The First-tier Tribunal has rejected appeals against VAT and corporation tax assessments and the associated penalties made on a “best judgement” basis (WJE Ltd Kit Ling Chan v HMRC  UKFTT 74 (TC)).
The company ran a Chinese restaurant. When challenged by HMRC, the owner, Kit Ling Chan, admitted that a supplier had provided goods via separate credit and cash accounts. The cash purchases were suppressed so as that understatement of sales would not be noticed. Till roll receipts were also deliberately destroyed. HMRC raised VAT and CT assessments (including those under CTA 2010, s. 455) and deliberate and concealed penalties calculated on a “best judgement” basis.
The assessments were appealed on the grounds that their calculation was flawed and that the HMRC officer “guessed because she drew inferences from the amounts” that subsequent evidence proved to be incorrect. The “deliberate and concealed” status of the penalties were also challenged.
The FTT reviewed the approach taken and the calculations made and concluded:
“We find nothing spurious or irrational in the approach taken. It was a careful, rational extrapolation from what she had found out (that there was an under-declaration of purchases) using other information available to her.”
Initially, the irregularity was believed to have gone on for a longer period and the assessments had been calculated on this basis. The company subsequently produced evidence that showed it had had a relationship with the supplier for a shorter period than was initially thought. HMRC had revised their assessments to take this into account. This was not held to be evidence that HMRC’s approach had been flawed.
The FTT also upheld that the error had been deliberate and concealed.