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Markel Tax

27 Apr 2017

Meat and drink for our VAT experts

Meat: Restaurateur subjected to heavy handed tactics

HMRC made simultaneous unannounced visits to the three restaurant sites operated by our client across the East Midlands. Following this, the usual VAT and accounting records were provided for inspection by HMRC. 

Despite subsequent telephone conversations, exchanges of emails and a meeting, HMRC had difficulty reconciling the meal tickets with takings records and were dissatisfied with the explanations given in response to the various questions raised. 

HMRC carried out some test purchases and, after a protracted enquiry, proposed to issue an assessment in the sum of £85,909. This figure was arrived at by a mixture of calculation methods for two of the sites, relying principally on the ratio of cash and card sales, and combining the outcome to quantify assumed under declarations at the third site. 

Despite the submission of clear documentary evidence to explain the alleged anomalies in the takings records, including written statements from delivery drivers, HMRC stubbornly refused to amend their speculative and unsupported conclusions. 

The dispute was referred to HMRC’s Appeals & Reviews Team who, in our view, also failed to properly consider the available information in a fair and balanced way. Furthermore, the review stated lack of evidence on the part of our client to support the explanations previously provided, but made no reference to the complete absence of hard evidence on HMRC’s part to justify any assessment!

Having reached a stalemate with HMRC, we felt the Alternative Dispute Resolution (ADR) route should be pursued to try and secure a satisfactory conclusion.

The ADR application was accepted and a meeting was duly held at the client’s accountants’ offices. After six hours of arguments and counter-arguments, the meeting was brought to a close by the ADR facilitator without HMRC really giving much away, other than an agreement to write to us before the end of that week with the result of their deliberations.

The letter duly arrived late on the Friday afternoon saying concerns were still held about the way in which the record of restaurant takings was maintained but, on balance, they (reluctantly) accepted they had insufficient evidence to justify an assessment at all, let alone one for nearly £86,000! They conceded they had failed to recognise the reality of the day to day management of the trade which, although perhaps a little unorthodox, did not automatically result in any under reported sales and therefore under declared VAT liability. 

This was a prime candidate for ADR and another example of how that process can work without the need to endure the time, cost and anxiety of a formal Tribunal hearing.

Drink: HMRC uses void transactions to assess publican

HMRC visited our client’s public house for the first time in February 2016, before a second visit in April 2016 when they extracted a variety of till reports for analysis. 

Having reviewed the data, HMRC expressed concerns about the number and value of void transactions reported via a range of different till functions and concluded the client had manipulated the till to reduce sales by some £720,000 over a 6 year period, resulting in an assessment for undeclared VAT of £118,000. As they considered this to be a deliberate act on the part of our client, there was also the threat of a significant penalty.

The client was, not surprisingly, very worried by this state of affairs, particularly as he was not even aware that the till was capable of some of the functions identified by HMRC’s extraction of historic data reports. After the April 2016 visit, he immediately instigated changes to the operation of the till and retrained his staff to ensure only accurate figures could be reported in the future.

In October 2016, the client printed off further till reports which effectively contained consolidated data for the 6 months since the initial readings were taken by HMRC. Markel Tax analysed the figures on these later reports and established trading patterns from the till data did not vary greatly to those reflected in the VAT return figures prior to HMRC’s April 2016 visit. As some comfort could be taken from the accuracy of the reported figures after the till management changes, we concluded that HMRC should agree the earlier declared figures were, on the balance of probability, also accurate.

The explanation put to HMRC was that the figures which caused concern were spurious in as much as they must have arisen from a time prior to the till being taken into use in the business and used as the prime record of daily gross takings – e.g. used for training and familiarisation of the procedures for registration of sales and correction of errors for over-rings, refunds etc.

True to form, HMRC refused these explanations in the absence of documentary evidence to support those assertions. We were unable to secure a meaningful answer from HMRC when they were asked what it was the client was supposed to produce to satisfy them, when it was obvious there was no ‘hard evidence’. We stressed the need for HMRC to apply some common sense and adopt the balance of probabilities principle just as a Tribunal would under the circumstances.

When they still rejected this and an impasse was reached, the ADR route was used to secure a settlement again. After a 4 hour meeting the VAT officer’s Manager conceded that, based on the arguments proposed by Markel Tax, HMRC really had no evidence at all to support an assessment and agreed our client owed no VAT whatsoever.

After 14 months of anxiety for our client, the ADR process brought closure to the matter after just 4 hours of common-sense discussion. Quite why HMRC had to wait this long to act reasonably is still a mystery but it does prove the point that the ADR process can, and does, work very well in certain situations.

The client was very happy indeed with Markel Tax, not only for saving him £118,000 VAT and penalties on top, but as he was covered by our insurance, he also saved several £000s in professional fees.

Next article in series

27 Apr 2017

An open door to property incorporation?

Most of you will be aware of the measures which have now been introduced to disallow mortgage interest (and related finance costs) affecting owners of residential investment property.

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