Jagtar Singh Rai & Anor (t/a Bursha Foods) v The Commissioners for HMRC
[2024] UKFTT 511 (TC)
Martin Peter Byrne and Ellena Byrne t/a EVA v The Commissioners for HMRC
26 January 2024
[2024] UKFTT 103 (TC)
First-tier Tribunal
A shop was caught under-reporting its cash sales. HMRC estimated how much tax the shop owed based on a small sample of its receipts. The shop owners appealed, saying HMRC's estimate was too high, but they couldn't convince the court to change it because they didn't provide better evidence of their actual sales.
Key Facts
- •The Appellants, Mr and Mrs Byrne, trading as "Eva", were registered for VAT from December 1, 2011.
- •HMRC assessed the business for under-declared VAT for the periods 03/12 to 09/17, amended self-assessment returns for 2012-13 to 2015-16, and issued a closure notice for 2016-17.
- •The Appellants initially appealed against penalties but withdrew the appeal.
- •HMRC's investigation was triggered by merchant acquirer data showing card takings exceeding declared turnover by 111%.
- •Cash test purchases revealed inconsistencies in the Appellants' record-keeping, with missing transactions from receipt books.
- •The Appellants' appeal focused on the quantum of the VAT assessment, specifically the percentage of cash sales.
- •HMRC's assessment was based on a 4-day period from a seized receipt book indicating 22.4% cash sales.
- •The Appellants argued the 4-day period was unrepresentative and proposed alternative methodologies to calculate cash sales.
- •The Appellants provided evidence regarding their lifestyle and the sale of their business to argue against the credibility of the assessed amounts.
- •HMRC argued that a longer period was impossible due to missing records and that the Appellants failed to provide sufficient evidence to contradict the assessment.
Legal Principles
In a best of judgment assessment appeal, the Tribunal can find the assessment invalid if it was reached dishonestly, vindictively, capriciously, or was wholly unreasonable.
Mithras (Wine Bars) v HMRC [2010] UKUT 115 (TCC)
HMRC must consider all material evidence but isn't obligated to conduct extensive investigations if reasonable grounds for assessment exist. However, any investigations must factor in discovered material.
Van Boeckel v Customs and Excise Commissioners [1981] STC 290
In quantum appeals, the Tribunal has full appellate jurisdiction and can consider further evidence. The burden lies on the taxpayer to prove the correct tax amount, demonstrating the HMRC assessment is wrong and providing a more accurate alternative.
Mithras (Wine Bars) v HMRC [2010] UKUT 115 (TCC); Khan v Revenue and Customs [2006] EWCA Civ 89
Outcomes
The appeals were dismissed.
The Tribunal found HMRC acted in good faith with a reasonable methodology. The Appellants failed to provide a more reliable alternative calculation for cash sales, and their arguments regarding the credibility of the assessed income were not substantiated by sufficient evidence.
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