UT/2022/000157 - [2024] UKUT 00346 (TCC)

… Having referred with approval (para 31) to my judgment in Rahman (1) and that of Dyson J to like effect in McNicholas Construction Co v Customs & Excise [2000] STC 553 , he addressed the taxpayer's submission that because the tax due had been found to be less than half the amount of the assessment, the assessment could not have been to “best judgment” (para 32). He regarded that as a “non-sequitur”:

“The explanation may be that the tribunal, applying its own judgment to the same underlying material at the second, or ‘quantum’, stage of the appeal, has made different assumptions — say, as to food/drink ratios, wastage or pilferage — from those made by the commissioners. As Woolf J pointed out in Van Boeckel ([1981] STC 290 at 297), that does not lead to the conclusion that the assumptions made by the commissioners were unreasonable; nor that they were outside the margin of discretion inherent in the exercise of judgment in these cases. Or the explanation may be that the tribunal is satisfied that the commissioners have made a mistake — that they have misunderstood or misinterpreted the material which was before them, adopted a wrong methodology or, more simply, made a miscalculation in computing the amount of VAT payable from their own figures. In such cases — of which the present is one — the relevant question is whether the mistake is consistent with an honest and genuine attempt to make a reasoned assessment of the VAT payable; or is of such a nature that it compels the conclusion that no officer seeking to exercise best judgment could have made it. Or there may be no explanation; in which case the proper inference may be that the assessment was indeed arbitrary.” (emphasis added)

That formulation of the “relevant question” was part of the ratio of the decision in that case; it is binding on us, and on the Tribunal in future cases.

In the light of that authoritative statement of the law, I would caution against attempts to refine or add to it, by reference to individual sentences or phrases from previous judgments. In Rahman (1), as already noted I listed a number of phrases used in earlier cases as “examples”, to illustrate that the test was higher than was being submitted by the taxpayer. I added that the tests were “indistinguishable from the familiar Wednesbury principles”. In retrospect, I think the reference to Wednesbury principles was unhelpful and a possible source of confusion, and may raise as many questions as it answers (see the comments of Neill LJ in John Dee Ltd v Customs & Excise [1995] STC 941, 952; and of the Tribunal in W H Smith Ltd v Customs & Excise [2000] V&DR 1 para 124). Another phrase (used by Woolf J in Van Boeckel) referred to the obligation of the commissioners “fairly (to) consider all material placed before them”. As a general proposition that is uncontroversial. However, it should not be seen as providing a separate and sufficient test of the invalidity of the assessment, nor as justifying lengthy cross-examination to establish whether the relevant officers have in fact looked at all the available material. Even the term “wholly unreasonable” (also used in Van Boeckel) may be misleading if it is treated as a separate test, rather than as simply an indication that there has been no “honest and genuine attempt” to make a reasoned assessment.