Automated Summary
Key Facts
Huseyin Acar operated Fez Mangal restaurant in Ladbroke Grove since 2008, later transferring it to Hill Catering Limited in 2013. HMRC conducted a compliance check in 2015, invigilating the business on 2 September and 11 September 2015. Assessments for under-declared VAT were issued in 2016 totaling £135,694, based on a 37.88% suppression rate calculated using invigilation data. The Tribunal found HMRC's assessments were made to best judgment but concluded the amounts were incorrect due to flawed reference period selection (July-August 2015) and failure to account for the restaurant's 12.5% quarterly growth. Appeals were allowed in part, with assessments for 11/15, 02/16, and 05/16 periods set aside and earlier assessments reduced to a 19.5% uplift.
Tax Type
Value Added Tax (VAT)
Issues
- The case addressed whether the Appellants (Mr Acar and Hill Catering Limited) under-declared their sales, resulting in incorrect VAT assessments. The Tribunal concluded that while there was no intentional suppression, errors in record-keeping and failure to apply zero-rated sales led to under-declarations.
- The Tribunal determined whether the VAT assessments issued by HMRC were validly made under section 73 of the Value Added Tax Act 1994, which allows assessments based on HMRC's best judgment when records are incomplete or incorrect. The assessments were found valid as Officer Esson acted in good faith and within her authority.
- The Tribunal evaluated whether the assessed VAT amounts were correct, focusing on the suppression rate (34.493% after adjustments) and the choice of reference period (July–August 2015). It found the assessments for post-invigilation periods (11/15, 02/16, 05/16) should be set aside, while earlier periods required a revised 19.5% uplift to account for quarterly business growth.
Tax Years
- 2019
- 2013
- 2012
- 2018
- 2014
- 2015
- 2016
Holdings
- The appeals against the VAT assessments for the periods 11/15, 02/16, and 05/16 are allowed, and these assessments are set aside.
- The appeal against the corporation tax discovery assessments, closure notices, and penalties issued to Hill Catering Limited on 18 December 2018 and 27 December 2018 is allowed.
- The appeal against the income tax and penalty assessments issued on 25 January 2019 and 23 October 2019 to Mr Acar in respect of the tax years 2012-13 is allowed.
- The VAT assessments for earlier periods are reduced by applying a 12.5% quarterly growth adjustment, resulting in a 19.5% uplift instead of the original 34.493% suppression rate.
Remedies
- The Tribunal allowed appeals against the income tax and penalty assessments issued to Mr. Acar for the 2012-13 tax year, as well as the corporation tax discovery assessments, closure notices, and penalties issued to Hill Catering Limited in late 2018.
- The Tribunal allowed appeals in part, setting aside VAT assessments for the periods ending November 2015, February 2016, and May 2016. For earlier periods (July 2013-February 2015), the assessments were reduced by applying a revised 19.5% uplift to declared turnover. Appeals against income tax, corporation tax discovery assessments, closure notices, and penalties were also allowed.
Tax Issue Category
Other
Legal Principles
- The Tribunal applied the standard of proof on the balance of probabilities, as outlined in the guidance from the Court of Appeal in Pegasus Birds Limited. This allowed the Tribunal to reassess the validity of HMRC's suppression rate calculations and reduce the assessments based on the material available, even though the initial assessments were made in HMRC's best judgment.
- The Tribunal emphasized that the burden of proof lies with the taxpayer to show that VAT assessments should be reduced or set aside, as per section 83(1) VATA. This principle was applied in determining that Mr Acar and Hill Catering Limited had to establish suppression of takings or errors in HMRC's calculations. The Tribunal also noted that HMRC had exercised its powers honestly and in good faith under section 73 VATA.
Disputed Tax Amount
135694.00
Precedent Name
- Van Boeckel v. Customs and Excise Commissioners
- Customs and Excise Commissioners v. Pegasus Birds Limited
Cited Statute
Value Added Tax Act 1994
Judge Name
- Jane Shillaker
- Victoria Nicholl
Passage Text
- We conclude for the reasons set out above that the Appellants have established that the VAT assessments should be reduced as follows: (i) The assessments for the 11/15, 02/16 and 05/16 periods are set aside; (ii) The assessments for the earlier periods should be revised by HMRC on the basis of applying a lower uplift percentage to the turnover declared for each period. The percentage to be applied to the earlier periods should be calculated by increasing the declared turnover for the reference period by 12.5% to reflect the quarterly growth in sales. Based on the schedule of revised calculations provided by Officer Esson with her letter dated 3 October 2018, this reduces the uplift to be applied to 19.5%.
- The Respondents ('HMRC') concluded from their compliance checks in 2015 that the restaurant's takings had been under-declared by the Appellants for some years. HMRC issued VAT assessments in 2016, and then income tax and corporation tax discovery assessments and closure notices some two years later in 2018 and 2019. Together with penalties, the assessments amount to just under £610,000.
- The appeals against the VAT assessments listed in paragraph 26 above are allowed in part: (i) The VAT assessments for the periods 11/15, 02/16 and 05/16 are set aside; and (ii) The VAT assessments for the period 01/07/2013 – 28/02/2013 for Mr Acar and for the period 01/03/2013 – 31/08/2015 for Hill Catering Limited are reduced by the amount calculated in accordance with the direction in paragraph 55 above.