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No sale message on vintage till

HMRC thwarted in suppressed-sales enquiry


HMRC issued an assessment for what it believed to be suppressed takings at a convenience store, involving using the “no sale” button on the till. The tribunal agreed it was valid but went on to allow the taxpayer’s appeal.

16th Aug 2022
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Quality Convenience Store Ltd (QCS) operated as a general convenience store under Humera Ahmed, the sole director. The premises also contained a post office, operated by Ahmed’s husband.

Ahmed was not from a retail background and was studying for a PhD at the time, spending around 10-12 hours per week working in the shop. She therefore delegated much of the day-to-day activities to her staff.

Till receipts were generated daily but Ahmed did not examine them unless there was a problem.

Mystery button

HMRC made its first unannounced visit in December 2016. The officer noted that following their test purchase the employee opened the till again using an unknown button for an unknown reason. On a later visit, HMRC confirmed that the “no sale” button (NSB) could be used to provide change, but that it was very rarely used. However, following analysis of the till data, HMRC established that the NSB had been pressed 22,580 times over the 12 months to 30 April 2017, an average of 61.86 times per day – hardly rarely. 

HMRC advised QCS that they now believed till sales were being suppressed via the use of the NSB. QCS’s agent replied to confirm that the NSB was used to give change for bus fares, to access tills on shift changes/close down and to refill the tills over the day. However, Ahmed then spoke to her staff and told them not to use the NSB in future and to tell customers that change would only be given with a purchase. 

VAT assessment 

Unconvinced, HMRC issued an assessment for what they believed to be £153,976.60 of suppressed takings.

QCS stood by their guns that no sales suppression had taken place. They supported this by showing that turnover had been unaffected following Ahmed’s edict that the NSB could no longer be used. Even if sales had been suppressed, the effective gross margin HMRC had used in their calculations was 23%, whereas in reality it was 13.0% to 13.5%.

HMRC consulted their internal guidance and conceded that their estimate of the gross profits, and so the suppressed turnover, was excessive. The assessment was reduced to £54,700.00, of which £7,757.56 was VAT. HMRC’s overall stance did not change however, as they noted that as NSB use fell, 1p transactions increased proportionally. QCS offered similar explanations for the use of this button and provided CCTV images purportedly showing staff giving change, but HMRC remained unconvinced and issued penalties for deliberate errors amounting to £3,663.73.

Corporation tax assessment

HMRC also issued a corporation tax assessment of £8,873.96 based on the suppressed turnover findings above, as well as penalties for deliberate errors of £4,192.94.

Following an unsuccessful alternative dispute resolution (ADR) meeting, the VAT and corporation tax assessments were appealed to the first tier tribunal (FTT) (TC08530).

Best judgment?

QCS’s case was that Ahmed, being inexperienced in business matters, hadn’t realised there was an issue with using the NSB (and later the 1p button). Ahmed argued that turnover remained constant regardless of the use of these buttons, meaning they were not being used to suppress sales.

Due to the number of bus stops surrounding the shop, QCS was frequently called on to give change and Ahmed felt that a refusal would drive away customers.

Further, the assessments had not been made to “best judgment”, having apparently been plucked from thin air with no basis for their calculation and then later adjusted arbitrarily to fit the lower gross profit margin.

HMRC countered that their figures were a genuine attempt to assess missing income. Once flaws were highlighted in these figures, they were replaced with new best estimates. No alternative calculation was offered by QCS.

Tribunal decisions

The FTT agreed with HMRC, finding that it had acted rationally and used best judgment throughout. The assessments were therefore valid.

However, that isn’t the end of the story. The FTT considered Ahmed’s reaction to HMRC’s comments on the NSB (she all but banned its use), the effect refusing to give change could have had on her business (which turned out to be minimal, but was a reasonable worry) and the number of bus stops surrounding the shop.

While they criticised her operational controls, they did not believe that there was any evidence of suppressed sales and found her version of events plausible. The reported takings were therefore correct, there was no need for an assessment and so no need for penalties.

The appeal was allowed.

This was arguably a lucky escape for the taxpayer. While opening the till without a sale is hardly proof of an undeclared sale, doing it excessively would be a definite red flag and it is not surprising it caught HMRC’s attention.

Replies (14)

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By ireallyshouldknowthisbut
16th Aug 2022 16:14

By what mechanism does opening the till supress takings?

Genuinely baffled.

Thanks (1)
Replying to ireallyshouldknowthisbut:
By Hugo Fair
16th Aug 2022 18:41

It's not the opening of the till that does it ... it's the subsequent closing of the till (if no sale has been 'recorded') that causes the perceived 'shortfall'.
The HMRC assertion (unproven) was some of those occasions were not due to true 'no sale' scenarios ... thus depressing reported revenues.

The owner sounds a bright spark but, I feel sure, will recognise that she was fortunate to be believed by the tribunal.
Pressing the NSB button 22,580 times over 12 months is not just an average of 61.86 times per day (365 days p.a.), but approx. every 12 minutes of each of those days even if the shop was open for 12 hours/day!

Thanks (2)
Replying to Hugo Fair:
By Hugo Fair
16th Aug 2022 18:52

I'm reminded of another experience of my mis-spent youth in the mid '60s.

The owner of a stall in Kensington Market was a stickler for stock control and for recording each sale through the (non-digital) till.
But customers (often American tourists) never seemed to expect a receipt.
So he came up with a novel incentive plan for staff.

So long as you obeyed his two rules ('no giving away freebies' and 'every sale goes through the till at sticker price') then he didn't care how much you actually charged the punter.
Discount something because the purchaser was pretty would cost you ... but overcharge a wealthy Texan and all the excess 'profit' was retained by you.
And 'best of all' - since the excess cash never 'existed' there was no PAYE on it.

But all his books balanced beautifully - and his profits soared on the back of a superbly incentivised set of staff!

Thanks (3)
Replying to Hugo Fair:
By bendybod
17th Aug 2022 15:03

My first employer, at the naive age of 17 / 18, taught me how to keep the perfect black books. Not something I'm proud of but it has served me again and again in sniffing out issues in clients' records. I always remember him saying to the accountant "if you can find it then I will pay tax on it". His black books were as meticulous as his "genuine" books. My clients rarely, if ever, take as much care over covering their tracks.

Thanks (2)
Replying to ireallyshouldknowthisbut:
By Brend201
17th Aug 2022 09:43

The use of the No Sale button would be a feature of a process known as "banking the till", used by dishonest employees as much as dishonest business owners. The customer pays for the goods and the shop person opens the till with the NSB and puts the cash in (and possibly gives change too). At that point the sale is unrecorded but the till cash would now show a surplus if counted. At some point, (intermittently if done by a dishonest employee or at the end of day if done by the owner), the shop person will open the till and remove the cash that has not been recorded as a sale - unseen by the customer. The use of the NS button is only an indicator to arouse suspicion and not definitive evidence of sales suppression, which presumably helped the shopkeeper's case.

(Apologies if this looks like teaching one's grandmother to suck eggs.)

Thanks (0)
By SteveHa
16th Aug 2022 16:39

If she was genuinely suppressing sales, surely she would have had a wooden drawer under the till, and no CCTV pointing at the till. Altogether more effective.

Thanks (0)
paddle steamer
16th Aug 2022 17:10

Unless very heavy sales ratios of newspapers and tobacco, skewing the totals downward, the achieved 13% to 13.5% does look a tad light.

Methinks a strong mark up exercise might have won the day for HMRC, shame they will no longer these days put in the hours wading through the purchase invoices and calculating anticipated sales on a line by line basis.

Thanks (1)
By RedFive
17th Aug 2022 09:20

deleted, wrong article

Thanks (0)
By Justin Bryant
17th Aug 2022 09:29

No doubt this taxpayer has learnt their lesson and all will be fine, till next time.

Thanks (0)
By Nebs
17th Aug 2022 09:41

I wonder what will happen to the tax take in the country when they get rid of cash and all transactions are electronic?

Thanks (0)
Replying to Nebs:
By Hugo Fair
17th Aug 2022 10:10

Not a lot. The relatively few who treat cash as undeclared income will just find other ways (barter, low-profile crypto or whatever). The 'black market' will always exist - it's just a visible part of the human condition.

Thanks (2)
By meadowsaw227
17th Aug 2022 10:24

She was a very lucky lady !

Thanks (0)
the sea otter
By memyself-eye
17th Aug 2022 14:44

nearly 6 years to get nothing. Good one HMRC!

Thanks (0)
By listerramjet
21st Aug 2022 20:24

I am sure that at some point we had the legal concepts of innocent until proven guilty, along with the necessity of evidence. This is a story of HMRC making it up as they go.

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