TC09555 - [2025] UKFTT 00748 (TC)

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

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

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:

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.

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.

Following a series of visits to TSM Officer Beard was able to obtain the following documents:

Officer Beard reviewed these documents and identified:

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.

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.

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.

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:

The evidence said to support the accurate recording of sales was as follows:

As regards the full banqueting service we were provided with the following documentary evidence:

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.

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.

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 …”

The witness statements of MJ and MB were silent on the 2-for-1 offer. However in oral testimony:

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.

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.