TC09555 - [2025] UKFTT 00748 (TC)

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.

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.

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.

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.

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.

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:

Further information was provided in November 2020 from Giro Foods.

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.

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.

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.

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

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).

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.