TC09555 - [2025] UKFTT 00748 (TC)

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.

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

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.

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.

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).

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.

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. (Footnote: ⁷)

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.

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.

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.

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.

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.

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.