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XXXXXXX XXXXXXXXXXX
Appellant
And
COMMISSIONERS FOR HER MAJESTY'S REVENUE &
CUSTOMS (HMRC)
Respondent
xxxxxxxxxxxxxxxxxxx
STATEMENT OF CASE BY THE APPELLANT
DATA
Background
In situations where HMRC is reviewing historically declared income
it is both common and appropriate for it to undertake an exercise
involving a series of tests designed, on the balance of probabilities,
to verify the income declared, or to suggest an alternative figure.
By their very nature each of these tests in isolation can provide
nothing more than an estimated and indicative outcome.
HMRC's Business Sales Exercise Indicator
| 1. |
The Business Sales Exercise
This Business Sales Exercise was the only test used by HMRC
in arriving at the alleged under declaration of sales. The
test produces a rough estimation of possible trading results.
HMRC's final "conclusion" in relation to this exercise
was based on an analysis of a period in respect of which it
was known by HMRC that the results would be artificially distorted
upwards.
There was no realistic methodology whereby the deviation
from the norm consequent on the foregoing could be established.
HMRC therefore undertook a secondary estimation exercise,
in relation to the data from the first exercise, to "compensate"
for the unknown quantity.
|
| 2. |
The figure thus finally proposed by HMRC is a
secondary roughly estimated figure, derived from a previously
roughly estimated figure, relating to just 7% of the trading
period it allegedly is representative of. |
Financial Indicators
| 3. |
Tips (HMRC Doc 30)
Tips have been declared for the 3 years ended 5th April 2008. |
| 4. |
Cash Account Balances (HMRC Doc 30)
The cash accounts are balanced, with appropriate opening and
closing balances for the 3 years ended 5th April 2008. |
| 5. |
Cash Expenditure (HMRC Doc 30)
Cash expenditure, including xxxxxxxxx cash drawings are fully
balanced in the accountant's cash accounts for the 3 years ended
5th April 2008. |
| 6. |
Bankings (HMRC Doc 30)
There are no unidentified bankings for the 3 years ended 5th
April 2008. |
| 7. |
Other Financial Matters (Doc A1)
Mr & Mrs Xxxxxxxxxxxxxxxxxx moved, and downsized and their
home, on 21 August 2008.
The completion statement and associated documents demonstrate
that there have not been any unidentified cash inputs in relation
either to the mortgage payments or in relation to the capital
cost of the transaction.
|
Personal Indicators
| 8. |
Cash Drawings
The drawings are consistent and commensurate with the level
of drawings that experience suggests to be appropriate for a
business of this nature.
y/e 05.04.06, Cash Drawings £xxxxxxxxx
y/e 05.04.07, Cash Drawings £xxxxxxxxx
y/e 05.04.08, Cash Drawings £xxxxxxxxx |
| 9. |
Overall Family Drawings Level
The overall family drawings are consistent, and adequate to
sustain the lifestyle of this couple (see 10 below). Mr Xxxxxxxxxxxxxxxxxx
also is self employed and the figures for his drawings relate
to his separate business profits.
y/e 05.04.06,
| Mrs Xxxxxxx's cash drawings |
£xxxxxxxxx |
| Mr Xxxxxxx's cash drawings |
£xxxxxxxxx |
| Mrs Xxxxxxx's pension |
£xxxxxxxxx |
| |
£XXXXXX |
y/e 05.04.07,
| Mrs Xxxxxxx's cash drawings |
£xxxxxxxxx |
| Mr Xxxxxxx's cash drawings |
£xxxxxxxxx |
| Mrs Xxxxxxx's pension |
£xxxxxxxxx |
| |
£XXXXXX |
y/e 05.04.08,
| Mrs Xxxxxxx's cash drawings |
£xxxxxxxxx |
| Mr Xxxxxxx's cash drawings |
£xxxxxxxxx |
| Mrs Xxxxxxx's pension |
£xxxxxxxxx |
| Mr Xxxxxxx's pension |
£xxxxxxxxx |
| |
£XXXXXX |
|
| 10. |
Family Lifestyle
There is nothing to suggest that this family's lifestyle is
anything other than extremely modest.
There is absolutely nothing to suggest the inappropriate
acquisition of wealth.
|
ARGUMENT (1)
| 11. |
The type of business sales exercise used by HMRC
is a valid tool when used in association with other indicators.
Used on it's own, even when the basis underlying its use is
sound, it offers nothing more than a means of arriving at
a roughly estimated, figure. |
| 12. |
In this case the underlying basis was far from sound and
the following apply.
a. HMRC knew, even before conducting the exercise, that it
was basing its analysis on a period in respect of which it
was known that the sales results would be artificially
distorted upwards.
b. The reason for this was that the salon was to be temporarily
closed for the first time ever. The clientele of the salon
comprised regular cyclical visitors who would be attending
"prematurely" for attention before the salon was
closed. There were numbers of variables and there was no
factual methodology whereby the deviation from the norm
consequent on a. above could be established.
c. Consequently having undertaken an original exercise, HMRC
presumed to be able to analyse the unknown, and undertook
a secondary estimation exercise aimed at adjusting for the
unknown quantity.
d. The figure finally proposed by HMRC is therefore,
a secondary roughly estimated figure,
derived from a previously and equally roughly estimated figure,
relating to just 7% of the trading period it allegedly is
"representative" of.
e. Both the underlying methodology, and the proposed result,
have been consistently and vehemently contested by SAS Accounting
Services, the accountancy company contemporaneously involved
in the calculative interaction with HMRC.
|
For completeness we note that HMRC was made aware of the additional
information contained in the financial indictors at 4 - 7, yet failed
to take it into account in coming to its conclusion.
SUBMISSION 1
| 13. |
We respectfully suggest, on the basis of a - e
of the argument at (1) alone, that the argument adduced by HMRC
in this respect is discredited, and unsustainable, on the balance
of probabilities. HMRC's decision to register the applicant
for VAT in respect of the period 1 February 2006 - 30 April
2008 was not correct and that decision should not be upheld. |
ARGUMENT 2
| 14. |
In referring to the Indicators at 3 - 10 we have
indicated many of the tests that HMRC might apply, in a case
of this nature, to establish a likely situation. Not only was
all of this information available to HMRC but some of it, the
indicators at 3 - 6 for example had actually been supplied.
Although challenged, HMRC chose not to take the information
into account in it consideration of the case. |
| 15. |
The Financial Indicators at 3 - 7 offer absolutely
no suggestion, let alone evidence of financial impropriety of
any sort. The contrary, even the tips received have been declared,
and the overall suggestion is one of an honest and truthfully
recording of business activities. |
| 16. |
The Personal Indicators at 8 - 11 are totally
indicative that the appellant and her husband have been able
to, and indeed have lived within the availability of income
declared. There is absolutely nothing to suggest that there
has been any form of impropriety. |
SUBMISSION 2
| 17. |
We previously suggested that the argument adduced
by HMRC was discredited by virtue of argument 1 alone. We now
further respectfully suggest that taking into account also the
additional facts at argument 2 we have demonstrated significantly
on the balance of probabilities that the argument adduced by
HMRC is discredited and unsustainable. HMRC's decision to register
the applicant for VAT in respect of the period 1 February 2006
- 30 April 2008 was not correct and the decision should not
be upheld. |
XXXXXXXXXXXXXXXX
Appellant
And
COMMISSIONERS FOR HER MAJESTY'S REVENUE &
CUSTOMS (HMRC)
Respondent
XXXXXXXX
LIST OF DOCUMENTS FOR THE APPELLANT
The documents in the Appellant's possession custody and power relating
to the appeal and which it is intended to produce at the hearing
are as follows.
A1; Copies of financial data relating to
property issues
A2; Documents relating to motor vehicles
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