TC09555 - [2025] UKFTT 00748 (TC)

Fecha: 09-May-2025

Evidence

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. (Footnote: ³)

(2)

No cash was not paid into the bank account. (Footnote: ⁴)

(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. (Footnote: ⁵)

(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). (Footnote: ⁶)

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.