accounting period ended 31 July 2017 showed tangible fixed assets (plant and machinery) of £659,457 and debtors of £327,776 (of which trade debtors were £16,935 the balance recorded as other debtors) and no creditors. Those for the accounting year ended 31 July 2018 reported tangible assets of £906,738, debtors of £362,458 (of which £361,776 was other debtors)

[55]All the evidence provided by 3KH was considered by Officer Beard. On 26 April 2021 he notified 3KH that nothing provided satisfied him that TSL was operated other than by 3KH. In particular, Officer Beard noted that within the additional purchase invoices provided there were invoices relating to the running of TSL (including printing of fliers, and repair of the dishwasher). Analysis of the credit card receipts for TSL and the purchases made for supplies to TSL Officer Beard calculated that the net position on August 2018 was £572,221.78 excess income over purchases. The pattern of trade was also consistent and there was no social media evidence of difficulties in operation or quality. As a consequence, in Officer Beard’s view, the evidence failed to support the narrative provided by 3KH that RM had ceased operations in August 2018 because of the number of complaints received (and hence the potential damage to the Tipu Sultan brand), a difficulty in operating the business or an inability to meet the asserted repayment obligations under the purported loan.

[56]Neither was Officer Beard satisfied that the correspondence provided between 3KH and RM’s legal advisors supported a conclusion that RM operated TSL.

[57]The witness statements provided the following narrative regarding TSL:(1) The directors were not responsible for the day-to-day operations of TSL.

(2) The conversion of the TSL premises from a pub into a restaurant started in 2015. The conversion works were carried out by 3KH with the intention of operating a restaurant in Leicester as TSL. However, unspecified financial difficulties caused the directors to decide that TSL would be “operated by a 3rd party” identified as RM and AN. RM and AN were said to be regular customers of TSM, who were said to be “in business and capable of making investments in terms of finances and operations”. It was claimed that RM and AN wanted to operate a Tipu Sultan franchise from the premises in Leicester.

(3) The statements then articulated:

“The TSL business was sold to [RM and his partner] by way of a loan of £750k that was to be repaid by the 31st December 2018.” (4) RM and AN were said to be fully responsible for the operations at TSL. However, 3KH continued (in periods 04/17 and 07/17) to incur “onetime purchases and set up costs” in connection with TSL. Rent was paid and other ongoing costs were also met as they were commitments made prior to the arrangements with RM. (5) It was denied that some of the invoices which HMRC contended related to TSL did so relate as it was claimed they were simply for supplies made in connection with the operations carried on at TSM using suppliers based in Leicester. (6) In August 2018 the relationship between RM and AN was said to have broken down and “RM could not meet the payments required by the agreement”

. This led to a decision that the agreement be ended, and the dispute referred to in paragraph 53 above arose. (7) The statements accept that in April 2017 RM applied for a merchant acquirer account but failed due to adverse credit checks on RM. As a result, and having already signed the intention to proceed, 3KH permitted RM to use its acquirer account and provided terminals for use in the restaurant.

[58]In oral evidence MJ explained that the original intention had been to grant a franchise to RM/AN but later on it had been decided to loan them the amount already spent by 3KH on the conversion. The phrase he used consistently, without explanation of his meaning of it, was that 3KH and RM/AN came to a series of “mutual agreements”. He sought to articulate that the amount spent was converted into a loan which although interest free would be repaid and the return to 3KH be achieved being through royalties which would be paid from year 2 of operation to allow them to establish the business. He provided a very confusing account of the impact of having permitted RM/AN to use the merchant acquirer account and the associated payment of suppliers. He indicated that no record was maintained of the balance outstanding on the loan at any particular point in time simply again repeating that the payment of suppliers was by mutual agreement. He could offer no explanation as to why the loan was not shown as an asset on 3KH’s balance sheet. He denied that the documents were a sham.

[59]In his oral testimony MB accepted that 3KH was the lessee/licensee of the property from which TSL operated, that 3KH paid suppliers to TSL and received all credit card income through 3KH’s merchant acquirer account. However, he denied that 3KH were operating TSL. Suppliers were said to have been paid on the instruction of RM/AN from the credit card income received, though it was accepted that in some months the amount paid to suppliers exceeded the credit card income thereby increasing the value of the loan. He claimed that the original intention was for RM/AN to take a Tipu Sultan franchise but ultimately took a loan of £750,000 from 3KH by way of the work undertaken which, it was claimed, would be effectively reimbursed over the life of the loan. He claimed not to understand the questions put to him as to why neither the property costs incurred nor the loan were shown as assets in the financial statements, this despite having personally signed the accounts. He said he trusted the accountant. As with MJ he denied that the documentation was a sham. Parties submissions

[60]3KH contends that it has provided substantive evidence that it was RM who was responsible for the operation of TSL in the period April 2017 to August 2018 and as such it has no liability to account for output tax in connection with the sales made from that premises. 3KH also contend that the input tax it has claimed was input tax incurred or was committed to incur in connection with the business it intended to operate before plans changed and the arrangements with RM/AN were put in place.

[61]HMRC contend that the evidence available supports a reasonable conclusion that 3KH operated TSL.

Findings of fact

[62]We are satisfied on the evidence that 3KH received credit card payments for all such sales by TSL, paid suppliers and claimed input tax in respect of purchases made for operations at TSL in particular in connection with refurbishment costs a proportion of which arose after the point at which it is alleged that RM took over operations. Unless rebutted we consider that sufficient to conclude that 3KH were operating TSL.

[63]We consider the explanation given of and for the relationship between 3HK and RM to be confused and unclear. We note:(1) There is no evidence provided regarding the operational or financial difficulties said to have been experienced by TSM causing them to have to back away from the continued development and operation of TSL.

(2) By reference to the narrative provided by 3KH RM was able to fund £350,000 in the period from March 2016 to April 2017.

(3) 3KH continued to incur expenditure on the property despite having apparently agreed in March 2016 that the restaurant would be operated under franchise, no details of the terms of the franchise agreement or basis of franchisor support was provided.

(4) No explanation has been provided other than “mutually agreed” for the decision make the loan. On the testimony and by reference to the letters the loan was in addition to the franchise agreement which represented the only source of the anticipated receipt of royalty income.

(5) The loan agreement shows that it was signed on 30 March 2017. And yet no later than days after its signature RM was unable to obtain the credit approval to open a merchant acquirer account. That failure met the terms of a default event entitling 3KH to terminate the agreement.

(6) Despite the terms of the agreement being for repayment by 31 December 2018 no profile for repayment was agreed within the document. Correspondence with HMRC indicates that it was agreed that £40,000 would be repaid monthly but no evidence of that agreement has been provided.

(7) Whilst HMRC have been able to create an analysis of the credit card receipts and the TSL invoices paid but 3KH did not appear to do so. HMRC’s calculation of the credit card income retained does not match the amount stated to have been outstanding by 3KH in correspondence.

(8) As summarised at paragraph 53 above, the correspondence between 3KH and RM/AN’s legal advisors did not clearly frame the dispute between the parties and did not therefore does not cast much if any light on the true nature of the relationship.

(9) If 3KH had made a loan to RM/AN as asserted the statutory accounts would have been required to reflect the debt as an asset but there is no such entry. The accounts are broadly consistent with 3KH operating the TSL business (as some, but not all, of the expenditure on refurbishment could have been included in plant and machinery) but suppressing the sales.

[64]We make no finding whether the arrangements and the documentation of them were a sham. However, on the basis of our finding at paragraph 62 above we consider that it was for 3KH to provide a coherent rebuttal for the reasonable inference that it operated TSL. For the reasons outline in paragraph 63 they have failed to do so. Best Judgement Issue Legal test

Best Judgement Issue

[65]There was no particular dispute between the parties as to the legal test to be applied when considering whether the VAT and Further VAT Assessments were made in exercise of HMRC’s best judgment.

[66]Section 73(1) VATA provides a power to assess in exercise of HMRC’s best judgment where returns are incomplete or incorrect.

[67]The Upper Tribunal has helpfully and recently summarised 45 years of precedent case law on best judgment in HMRC v Sintra Global Inc

[2024] UKUT 346 (TCC)

(Sintra)from which, and by reference to the cases summarised, paragraph [197] sets out the following principles:(1) The section 73(1) test gives rise to two distinct questions: (1) whether the assessment has been made under the power conferred by that section and

(2) whether the amount of the assessment is the correct amount for which the taxpayer is accountable. (2) The first question requires consideration of whether the assessment has been made in exercise of HMRC’s best judgment i.e. that HMRC have exercised their powers bona fides to reach a value judgment on the material before them. In essence they are to fairly consider all material placed before them and, on that material reach a decision which is reasonable and not arbitrary as to the amount of the tax due.

(3) Errors identified in the assessment which represents an honest and genuine attempt to make a reasoned assessment of the VAT payable do not vitiate the assessment as made contrary to best judgment.

(4) There are dangers in a rigid adherence to the two stages referred to at paragraph (1) above as the important issue for the Tribunal is to determine the amount of the assessment. An assessment which is raised contrary to best judgment is likely to be rare.

(5) Even where an assessment is made contrary to best judgment it is open to the Tribunal to reduce the assessment to the correct figure on the evidence before it.

(6) Thus the primary role of the Tribunal is to find the correct amount of VAT on the basis of the evidence before it, bearing in mind the taxpayer’s burden of proof. An assessment should be set aside only where it is so defective that justice requires it to be so set aside and/or justice cannot be done by reducing the assessment to the amount the Tribunal finds to be a fair figure.

Evidence

[68]Officer Beard’s evidence was that he sought to establish whether the VAT returns rendered by 3KH accurately declared the VAT due from the business.

[69]In the course of his enquiry, he made visits to the TSM and/or their accountant’s offices on 20 July, 21 July, 23 August , 21 September, and 9, and 14 November 2017, and 12 and 28 February 2018. He also issued requests for the production of information using HMRC’s statutory powers on 21 July and 8 December 2017, and 14 March 2018.

[70]As a consequence of these visits and requests, and prior to the issue of the VAT Assessments on 12 June 2018, he had the following documents/information:(1) The documents referred to in paragraph 22 above.

(2) Notebooks from the covert operations on 7 November 2015 and 20 July 2017.

(3) Notebook records concerning purchase invoices which Officer Beard was shown at a visit to the accountant on 14 November 2017 Officer Beard. The invoices were in piles stored by supplier and not in date order and there was no purchase ledger detailing on which invoices input tax had been claimed.

[71]Officer Beard reviewed the documents available to him and identified:(1) 3KH had changed its till on 26 August 2017. The average cash sales shown on the z readings for the period from 1 August – 25 August 2017 averaged £1,080 and 17% of daily sales whereas the average cash sales on z readings from 26 August to 10 September 2017 were £5,066 and 45% of daily sales. Analysis of the till data extracted on 14 November 2017 demonstrated average daily cash sales of £5,113 representing 47.39% of gross daily sales. As per paragraph 23(1)

(2) No cash was not paid into the bank account. As per paragraph 23(2)

(3) A comparison of the handwritten annotations and z reading information for card receipts broadly corresponded to the merchant acquirer data.

(4) The accountant accepted that the handwritten notation of cash on the z readings was the cash which remained after cash expenses had been paid. As per paragraph 23(3)

(5) The z readings of the old till did not split sales as standard or zero rated.

(6) Declared VAT in the period for 10/17 was lower than the amount due by reference to the till data (£643,841 declared as compared to £904,897.06 till data from 16 August and Z readings from 1 – 25 August). As per paragraph 23(4)

[72]Officer Beard concluded on the basis of these findings that cash takings were being under declared and on 16 May 2018 Officer Beard notified 3KH that he intended to raise the VAT Assessments.

[73]The letter set out the basis of the proposed assessments:(1) For VAT periods prior to the installation of the new till (10/13 to 04/17) the assessments were to be based on a cash to card ratio calculated from the till data (not z readings/declared sales) of 47:53.

(2) For VAT periods 07/17 to 01/18 credit card transaction data was incomplete precluding the same basis of assessment as for the earlier periods. Satisfied that there was nevertheless continued suppression (because the VAT declared continued to be consistent with the declaration for 10/17 which had been demonstrated to be under declared) the basis of calculation adopted was to determine the overall suppression rate for periods 10/13 to 04/17 as calculated using the card to cash ratio and apply that suppression uplift to declared sales for periods 07/17 to 01/18.

(3) No zero-rated sales were accepted as no evidence of zero rating had been provided.

(4) Absent a purchase ledger and provision of complete purchase invoices input tax entitlement was calculated from the annual accounts and compared with the amounts actually claimed to identify an error rate for the two years annual accounts figures. The calculated error rates for 2015 (20%) and 2016 (39%) were used to assess the VAT periods falling in those years and an average of the error rates (32%) was used for the other years assessed.

[74]3KH were given until 8 June 2018 to provide any explanation or documentation it wished to provide in connection with the proposed VAT Assessments. No explanation or documentation was provided and on 12 June 2018 the VAT Assessments were issued.

[75]On 25 June 2018 3KH, via its representative, indicated that purchase invoices and records were ready for collection, and it was claimed that the increased cash takings shown on the new till arise due to the opening of a fully serviced banqueting function facility. The records were collected on 3 July 2018, they consisted of z readings, sales and purchase ledgers, and purchase invoices for VAT periods 10/15 and 04/17 together with bank statements for 10/15 and two months of 04/17. HMRC requested similar documentation be provided for further VAT periods and, having identified within the records provided that 3KH was using a SAGE accounting package (contrary to an earlier assertion that all records were manual) again requested access to the SAGE ledgers. These were never provided and the denial that SAGE was used continued.

[76]Over 19 and 20 March 2019 (or 19 and 20 April 2019 – both dates are referenced) purchase ledgers were provided for VAT periods 04/15, 07/15, 01/16 and 04/16 with invoices provided for 07/16, 10/16, 01/17 and 07/17.

[77]These records were reviewed as part of the reconsideration of the VAT Assessments. This review revealed/concluded:(1) The suppression of cash sales identified for periods 10/17 and 01/18 had continued through periods 04/18 and 07/18.

(2) Input tax in periods 04/18 and 07/18 was over claimed as the total input tax claimed remained consistent over throughout periods 10/15 to 07/18 despite in the period to 04/17 significant input tax associated with the refurbishment of TSL having been incurred.

(3) Zero-rated sales in periods 04/18 and 07/18 showed a marked increase on the earlier periods.

[78]Officer Beard therefore determined to assess for periods 04/18 and 07/18 using the same basis as he had used for periods 07/17 to 01/18 using an average rate of suppression calculated by reference to the VAT periods 10/13 to 04/17.

[79]He also assessed for over claimed input tax in periods 04/18 and 07/18 by reference to an analysis of expected input tax calculated from the annual accounts.

[80]In addition, on the basis of the evidence noted in paragraphs 47 to 52 above Officer Beard considered that TSL was operated by 3KH, and the sales made from TSL had not been declared. The evidence available to Officer Beard regarding the calculation of the quantum of suppressed sales at TSL was limited. Officer Beard had the credit card data for the period April 2017 – March 2018 but did not have any direct data as to the volume of cash sales. However, he was aware that the company operating TSL and registered for VAT from the end of August 2018 had stated that the business had been acquired by way of a transfer of a business as a going concern and that the newly VAT registered trader was a company of which MJ was a director. A review of social media did not indicate any substantive change had been made to the menu, or operation of the business. Officer Beard therefore considered it reasonable to use declarations of the successor business for period 11/18 as a reasonable proxy for total trade volume. Two alternative calculations to estimate the card to cash ratios were undertaken and the lower calculation was used as the basis for assessing total under declared sales. Verified card information for VAT periods 07/17 – 01/18 was uplifted by the estimated cash suppression. For periods 04/18 and 07/18 card and cash suppression was estimated from the sums assessed for the earlier periods.

[81]Having concluded that output tax was due in respect of sales made at TSL he was content that the claimed input tax relating to expenditure associated with both the refurbishment and running of TSL was recoverable. Without evidence of any further expenditure having been incurred or evidenced he did not allow and additional input tax credit.

[82]Further VAT Assessments were issued on 23 May 2019 and were accompanied by a detailed letter.

Parties submissions

[83]3KH challenge best judgment for the following reasons:(1) Taking the number of customers counted and the average spend per head by the officers on covert observations 3KH say that the sum assessed in inherently implausible.

(2) The VAT Assessment assumes a continued and constant suppression rate throughout the period of the period 10/13 to 04/17 despite a change in management occurring in April 2015.

(3) The apparent increase in cash sales post 26 August 2017 is explained by reference to the evidence summarised in paragraphs 29 to 33 above.

(4) Further Officer Beard chose to use an unrepresentative 17-day period (26 August – 11 September 2017) to conclude that there was a significant increase in cash recorded prior to 25 August 2025, a full consideration of the new till data shows a progressive increase in cash taking consistent with the evidence regarding the availability of the full banqueting facility from July 2017.

(5) Having accepted the card to cash ratio demonstrated post 26 August 2017 on the new till there can be no basis for an uplift to be applied to later periods. The declared takings must be accepted.

[84]3KH advance a submission that Officer Beard had essentially acted capriciously. As regards the assessments for the period prior to August 2017 it was said that he failed to take account of relevant evidence that did not support his conclusion that there was suppression, including in particular the test eat data. Further, he failed to gather evidence that was readily available to him i.e. he could have counted customers dining at TSM on each of his visits such a count could then have been a measure by reference to which the plausibility of the assessment values could be tested.

[85]It was also said that Officer Beard’s mindset was to find suppression and assess for the maximum possible VAT that could have been due and then leave it for the Appellant to disprove. Counsel for the Appellant contended that such a mindset was confirmed from an answer given by Officer Beard in cross examination. As far as our notes of the hearing record he was asked in connection with refunds (a matter not in fact in dispute as the Appellant accepts that the two large items identified as refunds should properly be subject to VAT) “were there only two examples”. His response was “yes, I didn’t have access to the old till. I would have loved to have found evidence of refunds on the old till”. It was put to him that this indicated bias, but Officer Beard clarified that he would simply have liked access to the old tills but had been denied access through non-production of the till data.

[86]It was claimed that for the post August 2017 assessments it was not open to HMRC to assess on the basis of a demonstrated and declared card and cash ratio as it had been calculated on the basis of accepted declared sales.

[87]With regards to the assessments made in respect of the sums said to have been taken at TSL, 3KH challenged Officer Beard’s use of the card cash ratio for a successor business on the basis of relevance.

[88]The best judgement of the input tax aspects of the assessments were challenged on the basis that the annual accounts had been used and an assumption made that there was no capital expenditure.

[89]HMRC contend that the approach taken by Officer Beard when raising the assessments meets the test as set out by the Upper Tribunal in Sintra.

Findings of fact

[90]In the context of this Issue we remind ourselves that the point in time at which are focused regarding the VAT Assessments is 12 June 2018 and for the Further VAT Assessments is 23 May 2019.

[91]We have no hesitation in concluding that the VAT and Further VAT Assessments were issued in exercise of Officer Beard’s best judgment.

[92]At the time they were issued HMRC had the information identified in paragraphs 70 and 75 - 76 above. Multiple requests had been made by HMRC for full documents and records to be produced and the 3KH chose not to produce them. Whilst the basis of calculation of the VAT and Further VAT Assessments did not directly take account of the covert observation data Officer Beard considered that better evidence of the extent of suppression was available from such records as had been obtained, particularly the stored till journals of the new till and the store table information shown on the early z readings.

[93]We are satisfied and that the store table information demonstrates a prima face case of suppression in 2013. Further evidence of suppression is available from the covert observations undertaken on 7 November 2015. Officer Beard explained the limitations presented by the observations: the size and layout of the TSM premises made it impossible for the visiting officers to adequately establish the volume of business on that date. However, the observations did, in his view and ours, provide a clear overall picture of a large and very busy restaurant throughout the day with times where waiting times for tables was significant. That evidence corroborated the figures calculated from the available business records.

[94]We consider the contention that Officer Beard should have undertaken customer counts when visiting TSM premises to be entirely contrary to the legal test to be applied in best judgment cases. HMRC are not required to do the job of the taxpayer and are not required to undertake exhaustive investigations. They must have some material, here Officer Beard had ample material on which to assess without further customer counting (likely in any event to have suffered from the same challenges as those face by the officers undertaken covert operations given the size of the restaurant).

[95]Whilst we accept that a change of management has the potential to affect the operations of a business neither MJ nor MB provided any evidence of changes they made to the operation of the business upon their appointment as directors. The closest their evidence came to that was their assertion that they realised the potential for the banqueting facility and introduced a full service offering and we have rejected that evidence for the reasons set out in the TSM Suppression Issue. No other changes to the business model were articulated and Officer Beard’s evidence (which was not challenged) was that the style, market position and offering at TSM had not changed over the period of operation.

[96]Accordingly, it is our view that with three established points in time where suppression has been adequately evidenced it was entirely reasonable for Officer Beard to consider that there had been suppression throughout the period 10/13 to 07/18. We note that in the hearing there was disagreement between the parties regarding the circumstances in which the “presumption of continuity” can apply as set out in the case law. In our view the case law entirely supports the approach that both HMRC and we have adopted i.e. to assume that suppression occurred between the points at which it is evidenced to have occurred and until the taxpayer shows that suppression ceased.

[97]We consider that Officer Beard’s decision to calculate the estimated suppression for periods prior to August 2017 from the card to cash ratio derived from the till journal data on the new till to be reasonable. HMRC were satisfied for all periods that card sales had been declared. The data from the new till enabled HMRC to calculate a card to cash ratio that they considered to fairly reflect the business.

[98]At the time the VAT and Further VAT Assessments were issued for periods 07/17 through to 07/18 HMRC did not have complete credit card data and could not therefore calculate the assessments for those periods on the same basis as for earlier periods. HMRC had established that the VAT declared for 10/17 underdeclared the VAT due (see paragraph 23(4) above) and reasonably concluded that there were similar under declaration for later periods. Without the card data HMRC were left with no choice but to find an alternative way of estimating the VAT considered to be due and the approach they took, absent any demonstrated change in business operations, was to calculate an average suppression rate.

[99]We consider that Officer Beard’s approach to the calculation of the VAT and Further VAT Assessments to have represented an honest and genuine attempt to determine the VAT due from the information he had available to him and a rational assessment of its probity in determining the amount considered to have been undeclared at TSM which was not arbitrary.

[100]The position he faced regarding TSL was even more challenging. 3KH denied running TSL. However, we have found, on the balance of probability, that 3KH was operating the business in Leicester and therefore was liable to VAT on the supplies made. 3KH provided no assistance whatsoever in establishing the VAT due in this regard. HMRC are required to make their assessment decision on some information. Left with no direct data from 3KH we consider that the use of the card cash ratio derived either from TSM or from the successors to the TSL business in the period immediately following the transfer in the circumstances identified and articulated by Officer Beard (as summarised in paragraph 80) above was, in our view, entirely reasonable. The TSM led to a far larger assessment and Officer Beard considered the fairer ratio was that of the business in Leicester.

[101]We are not satisfied that any reliance placed by Officer Beard on his finding that RM/AN were not directors of any companies and did not appear to be living at the addresses provided on the loan and franchise agreements materially affected his decision to assess for sales made at TSL. As we have found there is sufficient evidence to have reasonably considered/believed that 3KH operated TSL without the concerns as to the identity of RM/AN.

[102]Similarly regarding the decision to assess for over claimed input tax. The input tax claimed by 3KH was not credible by reference to the annual accounts and, when the VAT Assessments were raised, 3KH had not provided any VAT purchase ledgers or supporting VAT invoices. Strictly, and by reference to the requirements on a trader for claiming VAT as provided in sections 25 – 26 VATA and regulation 29 Value Added Tax Regulations 1995 Officer Beard could have denied all input tax until purchase invoices had been provided. Instead he applied a fair-minded approach accepting that the business would have incurred VAT on supplies and allowing a reasonable proportion of the VAT claimed. Absent evidence showing an increase in capital assets and accompanying invoices supporting the asserted capital expenditure we consider that Officer Beard was entitled to reach the conclusions he did regarding input tax. VAT Quantum Issue Legal test

VAT Quantum Issue

[103]As set out in Sintra and summarised in paragraph 67 having accepted that the VAT and Further VAT Assessments were made in exercise of HMRC’s best judgment our role is to evaluate all the evidence made available to us and determine the amount we consider to be due by way of VAT. Parties submissions

[104]The Appellant claims that the output tax elements of the VAT Assessments and Further VAT Assessments are overstated for three principal reasons:(1) The card to cash ratio identified from the till data obtained from the new till does not take account of a 2-for-1 offer that was being run in the period from July to November 2017 or the takings derived from the introduction of banqueting facilities not previously provided in the function room.

(2) No VAT should be assessed for periods 01/18 to 07/18 because HMRC accepted the card cash ratio for 10/17 and assessed earlier periods on that basis.

(3) Zero rated sales are understated as 3KH derived substantial sales through the supply of outside catering i.e. the provision of food for events where the food was prepared and cooked by 3KH cooled and supplied below ambient temperature to be reheated by the purchaser. Such sales also often being made on credit terms.

[105]HMRC contend that as new evidence has become available they have evaluated it and, where appropriate, amended the quantum of the VAT and Further VAT Assessments such that the amounts as set out in paragraphs 1(1) and 1(6) properly represent the amounts due.

Evidence

[106]We have considered much of the evidence relevant to quantum in the context of the TSM Suppression Issue and the TSL Issue. For the reasons set out in our consideration of those issues we do not accept the evidence advanced by 3KH that there was a 2-for-1 offer nor do we accept that there was a material change in the banqueting offering from July 2017. We therefore exclude any further consideration of those contentions from our evaluation of the evidence from which we determine the appropriate quantum of the VAT and Further VAT Assessments.

[107]We also consider the evidence identified in the Best Judgement Issue which confirms that VAT was suppressed from at least as early as 10/13, the first period assessed, and we note that despite imposing a deliberate penalty HMRC did not seek to invoke the extended 20-year time limit for assessment. We also consider a conclusion that suppression occurred throughout the period from 10/13 to 07/18 is supported by the notebooks from the covert observations and the clear evidence of suppression derived by comparison of the till journal data and the VAT declared for periods 10/17 and 01/18.

[108]HMRC demonstrated that the card to cash ratio had been calculated from the till journal data and not, as appeared to have been believed by Counsel for the Appellants, the declared VAT for period 10/17. That data was the only reliable data available to HMRC. It covered the period 26 August 2017 to 14 November 2017 (and thus spanned two VAT prescribed accounting periods 10/17 and 01/18). When the partial period data was compared to VAT declared in those periods it was apparent that declarations had not been made on the basis of the till journal data in either period. However, it forms a reasonable basis on which to determine the card to cash ratio as it is the raw data derived from till entries recording individual food orders as received by customers.

[109]The card to cash ratio was used to determine the output tax under declared for all periods in which, at the time of the assessments were raised, HMRC held credit card data. As indicated, they were initially unable to do that for period 07/17 to 07/18 but as and when the credit card data was made available to HMRC the assessments for those periods were amended such that the assessment quantum we are asked to confirm has all been calculated on the card to cash ratio.

[110]In correspondence 3KH’s representative provided trend analysis derived from the z readings and from which they sought to contend that cash takings had been accurately declared. Officer Beard rejected the voracity of the analysis provided by 3KH on the basis that it was taken from the handwritten annotations on the z readings taken from the old till which HMRC believed to be incorrect. Further, in Officer Beard’s view the analysis only demonstrated variability in card taking indicating that however busy the restaurant was (by refence to card payments) cash payments remained unreasonably and uniformly consistent. When compared the trend analysis was compared to takings shown on the till journals card and cash sales varied daily moving broadly in line with one another. We agree with Officer Beard’s analysis and do not consider there is any probative evidence to be derived from the trend analysis.

[111]With regard to zero rated sales we note that Officer Beard originally assessed on the basis that all supplies were taxable at the standard rate. He was particularly concerned that the declared zero rated sales were consistently recorded at 14.06% in the majority of periods. Subsequent to the VAT and Further VAT Assessments being raised, in the 50-page letter dated 8 November 2019, 3KH provided the following information:(1) a schedule and copies of 87 invoices/delivery notes over the period 20 May 2016 to 16 March 2017 issued to Giro Foods and stamped as “3KH Ltd (Outdoor) Catering Division … Summer Lane”. These show substantial volumes of food sold. For example on 8 September 2016 100kg veg pakora, unreadable pieces meat samosa, 2960 pieces chicken kabab, 1300 pieces chicken sharni kebab and 200kg chicken pakora”; and

(2) a schedule pf merchant acquirer data together with some invoices showing large orders for collection some of which were shown to have been collected from the TSM kitchen, none of which referred to Summer Lane.

(3) Undated “to whom it may concern” letters from organisations indicating that they used 3KH (and other companies associated with MJ and MB) as a source of catering. The letters state that such food was reheated for service. None of the letters provide any attach copy invoices or provide a schedule of such purchases made. We note that whilst not identical the letters are in very similar form.

[112]Further information was provided in November 2020 from Giro Foods.

[113]On 26 April 2021 Officer Beard amended the VAT and Further VAT Assessments accepting that a proportion of recorded take away sales were properly eligible to be zero rated. He was prepared to also make an allowance for a small amount of outside catering to be zero-rated, by reference to the invoices produced. He accepted that sales to identified customers (Giro and HK Food) could be zero rated. The VAT and Further VAT Assessments were amended allowing 0.62% of sales as zero-rated take away items and 0.67% for zero-rated outside catering in addition to identified sales to Giro and HK.

[114]The witness statements boldly stated that outdoor catering was provided but at the same time contended that the kitchen facilities available at TSM were insufficient to support catering in the banqueting facility.

[115]In oral testimony MJ gave an incoherent explanation of the recording of zero-rated sales. MJ claimed the “misc food” or “open food” button and the bookkeeper was told which transactions were zero rated. He also accepted that all marketing information concerning outdoor catering was in the name of companies other that 3KH. MB did not speak to zero-rated sales. We therefore derived no further evidence from the witnesses concerning zero rating.

[116]We consider that Officer Beard was acting reasonably when making these amendments.

[117]We cannot reconcile the inconsistencies in the evidence we heard regarding the ability to provide outdoor catering and the timing of the opening of the Summer Lane Kitchen (said to have been in 2017 but referenced on invoices from 2016). We were provided no evidence supporting the declared zero rated sales, and like Officer Beard we consider it highly improbable that zero rated sales would be precisely consistent (at 14.06% period on period).

[118]We therefore consider that there is no coherent evidence which would justify us making a further adjustment in respect of zero-rated food and on that basis, we uphold the VAT and Further VAT Assessments in the sums as set out in paragraphs 1(1) and 1(16) above and refuse the appeal in this regard. Input Tax Issue Legal Test

Input Tax Issue

[119]Input tax is defined in section 24 VATA as the VAT incurred by a taxable person on the supply of goods and services used for the purpose of the taxable person’s business. Section 24 also authorises the making of regulations pursuant to which VAT so incurred may be treated as input tax only to the extent that the charge to VAT is evidenced and qualified by reference to such documents or other information as may be specified by HMRC. Regulation 29 Value Added Tax Regulations 1995 requires that a valid claim to input tax shall be made only where the taxable person making the claim holds a valid VAT invoice issued by the supplier to the taxable person. Discussion

[120]When the VAT and Further VAT Assessments were issued HMRC denied input tax exceeding a sum Officer Beard calculated as reasonable by reference to the annual accounts 3KH having failed to provide any records from which HMRC were able to verify the claims.

[121]Subsequently HMRC were provided with ledgers and purchase invoices for 04/15, 10/15, 01/16, 07/16, 10/16, 01/17 and 04/17. These were scheduled and reviewed by Officer Beard who determined on an invoice-by-invoice basis whether to allow the input tax claim. Where the input tax element of the assessments as raised resulted in a greater restriction to input tax recovery than was evidenced through the invoices which were considered to be acceptable, the assessments were reduced.

[122]For periods where the purchase invoices were not provided a general disallowance of 20% was made for VAT periods in the accounting period ended 31 July 2015, 39% in VAT periods within the account period ended 31 July 2016, 31% in VAT periods within the account period ended 31 July 2017 and 31% in all other periods (31% representing the average disallowance calculated from the three periods for which annual accounts were available).

[123]Thus, the final assessed sums deny input tax where the sum claimed on the returns are not supported by purchase invoices and/or where specific invoices have been denied subject to a fair allowance where not invoices were provided. In our view there can be no challenge to the input tax assessments save by reference to specific invoices on which input tax was denied.

[124]The Appellant contends that input tax in connection with the following invoices should be permitted:(1) Works undertaken on the premises in Leicester.

(2) Invoices relating to the rent incurred on a property at 7 Wilmslow Road Manchester.

(3) Fuel.

(4) Invoices issued in the name of Birmingham Hotels.

Works on premises in Leicester

[125]We can deal with this shortly. 3KH claimed to be entitled to deduct the VAT incurred on the redevelopment of the property from which TSL operated. It was contended that despite the assertion that RM/AN operated TSL the VAT on development costs had been incurred with the intention that 3KH would operate TSL. This claim was pursued even in respect of costs incurred after the date on which the documents referred to in paragraphs 51 (loan) and 52 (franchise agreement) above were signed.

[126]Officer Beard accepted that 3KH was entitled to recover the VAT incurred on the premise that he was also of the view that TSL was operated by 3KH. We have determined that on the evidence TSL was operated by 3KH and accordingly, the assessments allow this input tax in full. 7 Wilmslow Road

[127]The invoices for rental payments and an invoice for negotiating occupation were addressed to 3KH and thereby, complied with the provisions of regulation 29. However, 3KH is entitled to recover the VAT shown as input tax if it can demonstrate that the property was intended to be used by 3KH in its business.

[128]It was not contended that 3KH had ever operated from the property.

[129]In oral evidence MJ stated that it had been intended that 3KH would operate a restaurant from there, but it did not happen for operational reasons, though these reasons were not explained. We were not provided with any further detail and there were no business plans or other documentation to support the contention.

[130]Officer Beard’s evidence was that he had seen social media posts which indicated that the property was to be used as an Oodles N’Oodles restaurant. A copy of the social media post was not in the bundle.

[131]As previously indicated, we found Officer Beard to be a credible witness and MJ to lack credibility and therefore prefer Officer Beard’s evidence and absent any documentation to support the contention that 3KH intended to operate a Tipu Sultan restaurant in Manchester we find no basis on which to conclude that the VAT was incurred as input tax intended to be used by 3KH with the consequence that it was properly denied.

Vehicle hire invoices

[132]We were not taken to these invoices but understand that they were invoices addressed to 3KH.

[133]Officer Beard refused to allow input tax credit for VAT incurred on fuel. On 23 May 2019 when communicating the outcome of his review of the additional purchase invoices provided by 3KH, Officer Beard stated that this input tax had been refused on the basis that (and as recorded in correspondence of 16 May 2018) MJ had informed him that 3KH owned no motor vehicles and no fuel scale charges has been accounted for.

[134]By its skeleton argument 3KH simply asserts that there was no private use of refrigerated vehicles used for the outdoor catering business. We were not referred to any evidence that such vehicles were owned or rented. Further, we note that on the invoices we saw concerning outside catering and/or sales to Giro Food there is no indication that the food was delivered. Indeed on the majority of the invoices exhibited as relating to outdoor catering the invoice shows that the fool was collected.

[135]It is for the Appellant to demonstrate on the balance of probabilities that the fuel was used exclusively for business use, and they have failed to do so. We therefore agree that VAT on fuel should be denied.

Birmingham Hotels invoices

[136]Invoices were received from Booker and addressed to Birmingham Hotels rather than 3KH but 3KH claimed the input tax. HMRC did not accept 3KH’s explanation that it was using Birmingham Hotel’s Booker account with Birmingham Hotels acting as agent for 3KH.

[137]Section 47 VATA provides that where goods are supplied through an agent who acts in his own name the supply shall be treated as both a supply to and by the agent. The provisions operates in this way so as to ensure that input tax is claimed by the right invoiced entity and only once. 3KH invite us to allow input tax on an invoice issued by Booker to Birmingham Hotels. The invoices bear no indication that Birmingham Hotels was acting as a disclosed agent for 3KH, we must therefore assume that even if Birmingham Hotels was acting as an agent the agency was undisclosed to Booker. As such for 3KH to be entitled to recover input tax Birmingham Hotels would have needed to issue an invoice to 3KH reflecting the supplies deemed to have been received by it from Booker with Birmingham Hotels claiming as input tax the VAT shown on the Booker invoice. We therefore confirm that HMRC rightly denied the input tax. Discovery Issue Legal test

Discovery Issue

[138]Again there was little disagreement between the parties as to the relevant legal test to be applied when determining whether the conditions for a discovery assessment are met. The parties agreed that pursuant to paragraph 41 Sch 18 FA98 HMRC must first discover that as regards an accounting period for a company that an amount which ought to have been assessed has not been assessed or an assessment to tax is, or has become, insufficient. As explained in the Upper Tribunal judgment in Anderson v HMRC

[2018] UKUT 159 (TCC)

a discovery will be made where the assessing officer subjectively and personally believes there to have been an under declaration of tax and that subjective belief is one which is objectively reasonable on the evidence. The Upper Tribunal goes on to indicate that a subjective belief must be more than a suspicion of an insufficiency.

[139]3KH referred to the Supreme Court judgment in HMRC v Raymond Tooth

[2021] SC 17

at paragraphs 81 and 82 as endorsing that whilst the concept of a discovery is broad such that a failure by one officer to identify or appreciate an insufficiency or under declaration does not preclude a discovery by a second officer that second officer must pick up the file, review the documents and satisfy themselves as to the insufficiency through the “exercise of re-evaluation” of the evidence available.

[140]We were also referred by 3KH to the recent First-tier Tribunal judgment in BJ Shere Khan Star City Limited v HMRC [2024] UJFTT 639 (TC) (Shere Khan). That case concerned a restaurant run by members of MJ and MB’s wider family. HMRC contended, as here, that sales had been suppressed for both VAT and income tax purposes and that trading from a second restaurant was that of the taxpayer. There were also aspects of the assessments to VAT in respect of over declared zero rated sales and over claimed input tax.

[141]In that appeal, and on the evidence, that Tribunal considered that HMRC’s VAT assessments were made to best judgment but on the basis of the evidence considered that there was insufficient evidence of suppression to uphold the assessments in that regard. The zero rating and input tax assessments were however upheld. However, as regards the discovery assessment, and applying the Anderson test, rather than the test for best judgment, there was insufficient evidence on which to form a reasonable belief that there had been suppression of sales and that the second restaurant was not operated by the appealing taxpayer. It accepted that there may have been a suspicion of suppression but no more. Thus the appeal failed on its facts.

[142]Despite making that finding the Tribunal went on to conclude in that case that the officer raising the discovery assessment could not reasonably have formed a subjective belief of an insufficiency because they had formed the view entirely reliant on the findings and analysis of the VAT assessing officer. The Tribunal considered it unreasonable to have acted in this way. This finding is one which does not form part of the reasoning by which the Shere Khan case was decided. As that is the case, we do not consider that we need to apply the principle of comity as recently described by the Upper Tribunal in Suterwalla v HMRC

[2024] UKUT 188 (TCC)

: “Of course, the decision of one FTT is strictly not binding on another FTT as a matter of precedent, but the principle of judicial comity, or horizontal stare decisis, requires that a FTT should follow the decision of a previous tribunal of co-ordinate jurisdiction unless 'convinced' or 'satisfied' (there is no practical difference between the two) that the earlier decision was wrong (see Gilchrist v HMRC

[2014] UKUT 169 (TCC)

at [91] to [94]). There are good reasons for this practice: it promotes consistency in judicial decisions and predictability of outcomes thereby avoiding re-litigation of identical legal issues, and it builds public confidence in the appeals process by ensuring that similar cases are treated similarly over time. If a later FTT considers that a previous decision of the FTT on materially identical facts and/or law was wrong, then it should set out why. It need not do so at great length but simply stating, as the FTT did in this case, that other decisions not on the same point are preferred leaves the reader in the dark. We consider that, where a FTT decides not to follow the decision of another FTT on the same or a materially similar point, it should explain why it has taken a contrary view.

[143]In the event we are wrong to have so concluded we respectfully consider the Tribunal in Shere Khan to be wrong in law that an officer cannot be said to have acted reasonably without undertaking their own investigation of primary documents before adopting the analysis and conclusions of another officer as whether there is evidence that takings had been suppressed and/or otherwise under declared. We do not agree that there can be a blanket obligation for there to be a second investigation of the evidence before forming a reasonable belief that there was an insufficiency in assessment for income/corporation tax purposes.

[144]In this context and by reference to paragraphs 81 and 82 in Tooth we consider that it is perfectly permissible for an officer considering an income/corporation tax insufficiency to take as their starting point that VAT assessments have been or are to be issued. In the ordinary course, and unless there is something obviously untoward, the officer is entitled to assume that the VAT assessments have been issued to best judgment in accordance with the principles identified and summarised in Sintra such that there is evidence to support a conclusion that the VAT returns are incorrect.

[145]Plainly the officer considering the income/corporation tax position must then be satisfied that the amount of turnover assessed to VAT has not been declared for income tax purposes by reference to the accounting profit and tax calculations. In that context the officer will also need to consider the net of VAT position and the declared and tax-deductible expenditure. However, provided these additional steps are taken there is nothing to oblige the income tax officer to verify the VAT officer’s decision by reference to the underlying primary documents in order to make a discovery,

Findings of fact

[146]We find the following facts from the documentary evidence and the oral testimony of Officer Pinder.

[147]As accepted by Counsel for the 3KH Officer Pinder candidly accepted that she formed her view as to the insufficiency of the 3KH’s corporation tax returns based on the detailed investigations undertaken by Officer Beard. She explained that throughout the enquiry she had visibility of his investigation through HMRC’s system “caseflow” and that Officer Beard kept her appraised of its progress and explained to her the basis on which he had formed the view that there was suppression of VAT both in connection with cash sales made at TSM and as a consequence of a failure to declare sales made at TSL. He had explained to her the basis of his calculations. On the basis of the analysis in those letters she was satisfied that the turnover which had been assessed to VAT had not been reported for accounting or corporation tax purposes and thus formed the belief that there was an insufficiency of tax that had been assessed by 3KH. She did not consider she needed to interrogate the underlying information as she trusted, from experience having previously worked alongside Officer Beard, that his investigation had been thorough, and his conclusions were rooted in the information provided.

[148]In the letter of 16 May 2018 regarding the VAT Assessments 3KH were notified “due to the cash suppression identified, HMRC will also consider whether the additional net sales will result in Corporation Tax becoming payable. You will be contacted separately regarding this.”

[149]That separate contact was made on 23 May 2018 by Officer Pinder who notified 3KH, MJ and MB: “I believe that the company’s self-assessment tax calculation for [accounting periods ended 29 July 2014, 31 July 2014, 31 July 2015, and 31 July 2016] are inaccurate. This is because of the reasons set out in the letter sent to you by my VAT colleague Mr Beard. The cheques 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. … This is a pre-decision letter. You have been provided with 21 days by my colleague in which to consider the proposed assessments and offer any explanation and/or documents that she would have liked to have taken into account. Please therefore provide any explanation and/or documents to me by 8 June 2018” (original emphasis)

Please therefore provide any explanation and/or documents to me by 8 June 2018” (original emphasis)

[150]On 23 May 2019 Officer Pinder again wrote to 3KH in the following terms regarding accounting period ended 31 July 2017:

“I believe that [the trading and profit figures for account period ended 31 July 2017] are inaccurate. This is because of the reasons set out in previous correspondence exchanged with my colleague Mr Jonathan Beard and explained further in his letter issued 23 May 2019. … <y colleague has provided you with detailed explanations of how he has arrived at the revised figures therefore I do not intend to repeat these here.”

[151]In our view Officer Pinder’s conduct was, in all the circumstances, entirely reasonable and proportionate. She relied on the though investigation undertaken by Officer Beard and identified that the sales that he considered had been suppressed for VAT purpose had also not formed part of the tax calculations for corporation tax purposes. She thereby made a discovery. She believed that there was an insufficiency, and that belief was objectively reasonable.

[152]In each of the pre discovery assessment letters Officer Pinder informed 3KH and the directors that without an alternative explanation she was of the view that the suppressed profits had been extracted by the directors; in this regard the letters were in identical form: “My view is that the additional sales should be treated as extractions of funds from the company by you as the directors. The proposed adjustment to the directors loan account will be a debit to reflect the full amount of the extractions for the period. However, should you be able to provide evidence to the country, I will review the position accordingly.

[153]No further explanation was provided, and we consider it reasonable for her to have therefore formed the reasonable belief that the under declared profits arising from the suppressed sales had been extracted by MJ and MB as participators. As such there was discovery in this regard.

[154]In so finding we reject the Appellant’s contention that Officer Pinder had no more than a suspicion that there was an insufficiency in 3KH’s return. Deliberate issue Legal test

Deliberate issue

[155]The legal test on what constitutes deliberate conduct (both for the purposes of the gateway to the issue of a discovery assessment in accordance with paragraph 43 Sch 18 FA98 Para 42provides that the power to make a discovery assessment where the taxpayer in question had rendered a corporation tax return is only exercisable in the circumstances specified in paragraphs 43 or 44. Paragraph 43 specifies that discovery assessments can be raised where the insufficiency in the return is brought about carelessly or deliberately by inter alia, the company or a person acting on behalf of the company. and Sch 24 FA 2007) has been confirmed in the Tooth Supreme Court judgment at paragraphs 42, 43 and 47 which provide that deliberate conduct requires that a statement is made which, when made, was intentionally misleading.

Parties submissions

[156]3KH contends simply that it, MJ, and MB were unaware of any demonstrated suppression and had no intention to mislead. HMRC submit that MJ and MB were active in the management of the business, would have been at least aware, and more likely directed the means of suppression, the mis recording of takings and expenses and rendering of inaccurate returns.

Findings of fact

[157]We derive the following findings of fact from Officer Beard’s witness statement, the documentary evidence and as a consequence of the findings made in respect of the VAT, Further VAT and Discovery Assessment.

[158]In paragraph 25 we refer to the store table information which had been printed on the z readings up to 24 December 2013 but was not recorded thereafter. The information printed on the z readings provided HMRC with demonstrable evidence of significant (£180,342.09 or £3,680.45 on average per day) under declaration for the 01/14 VAT period also demonstrating greater daily average sales when compared to periods following the removal of that data. We consider that the removal of the data from the z reading was likely to be intended to obfuscate the suppression and thereby demonstrates deliberate behaviour by or on behalf of 3KH and the evidential start point for deliberate conduct. We consider that this finding is corroborated by a letter from the till provider which indicated that the system did not reset the store table; i.e. we conclude it was not a system failure of any sort which renders it more likely that someone with authority within 3KH took a deliberate decision to reprogram the z readings thereby removing the data from the daily records retained by the business.

[159]We have found that there is evidence of substantial suppression of cash sales at TSM throughout the period assessed. No realistic or sensible explanation has been provided for the drop in sales between 24 December 2013 and 26 August 2017. What is apparent is consistently z readings have been programmed in a way which sought to hide suppression.

[160]As indicated in paragraphs 28 above MJ and MB gave somewhat inconsistent evidence of their management and the role of the onsite managers. We are more inclined to accept the witness statement evidence that MJ and MB were hands on managers. We also prefer the witness statement evidence regarding the daily operation in the restaurant i.e. we consider it more likely that there was a manager on site at all points of operation with 3 managers there when open and/or busy. We find that cashing up at the end of each day was carried out by someone with the authority of 3KH as the witness statements are clear, and were supported by covert observations, that the till was operated by the cashier or a manager i.e. someone duly authorised by 3KH to perform this task As set out in paragraphs 186 and 187 below when Officer Beard attended on 20 July and 21 August 2017, he was informed there was no manager on site. There was nevertheless someone who cashed up for the night and took the till readings. . On the basis that a till does not get accidentally reprogrammed, and a conscious and deliberate act is also required to annotate z readings with figures that differ from the till information we are entirely satisfied that prime documents were deliberately manipulated in order that both VAT and corporation tax returns were completed to mislead HMRC.

[161]Further, it is plain that a fixed and unevidenced proportion of sales were treated as zero-rated without any reference to actual zero-rated sales made and input tax was claimed in circumstances where purchase invoices were not retained. Again this cannot have been accidental and whether it was the directors or the accountant the behaviour is attributed to 3KH, at least for the purposes of identifying deliberate conduct.

[162]As regards TSL we have concluded that 3KH were financially responsible for the operation of TSL and yet failed to declare sales whilst nevertheless claiming input tax. Again this can only have been a conscious decision intended to mislead HMRC.

[163]We have no hesitation in concluding on the facts that 3KH deliberately rendered incorrect VAT returns and submitted corporation tax returns that deliberately declared an insufficiency in 3KH’s self-assessment to income tax and that deliberate conduct was demonstrated on behalf of 3KH throughout the period assessed.

[164]Finally, and corroborating such deliberate conduct, in our view, 3KH sought to be as obstructive as possible with the intention of precluding HMRC from quantifying the under declaration. HMRC had to repeatedly visit 3KH and were met with obstruction and both formal and informal requests for information and documentation were ignored or refused. In this regard we note that 3KH does not contest that mitigation for telling (5% of a maximum of 30%) and giving (10% of a maximum of 40%).

Participation Issue

[165]Having concluded that Officer Pinder discovered an insufficiency in 3KH’s self-assessment to tax in respect of the section 455 CTA charge in circumstances where deliberate conduct has been established, we have to decide whether the 3KH can satisfy us that the underdeclared profits were not in fact extracted by way of loan or otherwise advanced to them. If they are able to satisfy us, we would use our powers under section 50(6) TMA to reduce the Discovery Assessments and we would set aside the NICs Decisions

[166]Somewhat ironically both parties contend that there is no direct evidence as to what happened to the under declared profits:(1) The Appellants contend that in the absence of evidence that MJ and MB received or benefited from the sums, including by reference to an analysis of their lifestyle the section 455 charge cannot be maintained as, by reference to the judgment in Armstead v Royal & Sun Alliance Insurance Company Ltd

[2024] UKSC 6 (Armstead)

(at paragraph 64) the burden of proof lies with the person that asserts a situation. They contend that the decision of the First-tier Tribunal in Thomas v HMRC

[2016] UKFTT 133 (TC)

(Thomas) (at paragraph 122) supports their contention despite the statutory burden in appeals against discovery assessments it is for HMRC to establish a primary case that the profits were extracted.

(2) On the other hand HMRC contend that on the evidence HMRC have shown that it was reasonable for Officer Pinder to believe that there was a failure to account for the section 455 CTA charge. On the evidence there has been substantial suppression of profits which have not apparently been retained in the business, the natural and obvious inference is therefore that the profits have been extracted. The Appellants bear the burden of proof of demonstrating that such an inference is wrong. HMRC rely on the decision of the First-tier Tribunal in Bobby Khan Enterprises Ltd v HMRC

[2022] UKFTT 00236 (TC)

(BKEL) (at paragraph 212).

[167]In our view the Supreme Court analysis in Armstrad plainly sets the position in civil litigation but not where there is a statutory burden of proof. We read the decision in Thomas as requiring that whilst it was not for HMRC to prove that the taxpayers in that case were settlors, the assessing officer did have to show, by reference to the evidence, that they held an objectively reasonable belief that the taxpayers were settlors. As the reference to R v The Kensington Income Tax Commissioners (ex-party Aramayo) (1931) 6 TC 279 confirms, that belief need not be ascertained by legal evidence. We consider that a prima face case, in that case, that the taxpayers were settlors, could be made out by reference to the circumstances from which an inference might reasonably be drawn. It will then be for the taxpayer to show why the inference is wrong.

[168]In this case HMRC have shown that very substantial sums of cash were not included in the 3KH’s declared turnover resulting in an understatement of profits and an insufficiency in the tax returned by 3KH. Officer Pinder did not need to know where the money had gone (and she accepted that she did not know) as in the absence of evidence to indicate that the business retained that cash the logical, or only, inference to draw was that the cash was extracted by or for the benefit of the participators i.e. MJ and MB. We consider that HMRC have established a prima face case of extraction, and it is then for the Appellants to show what did happen to the cash we find to have been suppressed.

[169]The Appellants contend that even were HMRC to have made a prima face case that the profits were extracted as both MJ and MB stated in oral evidence that they had not received a loan from 3KH, and that statement had not been cross examined, it was to be accepted and the inference had been rebutted. In response to the allegation that he had failed to cross examine on this critical issue Mr Simpson argued that HMRC’s position on section 455 was clear, the witnesses were not to be believed and there was no other evidence to support their bald statements that they had not received a loan.

[170]In this regard we note that neither of the witness statements asserts that no loan or advance was made to either of MJ or MB. We permitted clarificatory questions to be asked by Mr Blades of the witnesses. We note that Mr Blades did ask MB whether he had received a loan from 3KH. That could not have been a clarificatory question given the absence of any reference to extraction in the witness statement. Further the question was limited to a loan and not to any other form of advance. Having carefully considered our notes it does not appear MJ was asked by Mr Blades whether he received a loan or advance prior to cross examination [he may have asked him in re-examination].

[171]In any event it remains a matter for us, whether we believe the evidence, and we do not believe the witnesses in this regard. They made no attempt to explain what had or could have happened to the cash other than a vague assertion that it may have been stolen by staff contrary to their asserted zero tolerance of cash shortages. Such an assertion is literally incredible and wholly unbelievable in light of our findings as to the extent of the suppression and the hands-on way in which MJ and MB were involved in the business.

[172]We therefore find that the inference that profits were extracted is a very strong one in respect of which there was no contrary evidence we therefore uphold the section 455 CTA charge.

[173]3KH accepts that if, as we have, found that the fund were extracted the NICs Decisions and Penalties were correctly raised. PLN Issue Legal test

PLN Issue

[174]Pursuant to paragraph 19(1) Sch 24 FA07 where a penalty is payable by a company for a deliberate inaccuracy, which was attributable to an officer of the company, the officer is liable to pay such proportion of the penalty as HMRC specify in a notice.

[175]HMRC must therefore be satisfied that the deliberate conduct was so attributable.

Parties submissions

[176]MJ and MB repeat that any deliberate conduct on the part of 3KH should not be attributed to them. HMRC repeated their submissions on deliberate conduct generally.

Findings of fact

[177]MJ and MB were both appointed as a director on 14 April 2015.

[178]PLNs were issued to both MJ and MB on in respect of the VAT Assessments and in respect of the Further VAT Assessments attributing the company penalty as to 42.4% We were not told why the penalties were not attributed 50:50. to MJ and 50% to MB vis a vis the penalties arising from the VAT and Further VAT Assessments and equally as between them regarding the corporation tax penalties. Initially these were issued for a period longer than the period for which the individuals were directors of the company but were subsequently amended.

[179]For the reasons indicated in paragraph 160 we prefer the evidence provided in MJ and MB’s witness statements that they visited TSM frequently and at least daily in the first year after appointment as directors. Between visits they were in contact with the manager by telephone and that they were “hands on” managers actively engaged in the business.

[180]As we have previously indicated we consider that they demonstrated a blatant disregard for the truth when giving evidence to us which we consider corroborates a continued willingness to deliberately make inaccurate statements intended to mislead.

[181]We therefore find that the deliberate conduct was attributed to MJ and MB and the PLNs were correctly issued. Mitigation Issue Legal test

Mitigation Issue

[182]When issuing penalties the maximum and minimum rates are determined by reference to the nature of the behaviour giving rise to each individual inaccuracy assessed. In the present case the relevant inaccuracies were:(1) suppression of cash sales for VAT purposes at TSM,

(2) failure to declare sales for VAT purposes at TSL,

(3) over claimed input tax, and

(4) insufficiency in corporation tax self-assessment arising from suppression of sales at TSM/non-declaration of trade at TSL and extraction by the participators. As we have found, each of the inaccuracies was deliberate, HMRC do not contend that the inaccuracies were concealed and the 3KH does not challenge that identification of the errors was prompted. As such and in accordance paragraph 10 Sch 24 FA07, the maximum penalty rate was 70% and the minimum is 35%. When determining where in the range between maximum and minimum penalty rates a particular penalty should be set HMRC take account of the assistance provided by the taxpayer under the headings Telling, Helping and Giving. Reductions to a maximum of 30%, 40% and 40% may be given under each heading.

[183]In the present case, as regards each inaccuracy HMRC allowed 5% in respect of Telling and 10 % in respect of each of Helping and Giving (thereby reducing the penalty charged by 20% of the difference between the maximum and minimum penalties).

Parties submissions

[184]The Appellant does not challenge the reduction given in respect of the penalty associated with the sales from TSL, or the over claim to input tax. Neither do they challenge the reduction permitted for Telling or Giving in relation to the penalties issued in respect of the VAT errors associated with suppression at TSM or the corporation tax inaccuracies. However, they challenge the reduction for Helping contending that it is too low and that the justification for the level of mitigation is factually incorrect.

Findings of fact

[185]The stated reason for permitting 10% reduction in respect of the two relevant inaccuracies is as follows: (1) In the penalty explanation letter for the VAT Assessments issued on 11 July 2019:

“I have allowed 10% for helping. Whilst you allowed access to the New Till in November 2017, during the enquiry, you have refused two other Till visits, provided wrong passwords for two other Till visits leading to these being abandoned, provided records at a Visit to Accountant but with no ledgers (request to uplift documents rejected), promised to provide documents promised, and ignored Schedule 36 Information Notice requests. Since the Assessment was raised, you have provided sales and purchase information for two VAT periods, but not provided any other documentary information to support explanations provided.” (2) The penalty explanation for the 10% reduction for Helping associated with the Discovery Assessments was: “Whilst you have allowed access to the new till in November 2017, during our checks you have refused two other till visits provided wrong passwords at a visit to the accountant with no ledgers (request to uplift documents rejected), promised to provide documents and ignored information notice requests. You later provided sales and purchase information for two VAT periods but have not provided any other satisfactory documentary evidence to support explanations provided.”

[186]By reference to correspondence available to us, HMRC notified the Appellant that it proposed to undertake unannounced visits in the period 19 – 21 July 2017. The visit was made on 20 July 2017 as the restaurant was closing. Officer Beard told us that he was refused entry. His notebook of the visit records that he identified himself to a waiter and asked to speak with the person in charge. It then records that he was approached by someone who Officer Beard described as a manager. Officer Beard explained the purpose of the visit and was told that the manager would need to contact head office. A call was made, and Officer Beard was invited to speak with a Mr Khan on the telephone who said he was company secretary (this was not legally correct). Mr Khan told Officer Beard his was acting outside his authority in attending outside business hours. It was indicated that HMRC could attend unannounced, but it would need to be in business hours and Officer Beard was asked to leave. Officer Beard followed the instruction.

[187]HMRC then sought to make an arranged visit on 21 August 2017. TSM indicated it was inconvenient with MJ emailing HMRC to seek to rearrange because of absence of the bookkeeper and the accountant. Despite this HMRC notified they intended to make an unannounced visit between 22 and 24 August 2017 and visited on 23 August 2017. Officer Beard again informed us, as corroborated by his notebook, that he spoke with Mr Khan on the telephone. He advised that he wished to take data from the till onto a USB stick. Mr Khan understood that a meeting had been arranged for 21 September 2017 and did not therefore understand the purpose of Officer Beard’s attendance on 23 August 2017. Officer Beard’s notebook shows that he explained that he wanted to uplift till data. In response Mr Khan again alleged that HMRC were acting outside their powers and asked Officer Beard to leave. Officer Beard left without the till data he had attended to acquire.

[188]MJ sought to postpone the meeting which had been arranged for 21 and 22 September 2017 but eventually conceded to the visit taking place indicating that the “paperwork for the last four to five weeks was at the registered office” and the accountant would be available.

[189]Officer Beard explained that a visit took place on 21 and 22 September 2017 however, at the visit 3KH were unable or unwilling to access the till data only providing z-readings. On 3 October 2017 HMRC wrote to 3KH regarding what are described as outstanding matters, in particular a request to review documentation from 2013 to October 2017. The meeting was proposed for 6 November 2017. HMRC also noted that between the unannounced visit on 23 August 2017 and the announced visit on 21 September 2017 the till had been changed. Details of the change and associated documentation were requested.

[190]On 14 November 2017 HMRC were finally provided with access to the till from which they were able to extract data for the period 26 August to 14 November 2017.

[191]Further correspondence ensued and on 16 January 2018 HMRC proposed a visit to TSM (and other restaurants with whom MJ was involved) on 12 February 2018 explicitly to interrogate further data stored on the till with further visits to 3KH’s accountants to review documentation on 14 – 16 February 2018. At that visit HMRC attempted to access the programming section of the till but a manager’s log in was required but Mr Khan, who managed the visit on behalf of 3KH, did not have the relevant log in. The meeting was aborted.

[192]A further visit took place on 28 February 2018. Although Mr Khan (who again managed the visit for 3KH) had a log in code it would not permit access to the reports section of the till. Default logins were tried but none permitted access. The additional till information was, as we understand it, never obtained.

Discussion

[193]On the basis of our findings it is plain to us that 3KH was obstructive of HMRC’s enquiry. 3KH denied lawful access of officers on both 20 July and 23 August 2017 and it took until 14 November 2017 until any till data could be accessed. There were subsequently further difficulties in accessing further till information.

[194]We accept that the brief articulation narrated in the penalty assessment letters could have been more accurate (particularly that for the corporation tax inaccuracy). However, 3KH were well aware of what had happened at each of the visits, they had not helped HMRC, in fact quite to opposite. We were not invited to increase the penalty amount (though we have the jurisdiction to do so under paragraphs 15(2) and 17(2) Sch 24 FA07) and we do not do so, we simply note that a 10% allowance (of a maximum of 40%) appears to us to have been reasonably generous.

[195]We therefore uphold the Penalties in full.

Disposition

[196]For the reasons given we uphold the VAT and Further VAT Assessments, the Discovery Assessments, the NICs Decisions, the Penalties, and the PLNs in the sums in which HMRC invited that they be upheld.

Right to apply for permission to appeal

[197]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. Release date: 18th JUNE 2025

Cited in 1 later judgment

FS Commercial Limited v The Commissioners for HMRC 2026