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After under-cover visits in late 2014 and early 2015 HMRC concluded that a restaurant had suppressed sales on its VAT returns for periods between June 2011 and March 2015. In August 2016 the department assessed underpaid VAT of £158 953 based mainly on on-site observations about the ratio of cash versus card sales. The officer said that half of all cash sales were omitted from the returns with 63% of sales being for cash and 37% made by card. They raised the assessments using the power of best judgment (VATA 1994 s 73(1)).
After an internal review by a different HMRC officer the assessments were reduced to £95 365. The taxpayer appealed.
The First-tier Tribunal decided HMRC had not exercised best judgment and its ratios produced an ‘irrational result’. The judge considered the taxpayer’s calculation was more accurate with cash sales comprising 43% of total sales....
