HM Revenue and Customs (HMRC) officers wield great power but are not immune from error and, with the right legal advice, their decisions can sometimes be overturned. In one case, a Chinese restaurant accused of systematically under-declaring its takings was exonerated by the First-tier Tribunal (FTT) – and relieved of bills totalling almost £200,000.
The restaurant was the subject of unannounced visits from HMRC officers on two Friday nights. Following analysis of till records and other material, HMRC concluded that the restaurant's takings had been under-declared over a period of about three years. Demands for payment of additional VAT and Corporation Tax were raised totalling £105,111. On the basis that the under-declarations were deliberate and concealed, penalties totalling £94,340 were also imposed.
In upholding an appeal brought by the company that ran the restaurant, the FTT noted arguments that the relevant Friday nights, one of which marked Chinese New Year, were unusually busy and were not representative of the restaurant's typical takings.
The evidence was hardly consistent with an organised attempt to conceal sales and there was no coherent basis for officers' arbitrary assumption that the restaurant's turnover had been suppressed. The above-average takings on the Friday nights in question could just as readily be explained by random fluctuations as by systematic suppression.
HMRC had simply assumed the worst and the lack of primary evidence of takings suppression added to a general impression of the slight carelessness with which the whole case had been conducted. The tax demands and penalties were overturned in their entirety.