Assessment – Whether best judgment – Yes – Appeal dismissed – VATA 1994 s.73(1)

LONDON TRIBUNAL CENTRE

	JOHN ALBERT FISHER	Appellant

-	and –

	THE COMMISSIONERS OF CUSTOMS AND EXCISE	Respondents

				Tribunal:	DR KAMEEL KHAN   (Chairman)
						 MR K C MANTERFIELD FCA

Sitting in public in London on 3 October 2003

The Appellant represented himself

Mr D J Bettoney, for the Respondents

© CROWN COPYRIGHT 2004

DECISION

Appeal

John Albert Fisher (“Appellant”) appeals against an assessment of tax made under s.73(1) of the Value Added Tax (VATA 1994))(“the Act”) for the period 1 May 1997 to 31 December 2002 in the sum of £9,733 and notified to the Appellant on Form VAT 655 or on about 6 May 2003.

Legislation

S.73 of the Act provides, inter alia, that where it appears to Customs & Excise that a taxable person’s Value Added Tax returns are incomplete or incorrect, Customs & Excise may assess the amount of tax due on the taxpayer to the best of their judgment and notify it to him or her.

Issue

The issue which has been identified from the documentation at this appeal is whether the assessment to tax was made to the best judgment of Customs & Excise within the meaning of s.73(1) of the Act.

The Appellant’s Evidence

1.	The Appellant’s case rests substantially on a letter dated 14 November 2002 written by his then accountants (A A Chaudry & Co).  They questioned the basis on which the Appellant’s turnover figures were arrived at by Customs & Excise.  They stated that the method of calculation used was unfair and that Customs & Excise should not be allowed to “ride on the back” of the Inland Revenue figures used in assessing income tax and which was now being used in deciding on the Appellant’s VAT threshold figure.

2.	The Appellant provided, on 25 February 2003, a schedule of worksheets (“Worksheets”) for the period July 1998 to July 2002 showing, inter alia, his sales, purchases and expenses which his bookkeeper had omitted to provide previously.  The Appellant argues that the Worksheets are his true figures and any VAT assessment should be based on those figures.

The facts

1.	The Appellant is a self-employed market trader at St Albans market selling winter and other clothing.

2.	At the material time, the Appellant was not registered for VAT.  As a result of enquiries made by Customs & Excise, the Appellant was registered from 1 May 1997.

3.	As a result of liaison with the Inland Revenue under the provisions of the Finance Act 1992 s.127, Customs & Excise became aware that the returns submitted by the Appellant to them had been increased in respect of additional takings reflected in bankings exceeding the amounts declared to them.  Accordingly the Appellant may have exceeded the limit at which he was required to notify his liability to register for VAT.

4.	The turnover figures declared upon annual accounts submitted to the Inland Revenue and adjustments were as follows:-
	
Accounting
year end	Declared
turnover	Agreed
additions	Total	      VAT registration
           threshold	
15/07/96	£43,890	£3,000	£46,890	£47,000 from 29/11/95	
15/07/97	£47,888	£3,500	£51,388	£48,000 from 27/11/96	
15/07/98	£53,861	£4,000	£57,861	£49,000 from 01/12/97
£50,000 from 01/04/98	
15/07/99	£59,174	     -	£59,174	£51,000 from 01/04/99	
15/07/00	£56,824	     -	£56,824	£52,000 from 01/04/00	

5.	Customs & Excise considered that the Appellant had exceeded the turnover limit in August 1996 and that therefore registration should be effected from 1 October 1996. Following representations made by the Appellant’s accountants, A A Chaudry & Co, on 14 November 2002 it was accepted by Customs & Excise that it would be fairer to take the date of registration from 1 May 1997.  The sale of winter clothing is seasonal.  Registration was arranged from that date. The Appellant was registered with VAT number 804279629.  The accountants had not provided any figures to substantiate the registration date. The Appellant was de-registered on 3 March 2003.

6.	The Appellant submitted a VAT return for the period 1 May 1997 to 31 December 2002 which showed output tax at £37,025, input tax at £27,129 and a net amount of £9,896.

7.	Customs & Excise formed the view that these amounts were incorrect on the basis that the output tax and the input tax were understated.  Customs & Excise therefore made an assessment, to the best of their judgment, in the sum of £9,733 and duly notified the Appellant.  Details of Customs & Excise calculations are provided below (“the Schedule”).

Fisher	
Period	Declared
sales	Uplifts	Calculated
sales	Declared
purchases	Disallowed
amounts	Allowable
Purchases	
01/05/97-15/07/97	         9976	              729	        10705	                 0	                 0	                 0	
16/07/97-15/08/98	       53861	            4000	        57861	         39003	           8014	         30989	
16/07/99-15/07/99	       59174	                  0	        59174	         42134	           7986	         34148	
16/07/99-15/07/00	       56824	                  0	        56824	         38215	           8529	         29686	
16/07/00-15/07/01	       55108	                  0	        55108	         39272	           5856	         33416	
16/07/01-15/07/02	       53385	                  0	        53385	         42683	           7225	         35458	
16/07/02-31/12/02	       23631	                  0	        23631	         24126	            3871	         20255	
Total			      316688			       183952	
							
		Outputs	      269521		Inputs	       156554	
		Output tax	        47166		Input tax	         27397	
		VAT return	        37025		VAT return	         27129	
		Assessment	        10141		Assessment	            -268	
							
		Net assessed amount			        £9,873	

8.	Customs & Excise, in their letter to the Appellant of 21 February 2003, had calculated the output at £270,000 (approximately), as against an output figure provided by the Appellant of £211,000 (approximately). The Appellant was invited to provide an explanation of his output figure but none was provided. On 25 February 2003, the Appellant provided a set of Worksheets with figures for his business for the period 01/05/97-31/12/02. These figures did not include the Inland Revenue’s additions which he said he had not agreed. The Worksheets had the declared sales figures stated above in the Schedule.

9.	On 3 March 2003, Customs & Excise wrote to the Appellant, enclosing the Schedule with the uplift figures added (and some small amendments for input tax or pitch rentals) and asked for “any other information which you would like me to take into consideration”.  The Appellant replied to customs & Excise on 6 March 2003 explaining that he had agreed to pay a settlement figure of £4,250 to the Inland Revenue rather than have £4,000 added to his turnover fee for each year of 1994/95-1998/99 inclusive.

10.	The assessment of £9,733 was raised.  The Appellant was notified on 7 May 2003.  It should be added that the Inland Revenue had given the Appellant and his then accountants (Georgiades Charanambou & Co) an opportunity to explain his turnover figures and money paid into his building society account for the period 1994 to 1999 but no explanation was provided. The matter between the Appellant and the Inland Revenue was agreed on the basis that the Appellant would pay £4,250 in settlement of his tax liability.  The Appellant confirmed this position.

11.	At the Tribunal hearing, details of the Appellant’s bankings were provided.  The Appellant accepted that he had no other source of income. The banking statements therefore represented substantially all of his income from his business since there was no separate business account held by the Appellant.  From the bank details between 29 August to 8 December 1994, approximately £30,000 was banked in that four month (approximately) period. Winter clothes would sell better in this period than summer but no summer sales figures were available.

12.	It should be added for completeness that the Appellant had various complaints about his treatment and wrote to the Adjudicators Office on 31 January 2003.  The reply was sent to the Appellant on 3 February 2003.  One of the points made to the Appellant in that reply was that in spite of him not being well served by his advisers, the onus was on the taxpayer to determine their liability to register for VAT and this applied even if they relied on another person for advice.

The Law

1.	Customs & Excise have power to make an assessment of tax if it appears that the returns of the Appellant are incomplete or incorrect.  The assessment is made on the basis of best judgment pursuant to s.73 of the Act.

2.	Customs & Excise judgment must be exercised reasonably and not arbitrarily.  It is not their role to carry out extensive investigations into the matter since this is the role of the taxpayer.

3.	The Tribunal, in examining the case of the Appellant, must act in a supervisory capacity.  It must determine whether the assessment has been made to the “best judgment” which is to say that it was not made dishonestly, vindictively or capriciously.  In looking to see whether there was an exercise of judgment, the Tribunal would look to see whether the assessment was made on the basis of any guesswork, estimates or whether the assessment itself was unreasonable.

The Decision

1.	From the information before the Tribunal, the assessment was made to the best judgment of Customs & Excise pursuant to s.73(1) of the Act.

2.	Customs & Excise used figures provided by the Inland Revenue pursuant to their powers under Finance Act 1972 s.127.  The Appellant was given an opportunity to explain or rebut those figures.  No reasonable explanation was provided by the Appellant to show that the figures were not reliable.  It would have been useful to have details of both winter and summer sales of clothing to get an annual sales figure.  The documentary evidence provided to the Tribunal in the form of banking details, uplifts agreed with the Inland Revenue and the fact that the Appellant has no other source of income other than from his business would suggest that the assessment was reasonably and not capriciously made.

3.	The Inland Revenue confirmed to Customs & Excise that the additions made to the Appellant’s figures related to understated turnover.  Therefore the query raised by the Appellant’s accountants in their letter of 14 November 2002 together with their further query that the Inland Revenue’s figures could not be used to establish turnover was not correct.  Further, the Worksheets provided by the Appellant, which were provided late, were used by Customs & Excise in their assessment of the Appellant.

4.	Reasonable payment arrangements should be made with the Appellant who appears to be under undue financial hardship.

5.	No issue of cost was raised in this appeal.

6.	The appeal is dismissed.

DR KAMEEL KHAN
CHAIRMAN

RELEASED:

LON/03/0160