Dual invoicing by supplier meant profits were understated

The business (JF) was a Chinese takeaway operating on a cash only basis. During an investigation into one of its suppliers AMB HMRC found that AMB operated when requested two accounts for its customers.

HMRC obtained a list of all of the customers for whom two accounts were operated and found that JF had two accounts. JF’s tax returns and accounts only included (with one exception) purchases made on one of the two accounts. HMRC argued that the only reason to suppress purchases was to suppress sales derived from those purchases and therefore use the company’s recorded gross profit rate to compute the additional sale which would have come from those purchases.

The First-tier Tribunal agreed HMRC had made a case that the tax returns were incorrect: the burden of proof then shifted to the taxpayer to show why HMRC’s assessments were...