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Chinese takeaway

How not to run a tax enquiry


A lack of consistency in the investigation team, questionable assumptions, and missing documents led the first tier tribunal (FTT) to conclude HMRC had not exercised ‘best judgement’ in reaching the estimated tax assessments.

30th Jul 2021
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Following visits to the premises of Kong’s Restaurant Limited (KR), HMRC issued assessments and penalty notices in respect of under-declared VAT and corporation tax for £199,451. These were the subject of the appeal: TC08169.

Each aspect of the enquiry was led by a different HMRC officer. And each of these officers had left HMRC by the time of the tribunal hearing, leaving a colleague to appear in their place. The VAT officer tried to enter further evidence but this was refused; the corporation tax officer added an additional year of profits to their assessment, estimated by the rather unscientific method of using the same uplifts as the VAT officer had used.

The FTT described the bundle they had been provided as “sketchy in the extreme” with various documents omitted.

The visits

Two unannounced visits were made by HMRC to KR’s premises to check the recording of sales. HMRC collected the meal slips for the evening, split between takeaway and restaurant meals and further by cash and card. They compared this to the records from the till. On the first visit they came to the conclusion that sales had been understated by £236.51 and on the second understated by £5.70(!).

A third unannounced visit was made to observe a delivery from a supplier. Finally, a fourth visit was made the day after at the supplier’s premises and data was taken from their computer system. HMRC found evidence that there had been two deliveries on several days, one recorded by KR and one not (and paid for in cash).

HMRC also wrote to KR’s accountants to ask about several voids/cancellations which had gone through the tills. The accountants explained the difference between voids (deletions after the sale was recorded) and cancellations (deletions due to inputting error). HMRC calculated the total of the voids and cancellations to be £10,448.94 over the entire period in question, representing 11.75% of total takings.

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Replies (5)

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By memyself-eye
31st Jul 2021 08:06

One wonders how much taxpayer funding went into this shambles, as for competence......

Thanks (2)
By Paul Crowley
01st Aug 2021 13:44

Done by someone who knew how records work this should have been an easy win. Done by HMRC a catastrophic fail.
Time HMRC got some accountants in their team

Thanks (2)
Replying to Paul Crowley:
By johnjenkins
02nd Aug 2021 15:09

I have written many times and I'm pretty sure I've mentioned it on here that HMRC training should include a year within an Accountants office. Also trainee accountants should spend a year within HMRC offices. There is no reason (oh yes HMRC are supposed to be impartial) why interchanging wouldn't work. It is the only way that eventually we will get a fit for purpose HMRC service. It may also lead to the complete overhaul of our tax system, which is long overdue.

Thanks (2)
Replying to Paul Crowley:
By ruth.julian
02nd Aug 2021 22:12

HMRC does employ quite a number of accountants - but much further up the food chain so that the humble VAT officer rarely is graced with their support. Also, the prevalence of desk based VAT audits means that the current average VAT officer rarely sees a real business in action. Gone are the days of the local VAT officer visiting businesses at least 5 times a week, so that they learned their patch and the various trade classes within it. The way Corporation Tax, VAT and RTI interact is still a mystery to the average HMRC Officer, all these years after formation of HMRC. That said, there are a few brave souls willing to cross to the other side to learn how the other half works.

Thanks (0)
Replying to Paul Crowley:
paddle steamer
03rd Aug 2021 11:47

They used to have some in Special Compliance teams back in the 90s (my last substantial HMRC enquiry)

I often thought that if HMRC embraced something like the TV series "New Tricks" with retired accountants rather than retired police officers they would be on to a winner, so HMRC, drop me a note in 4.75 years and I will be happy to discuss my stipend for say two days a week breaking books.

Thanks (1)