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Restaurant assessment

VAT: HMRC’s assessment was unreasonable


HMRC raised a VAT assessment for £41,684. Following a single observational visit to the taxpayer’s restaurant, the FTT ruled the assessment could be set aside.

14th Sep 2021
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Brough East Yorkshire Ltd (BEY) incorporated in 2011 and started to operate as a restaurant shortly after. HMRC visited the restaurant premises on a Friday in March 2017 and observed takings of £1,656.91. The HMRC investigation compared these sales to a three-year period based on the client’s VAT records, which showed average Friday takings to be £1,082.00.

HMRC further noted that not only were the sales on the day of the officers’ visit higher than both the average and maximum sales for previous Fridays, but that recorded sales rose following their visit. Clearly sales had previously been supressed and the taxpayer was now guiltily reporting the correct figures!

An assessment for £41,684.00 was issued, but due to errors in HMRC’s calculations this was later reduced to £34,486.00.

BEY responds

BEY provided evidence to HMRC to show that their sales had in fact been increasing for some time, due to a combination of factors such as a ‘menu drop’ to local homes, an increase in prices and several competitors going out of business. They provided records to HMRC to support this, including a detailed breakdown of sales between cash and card.

HMRC stood by their guns and BEY appealed to the first-tier tribunal (TC08213).

FTT hearing

The FTT noted that BEY would need to show that the assessment was ‘wholly unreasonable’; it would not be enough to demonstrate that the assessment did not reach the standards of a competent officer.

The threshold for making a ‘best judgement’ decision by HMRC was noted to be low. All that needs to be established is: Was there an honest and genuine attempt by HMRC to make a reasoned assessment?

An assessment may be proved later to be inaccurate due to additional evidence surfacing, but it would still be considered ‘best judgement’.

BEY put forward that HMRC had not provided evidence to support the assertion that cash sales were being supressed and that its methodology had been flawed throughout. The FTT noted that HMRC had made numerous calculation errors throughout the contact with BEY and agreed that there was a lack of explanation for the HMRC methodology.

HMRC had stated that cash sales were being suppressed, but it had no evidence to suggest how this suppression had occurred and, by its own admission, the officers had not noted any anomalies while observing BEY.

Also, while the HMRC visit had lasted a few hours, it was revealed that the lead officer had only been present for a grand total of eight minutes during the visit – hardly a suitable length of time to gather the evidence for a ‘best judgement’!

Despite this, HMRC felt a second visit had not been needed as it was already satisfied following the first.

The HMRC officer noted that “the price increase would obviously have affected the level of takings”, but then later seem to have been surprised when this exact event happened. The officer was also unaware of the fact a mass menu drop had taken place, despite having seen the pile of menus on the counter during the (brief) observational visit, and had been given the receipt for the printing of the menus at a later point.

FTT decision

The FTT found that BEY had been very cooperative with HMRC, providing evidence to answer all queries. HMRC had disregarded much of this evidence and continued with the assertions regarding supressed sales, with no evidence of its own to support this, other than noting sales were higher than the previous average and had increased after the officers’ visit. BEY had already explained why this was the case. Finally, the fact that HMRC had compared a single night’s sales to a three-year average was held to not be a reasonable comparison.

It was therefore concluded that the assessment raised was unreasonable and did not take into account several matters which had been brought to HMRC’s attention. The FTT confirmed that BEY had met the burden of displacing the assessment and it was to be set aside.

A comparatively small amount of VAT was found to be due by BEY’s accountant. The appeal was therefore only a partial success and HMRC’s figure of £34,486.00 was replaced with BEY’s figure of £3,780.00.  A much-improved outcome!


Once an assessment has been made, it is up to the taxpayer to displace that assessment. HMRC did minimal legwork and leapt to some quite unfounded conclusions, which could have been costly for the taxpayer. Luckily BEY were able to convince the FTT and so were therefore (mostly) successful in their appeal.


Replies (10)

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By Hugo Fair
14th Sep 2021 14:13

"Luckily BEY were able to convince the FTT and so were therefore (mostly) successful in their appeal."
They were 100% successful, not 'mostly', in that HMRC's assessment was set aside. The fact that the company's own accountant found a small anomaly to rectify had nothing to do with the assessment or appeal process.
It's a shame that the bully-boys don't get personally penalised for such incompetent behaviour!

Thanks (7)
Replying to Hugo Fair:
By SteveHa
14th Sep 2021 15:40

Hugo Fair wrote:

"Luckily BEY were able to convince the FTT and so were therefore (mostly) successful in their appeal." They were 100% successful, not 'mostly', ......

That was my immediate thought on reading through, too.

Thanks (2)
By memyself-eye
14th Sep 2021 14:38

..and how many others meekly accept HMRC's judgement?

An appalling amateurish way for HMRC to behave, but no surprises there.

Thanks (3)
By Paul Crowley
14th Sep 2021 19:51

How the heck did this end up at FTT
HMRC really should risk assess before going down that road
This really damages the reputation of HMRC

Thanks (3)
Replying to Paul Crowley:
By Springfield
16th Sep 2021 11:24

Unfortunately HMRC has no concept of its own reputation. Whereas commercial enterprises can live or die by their reputations, HMRC is just a large dysfunctional, monolith kept in place by statute, and no amount of negative headlines or outcomes will ever change that.

It is the government's vehicle for administering and collecting taxes, so government has no interest or incentive in improving it.

We're stuffed.

Thanks (0)
Chris M
By mr. mischief
15th Sep 2021 08:13

Slapdash. Amateurish. Clueless. Incompetent. Unknowledgeable. Slow. Ignorant.

None of these adjectives applied to either Revenue or Customs in 1992 when I first started dealing with them.

All of them consistently apply in my dealings with HMRC over the last 10 years. And it has steadily got worse not better in that 10 years.

Thanks (4)
Replying to mr. mischief:
paddle steamer
15th Sep 2021 10:06

They screwed up re investigation in the 90s, I can recall destroying one because the Inspector, having prepared a week by week cash analysis to indicate there must have been additional sales (pub), somewhow failed to check her own arithmetic, when done correctly there was no issue, no excess cash expenditure.

Another poor one was a chip shop margin analysis which failed to realise that whilst selling prices stayed constant through the year potato prices did not, having selected just one purchase invoice to collect his chip cost data a quick summary by me of the purchases through the year and the use of an average destroyed his analysis . (catch was I won the battle not the war, they passed it to Special Compliance)

In the 90s I had respect for HMRC staff re tax, I had respect for Special Compliance across the board (they used in house CAs to conduct analysis) , but local district investigations were in my experience hit and miss, I think most HMRC staff did not have enough experience of accounting nor actually creating accounts to really know how to analyse and break a set of books.

Thanks (1)
By johnjenkins
15th Sep 2021 09:37

I am really surprised that HMRC only did one visit. Normally they would watch over a period of a month or maybe everyday would be looked at over a period of time. Could be they did and didn't find anything but this one Friday or lack of staff available. As Mr. Mischief says incompetent.

Thanks (1)
By JamesDS
15th Sep 2021 09:56

All the comments above suggest that readers felt that HMRC had, at best, been incompetent.

However, the fact that they also wilfully ignored any evidence that did not support their pre-determined hypothesis suggests that they also lied, excluded exculpatory evidence and attempted to mislead the tribunal into a clearly incorrect conclusion.

HMRC are not supposed to be paragons of dishonesty.

Thanks (1)
David Ross
By davidross
15th Sep 2021 09:57

What a bunch of Sxxts

Thanks (1)