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Cheung v Customs and Excise [2003] UKVAT V18276 (11 August 2003)

18276

PENALTIES – Evasion – Director – Restaurant – Suppression of sales – Entire penalty apportioned to one director who was involved throughout – VATA 1994 s.61 – Appeal dismissed

LONDON TRIBUNAL CENTRE

DYANNE CHEUNG Appellant

- and -

THE COMMISSIONERS OF CUSTOMS AND EXCISE Respondents

Tribunal: THEODORE WALLACE (Chairman)

ROY JENNINGS, FCA, FTII

Sitting in public in London on 17 – 20 March and 17 May 2003

Richard Barlow, Counsel, instructed by WJB Chiltern plc, for the Appellant

Jeremy Hyam, Counsel, instructed by the Solicitor for the Customs and Excise, for the Respondents.

© CROWN COPYRIGHT 2003

DECISION

1. Mrs Cheung appeals against evasion penalties of £73,290 for eight accounting periods from 26 August 1998 to 31 July 2000 assessed on her as a director of West West Ltd. The entire penalty has been apportioned to her under section 61 of the VAT Act 1994 on the basis that the conduct giving rise to the penalty was wholly attributable to her dishonesty. Mitigation of 5 per cent was allowed for co-operation.
2. The Commissioners alleged that 30 per cent of the takings over the period in question were suppressed and that the Appellant was responsible.
3. West West Ltd, which is now in liquidation, traded as Mr Au Restaurant, a buffet-style Chinese restaurant, which was situated just off Leicester Square in Central London. The company registered for VAT from 26 August 1998. The liquidator did not pursue the appeal against the assessment.
4. In paragraph 13 of their Statement of Case, the Commissioners relied on the following matters to show dishonesty by the Appellant:

(1) on 27 July 2000 at a visit by officers the Appellant stated at first that the bill pads were not numbered, but when confronted with unused bills with a number printed at the top said that customers did not get the numbered part;

(2) on seven separate days all bills given to officers had numbers;

(3) the Appellant said that she or a manager did the cashing up;

(4)(a) the absence of numbers on the bills in the records, the proper inference being that the Appellant who was responsible for the day to day running of the business including cashing up must have disposed of the bill numbers;

(4)(b) eight bills for meals purchased by officers on 13 March and 20 April 1999 and on 11 March 2000 were not in the add-lists for daily gross takings compiled by the Appellant;

(4)(c) although the Appellant operated a tightly controlled system, being present almost every evening and doing the cashing up with the numbered bills used and the pads being kept locked, between 30 and 46 per cent of bills used were not declared.

5. The particulars originally given in paragraph 13 of the Statement of Case were much less specific. Those at paragraph 13(4) summarised above were as amended during the luncheon break on the first day of the appeal hearing.

The evidence

6. The Commissioners called three witnesses, Jonathan Heath, Mrs Carolyn Spriggs and Ian Manly who were all cross-examined. The Commissioner put 17 witness statements in evidence; these were not disputed. The Appellant gave evidence as did the former manager.
7. On 5 January 1999, Jonathan Heath who was then engaged on assurance of West End restaurants visited the restaurant by appointment to check a repayment claim for the initial period to 31 October 1998. The registration application which was signed by the Appellant as director showed the business as having been transferred on 26 August 1998 and the anticipated taxable supplies in the next 12 months as £900,000.
8. Mr Heath was unable to produce a copy of the original return or any subsequent returns. He produced a computer print-out at the Tribunal's request. Although this showed the return figures for subsequent periods, those for the first period had been corrected. His visit note showed outputs declared for 10/98 as £28,903 plus £5,058 VAT. This was for 23 days trading, since the restaurant opened on 9 October 1998 following a total refurbishment.
9. He prepared a visit report over 3 weeks later from his notes at the visit. He produced his visit notes which were extensive during his evidence on the first day; these had not been listed and were not in the bundle of documents.
10. The visit lasted from 10.15 am to 12.45 pm. Mr Heath saw the Appellant and Mr Wong, the accountant.
11. He noted that the total outlay on the business had been £350,000, of which £250,000 was for the lease and £35,000 was on refurbishment; £100,000 was contributed by Mr Y K Hou, the other director. There were four or five shareholders. The annual rent was £21,250. The bank was in Reading.
12. Mr Heath noted that the restaurant was open daily from noon to midnight. The food was a fixed price buffet for £4.50. Wine, beer and soft drinks including Coca-cola were served; the price varied from £7.50 for a bottle of wine to £1 for a soft drink. Customers were given a table and a bill showing the number of meals; drinks were added as ordered. The bills had a tear off slip at the bottom if a customer wanted a receipt. The bills came in pads of 100. Mr Heath recorded that he was told that usually only one pad was in use at any one time and that the manager had them. He said that the Appellant told him this. Credit cards were not accepted. He noted that cashing-up was done by Mr Hou, the Appellant or the manager, at the end of the evening. The bills were added up and checked against the money in the cash box and cheques. The bills were kept together with the add-roll attached. He noted that Mr Hou kept the cash, banking it weekly. Wages and cash purchases were paid from the cash before banking Mr Heath was told that there were 13 staff: six chefs, four waiters, the manager, the Appellant and a cashier. The wage bill was around £1300 weekly of which the Appellant got £350 and the manager £200; Mr Hou drew nothing.
13. He noted that there were 95 bills with 287 covers for 3 January 1999; he recorded the drink proportion at 13.2 per cent. The restaurant was on three floors. The ground floor where the cashier was situated had eight tables with seating for 27 customers; there was a first (or upper ground) floor a few steps higher than the ground floor, this had the buffet with 8 tables and seating for 32 customers; the second floor was over the other two floors and was considerably larger with 20 tables seating 85 customers.
14. Mr Heath was told that the Appellant prepared a weekly sales summary sheet which went to the accountant to prepare the VAT return.
15. After checking the purchase invoices including the refurbishment expenditure, Mr Heath did a quick drinks to meals mark-up exercise. He estimated the mark-up on drinks at 300 per cent, this was on the basis that the mark-up on wine was 158 per cent, Coca-Cola at 6 glasses for a 1½ litre bottle 500 per cent, Perrier 257 per cent and Evian 378 per cent. He applied a drinks to meals ratio of 13.2 per cent. On that basis he concluded that sales for the initial period should have been around £90,000 compared with declared sales on the first return of £34,000 including VAT; if a 200 per cent mark-up was applied he concluded that sales should have been £68,000.
16. Mr Heath noted in his visit report prepared 3 weeks later "Tdr stated that not more than one bill pad used per day." This was not however in his contemporaneous note. In evidence he said the Appellant and Mr Wong said they "rarely" used more than one pad in a day. The Appellant denied saying this. Given the absence of a reference to this in the note, we are not satisfied that the Appellant did say this.
17. Also in his visit report Mr Heath wrote, "I find it unlikely that D. Cheung is actually in control of the business. She has no experience of running a restaurant (she was previously a waitress) and did not seem to have full grasp of the operation. Mr Hou, who put in £100K, controls the money but doesn't really have anything to do with the restaurant?"
18. Mr Heath was not satisfied as to the credibility of the business and decided to carry out observations and test purchases and to check up the records.
19. On Saturday 13 March 1999 officers attended in relays from just after mid-day until last orders at 11.30pm. Mr Heath's intention was that officers would be present all the time and would count the number of customers. In the event some officers did not carry out his instructions correctly and no reliable count was obtained. However other material was obtained. The officers made notes from which their statements were made. From the witness statements we set out the time of arrival, the place where they sat, the bill numbers which they received and the amount, starting with 13 March:

1205 Andre Boyce First floor No 66 £6.50

1345 Martin Paren First 7 6.50

1450 Elsie Stilwell and Rod McAleer Ground 47 12.00

1625 Robert John Phillips Ground 97 7.50

1755 Leslie Douglas Renders Ground 50 6.00

1930 Kenneth George Rhodes Ground 16 6.00

2100 William Sassell Ground 61 7.00

2225 William James David Baker Ground 89 14.00

Mr Baker stated that the last orders were taken at 2330 hrs and that the number on the last bill was "00".

20. We observe at this point that the details for 13 March 1999 are particularly important because Mrs Sprigs based her assessment on a comparison between the numbers on the bills issued on that day and the number of bills declared.
21. Further test meals were eaten on Tuesday 20 April 1999. The details taken from the witness statements were as follows:

1340 Nicola Garrod and another First floor No 71 £15.00

1640 Mr Paren and Mr Baker First 7 £14.00

1812 Mr Renders and another Ground 37 15.00

2115 Karen Spittlehouse and Diane Downie First 98 13.00

2246 Fay Evans and Mr Phillips First 13 13.00

Fay Evans left at 2340 hrs.

22. Over nine months later Mr Heath paid another visit by appointment on 7 February 2000 and saw the Appellant and Mr Wong in a large staff room upstairs. He wished to check the sales figures against the test purchases but did not have the details of test purchases with him. He recorded in his notebook details from all the bills for 13 March and 20 April 1999; this took up five pages in his notebook.
23. He checked the sales figures for period 4/99 for which sales plus VAT had been declared of £174,855, an average of £1921 daily. On 13 March 1999, the add-list showed sales of £3,240.50 on 207 bills. For 20 April 1999 the add-list showed sales of £1400.50 on 105 bills.
24. Mr Heath noted that the Appellant told him that she cashed up on both days. Although the bills which the officers had been given had numbers on them, none of the bills he was shown had numbers. Mr Heath considered that by the time of this visit the Appellant had more idea of what was going on than she had on 5 January 1999.
25. When Mr Heath checked the test purchases against the bills in the records, there was only one bill for £6 on 13 March 1999 and there were no bills for £7 on that day.
26. Mr Heath noted that there were no £15 bills in the records for 20 April 1999; there was one £13 bill.
27. He did another weighted mark-up exercise based on the drinks percentage of 20.86 on the two days. This ratio was much higher than the 13.2% on 3 January 1999. On the basis of the drink purchases of £11,038 for period 4/99 the declared sales of £174, 855 indicated a drink mark-up of 230% which he considered to be too low. He made no allowance for wastage.
28. He decided to refer the case to the fiscal investigation team. The case was handed over to Mrs Carolyn Sprigg in about February 2000.
29. Further test purchases were made on 8 and 11 March 2000. Nothing clear emerged on 8 March. For 11 March there was no bill to match a meal purchased by Mr Renders for £7.50. There was no bill to match a purchase with two covers for £18 by Mr Rasmussen and Mr Baker and a further purchase for £13.50 was not matched.
30. Mrs Sprigg concluded from an analysis that two out of seven test purchases were not declared on 13 March 1999, three out of eight on 20 April 1999 and three out of nine on 11 March 2000. Having considered the evidence we accept this conclusion.
31. On 24 May 2000 Mrs Sprigg and Ian Manly ate a meal to observe the procedure followed. Mrs Sprigg had another meal on 31 May. On 8 June 2000 Mr Manly and another officer had another meal. A numbered bill was placed on their table with the number of covers and the drinks ordered on it. They took the bill to the cash desk where it was added; they did not keep the tear-off receipt at the bottom. Nothing else of note emerged from these test purchases. There was no suggestion that any of these meals were not declared.
32. On 27 July 2000 Mrs Sprigg and Mr Manly visited the restaurant by appointment and saw the Appellant and Mr Wong. Mrs Sprigg had a list of matters to be covered against which she made notes. Mr Manly kept a note of the meeting. The Appellant said that Mr Hou did not work in the business, that Tony Liu and Mr Cheuk worked full-time as managers and she was the only working director and was there every day and usually in the evening. There were six kitchen and six part-time waiting staff in addition to the managers; the weekly wage bill was £2,040.
33. The Appellant told them that the bills were added up at the end of each night; she did it if she was there, otherwise the manager did. The bills were compared with the cash and cheques and usually agreed. Both officers noted independently that the Appellant said that the bill numbers were not given to customers but stayed with the pad as a control so that the Appellant knew the number of bills issued. Mr Manly said that the Appellant had initially said that the bills had no numbers but altered this when blank pads with numbers were produced by Mr Liu the manager from a locked room; Mrs Sprigg had no note of this. The weekly sales and cash summary sheets were prepared by the Appellant; she wrote the date on the exhibited add-lists. Again both officers noted the Appellant as saying that only she and the manager took the cash at the counter; however neither officer was sure whether they had seen her on their earlier visits.
34. Mr Manly said that the Appellant pointed out a security camera focussed on the cashier's desk and said that Mr Liu would not take any money and bills out.
35. Notice 730 was issued at 11.30am. Mr Manly noted that he said that it does not make sense to issue a bill to a customer with a number and then tear it off: the Appellant had said no, she would not want to do that. The Appellant had said that a manager was sacked in October 1999 because bills had disappeared, but the problem continued with a few hundred pounds a week missing: a cashier was sacked in April 2000.
36. The bills exhibited to the Tribunal had two perforations apart from the join with the pad binding. The top part was short and only had a serial number; there was then the body of the bill and at the bottom was a tear-off receipt; neither of the latter were numbered. There was a perforation between the number and the body of the bill.
37. The assessment on the company was made by Mrs Sprigg. She conducted an analysis of the test purchases on 13 March and 20 April 1999 and 8 March and 11 March 2000, using the bills for those dates all of which had been uplifted and copies of the officers' notebooks. On the basis that one bill pad had been used at a time and that all the officers had been issued with numbered bills, she worked out how many bills must have been issued on each day; she compared this with the number declared.
38. For 13 March 1999 she took bill No. 66 issued to Mr Boyce as the first; there were therefore 35 bills from that pad for that day (66 to 100). She assumed that two more books of 100 covered the next four officers and another 61 bills were used up to Mr Sassell who she thought was the last officer. This gave 296 bills, compared with only 207 declared. This indicated that 30 per cent of the bills were undeclared. She failed to take account of bill No. 89 issued to Mr Baker on 13 March which would have given a higher suppression rate. She said that similar exercises for the other days gave higher percentage suppression rates. For 20 April 1999 she started with a bill which was not covered by a witness statement; on the basis of the statements the percentage for that day would have been 27 per cent.
39. Using her 30 per cent suppression figure for 13 March 1999, Mrs Sprigg raised assessments on the company on the basis that only 70 per cent of sales had been declared for the eight accounting periods starting with the initial period and through to 07/00. She took the declared gross outputs plus VAT, increased this figure by 100/70 to get estimated takings and applied the VAT fraction to the difference. The figures were as follows:

Declared Estimated Under declared Tax

10/98 £44,272 63,245 18,973 2,825

01/99 158,668 226,668 68,000 10,127

04/99 174,855 249,792 74,937 11,160

07/99 163,281 233,258 69,977 10,422

10/99 181,467 259,238 77,771 11,582

01/00 162,412 232,017 69,605 10,366

04/00 166,832 238,331 71,499 10,648

07/00 157,034 224,334 67,300 10,023

In fact the "declared" figure for 10/98 which was for the initial 23 days trading should have been £33,961 according to the figures recorded in Mr Heath's note (see paragraphs above). There was no explanation for the discrepancy in the complete print-out which had in any even been "corrected". Using Mrs Sprigg's methodology the figure assessed should have been £2,167 for 10/98.

40. Mrs Sprigg recommended that an evasion penalty be imposed on the company and apportioned to the Appellant because she was controlling the bills and what was declared and had acted dishonestly. 5 per cent mitigation was allowed because she had attended the visit and produced the records. The penalties apportioned were 95 per cent of the assessed tax.
41. Ko Nin Cheuk gave evidence through an interpreter before the Appellant. He was manager from 5 October 1998 until the restaurant closed in November 2002. At first there were two managers then there was just him. Mr Ching left in 2000; then Mr Liu was employed as assistant manager. Mr Cheuk supervised Mr Liu and was supervised by the Appellant.
42. Mr Cheuk said that he organised the system for bills. The waiter would give the customers a bill, writing the number of meals against "buffet" and marking the drink order. Further drinks would be added. At the end of the meal the customer took the bill to the cashier who added it up. If it was upstairs the waiter added the bill.
43. He said that bill pads were kept on each floor; sometimes the floor over the buffet was not used. At any one time there were up to three pads in use. The top floor pad was marked in Chinese. The unused pads were kept in a locked cupboard in the basement; he and the Appellant had keys.
44. Mr Cheuk said that at the end of the evening the cashier added up the bills and gave them to him to check. He checked the total number of bills and put them in a safe. The Appellant was not there when he counted up: she went home at about 10pm. Mr Cheuk said that he checked the price on each bill against the add list and the number of bills against the pad numbers.
45. He said that when the restaurant first opened customers were given bills with the numbers but after a year or so bills were issued without numbers. He kept the stubs to check the number of bills and then threw them away. He said that he did not tear off the numbers in the initial period before putting the bills in the safe. He said that he changed the system about a year ago.
46. Mr Cheuk said that it was not correct that there was always just one pad in use; he said that if the top floor was in use there was another pad. He said that at the end of the evening the upstairs takings were taken down to the cashier; "upstairs" was written in Chinese on the top of the file.
47. He said that the Appellant came in in the morning and checked the figures.
48. The Appellant told the Tribunal that Mr Hou who was a neighbour told her that he was opening a restaurant in Charing Cross Road and asked her to become a director to oversee it because she could read English documents. She was friendly with Mr Hou and his wife. She never put any money in. The restaurant was being redecorated and refurbished and Mr Hou had already opened bank accounts. She started to work there two weeks before the opening.
49. Mr Hou selected Mr Cheuk and the chef. Mr Cheuk employed the waiting staff and cashier. Mr Ching the first assistant manager was dismissed by her because takings were down by a few hundred.
50. The Appellant said that she came in at about 10 am daily after taking her young children to a nursery or playgroup. After opening and filing the mail, she opened the deposit safe which was drop in; she had the only key. She checked the petty cash and cheques against the add-list and counted the bills against the number on the add-list. She would then date the add-list. The manager would have counted cash payments. She put the bills into an archive box and returned the money and cheques. Mr Hou collected the money on Mondays. The Appellant prepared weekly Summary Sheets. Mr Hou decided how much to bank. Wages were paid on Saturday. She counted Friday, Saturday and Sunday takings on Monday.
51. She said that she collected all delivery notes, matched them with the invoices and either paid by cheque, countersigning blank cheques by Mr Hou, or gave them to the manager to pay cash. Administrative tasks like insurance, environmental health visits, pest control and broken windows all took time. Mr Hou decided on wages but she dealt with the payroll. Her work took until 5pm when she went home unless having dinner with friends; sometimes she went back for 10 minutes or so in the evening.
52. The Appellant said that she never did the cashing up in the evening; it was done by the cashier or one of the managers. She said that there were pads on each floor but there were not always customers on the second floor. The upstairs bills were taken downstairs at the end of the evening. The first upstairs bill had "upstairs" written on it in Chinese characters
53. The Appellant said that when she saw the bills in the mornings the numbers were not on them. The numbers were probably thrown away by the cashier; she did not know why.
54. She denied having said that only one pad was in use at a time or that only one pad was used per day. She did not tell Mr Manly that she sometimes cashed up: she had however said that it was her writing on the add-lists. She had not said that she kept a close eye on the staff using the camera; the camera was for security if drunks caused trouble.
55. The Appellant agreed with Mr Hyam that there was a fairly constant level of takings over two years.
56. She said that she had attended the meetings with Customs because she was the director and the boss. She said that she let the manager "get on with it". She never cashed up at night but sometimes, perhaps twice a week, came in and played cards upstairs.
57. She said that Mr Hou injected the capital; she reported to him weekly. He made the decisions and employed the manager and the chef. She had described him as a sleeping partner because he did not work there.
58. The Appellant said that she sacked the cashier around April or May 2000 because the takings were less and less every week and she had argued with customers.
59. She said that she only checked the number of bills against the add-list and not against the bill numbers. Mr Cheuk recorded the number of bills issued on the back of a pad but did not give it to her. When control was finished he threw it away. She said that she did not know where the bill tops with numbers went. They were not there when she counted in the morning. She did not tear them off. Mr Cheuk had not told her that at first bills were given to customers with numbers on.
60. She said that one bill pad was used at a time on each floor. It was not possible to use one pad for three floors. She said that sometimes customers tried to go out without paying: they had to pay upstairs if eating upstairs. One manager controlled the bottom two floors.
61. In answer to a question from the Tribunal she said that she carried out a double check next morning using the same type of machine, a Casio calculator.

Submissions

62. Mr Hyam relied on the matters set out in paragraph 13 of the Statement of Case, see paragraph 4 of this decision. He said that on the four days of test purchases bills were given to the officers with numbers in sequence. A substantial number of these had been undeclared. The bills found in the records had no numbers. The Appellant had given conflicting answers about the use of bills with numbers but had given no satisfactory evidence as to the absence of numbered bills in the records. He said that the system used in the restaurant was open to abuse but the Appellant ran a tightly controlled system keeping unused bill pads locked and cashing up herself every night. The inference was that she was responsible for the bills going missing, although she had tried to distance herself. At the least she had been reckless: this could be evidence of dishonesty, see Stuttard v Customs and Excise Commissioners [2000] STC 342.
63. Mr Cheuk had said that he checked the number of bills against the pads and put them in the safe. If that was true there was no one else apart from the Appellant to take the missing bills.
64. Mr Hyam submitted that there had been systematic suppression over a period of time. There had been no great variation of takings in the period covered by the penalty. The Appellant was the active director throughout. Circumstances pointed to her being the only person able to destroy the bills, maybe on the instructions of Mr Hou. He submitted that the Commissioners had established dishonesty throughout to a high degree of probability.
65. Mr Barlow said that the assessment being based on the first and last bill numbers depended on only one pad being used at a time. If more than one pad was in use, some may have only been partly used on the day. The evidence suggested that two pads were used at a time, one for each floor.
66. He said that some of the observation evidence was unsatisfactory; there were sufficient errors to call the cogency of the evidence as to underdeclaration into question for establishing dishonesty.
67. Mr Barlow said that it was not the Appellant's case that staff were to blame for the alleged discrepancy; she said that two employees had been dismissed but did not say they were to blame for the shortfall. The fact that there was an illogical or haphazard system did not prove dishonesty. She could have done many checks but there was no evidence that she had checked the number of bills; Mr Cheuk was supposed to do that. It was not clear what Mr Manly's notes meant by "cashed up".
68. He said that the Appellant was not a shareholder and Mr Heath was doubtful whether she was in charge. The penalty was imposed on the basis that the dishonesty was wholly attributable to her; the logic of their case was that she was the architect. Speculation was not proof enough. It was for Customs to show the amount evaded to the necessary standard of proof.

Decision

69. The Appellant has been assessed on the basis that the evasion of VAT from 26 August 1998 until 31 July 2000 totalling £77,153 was wholly attributable to her dishonesty. The penalty was reduced by 5 per cent for co-operation to £73,290.
70. Although the Act does not say so in terms the burden of proof is on the Commissioners to prove dishonesty against the director on whom an assessment has been made under section 61(3) of the VAT Act 1994. Everyone is presumed innocent until proved guilty, see Article 6.2 of the Human Rights Convention. Dishonesty and dishonest conduct do not exist in a vacuum. Here the alleged dishonesty involved evasion of tax. It must be for the Commissioner to prove also the VAT evaded by the alleged dishonest conduct. It is convenient to consider initially the evidence of underdeclaration.
71. The main evidence on which Mrs Spriggs based her assessment was the test purchases on 13 March 1999. Bills carrying numbers were issued to all the officers. We are satisfied that they were issued in sequence. The only question is whether one pad at a time was used for both floors or whether separate bills were used for the ground and first floors. All of the officers were on either the ground or first or mezzanine floor so as to be able to see customers coming in. Mrs Spriggs assumed that only one pad was used at a time for all floors. On that basis her deduction that 296 bills were issued up to Mr Sassell is in our judgment entirely logical. On the basis of Mr Baker's statement another 28 bills were issued up to 2255 hours. The bill he recorded as "00" was clearly 100; it is entirely reasonable to infer that eleven bills were issued between 2255 hours and 2330 hours. This gives a total of 335 compared with only 207 on the add-list. It follows that 128 bills were issued which were not on the add-list total which was used for the weekly summary supplied to the accountant to prepare the VAT return. If a different pad was being used for the first or upper ground floor, the clear inference is that more bills were issued. If yet another pad was used for the large second floor, the number of missing bills was even greater. There was no suggestion by the Appellant that single pads were split up among waiters for issue to customers. The clear evidence was that the bills came one by one from the pad at the cash desk and from pads kept on the other floors. Since there were on the ground floor only eight tables most of them for two, it would have required an incredibly fast turnover for 50 bills to have been issued for the ground floor only in the 95 minutes from 1450 hours: customers would only have been able to stay for an average of just over six minutes, see paragraph 19 above. We conclude that Mr Heath's note at paragraph 12 above that he was told that only one pad was in use at a time was correct, whether or not the practice changed later.
72. On the same reasoning the test purchases on Tuesday 20 April 1999 show that between 1340 hours and 2246 hours 143 bills were issued, compared with only 105 on the add-list. This is on the basis of test purchases covered by witness statements, not merely by notebooks without statements. Unless no bills were issued before 1340 hours and after 2246 hours, the actual number of missing bills was higher.
73. Analysis of the test purchases on 8 and 11 March 2000 showed more than 30 per cent of the bills for test purchases missing.
74. We have already stated at paragraph 30 that we accept Mrs Spriggs' conclusions as to purchases by officers for which either no bills of the same amount or insufficient bills of the same account were in the records.
75. We have no doubt that there was a substantial under declaration on all four days of the test purchases.
76. The bills were specially printed for Mr Au's Restaurant and carried numbers at the top. Numbered bills were still being issued to customers on 8 June 2000 (see paragraph 31). We can see no purpose in the bills being printed with numbers unless this was to check the number of bills issued. This was what the Appellant told the officers on 27 July 2000. Mr Cheuk said in evidence that he checked the number of bills issued against the paid bills. This is what we would expect and we accept his evidence on this. His evidence was that having counted and checked the bills he put them in the safe together with the add-list and the money. Both he and the Appellant said that she checked them in the morning. The Appellant said that she used the same type of Casio calculator as was used in the evening. We observe at this point that there were inconsistencies in Mr Clark's evidence and between his evidence and that of the Appellant.
77. Mr Barlow on instructions said that the Appellant was not blaming staff for the alleged discrepancy. At no time did the Appellant seek to blame Mr Cheuk who was her witness. If Mr Cheuk did (as he said) count the number of bills against those issued and dropped them into the safe with the add-list, a substantial proportion of the bills must have been removed afterwards and excluded from the add-list. The evidence was that the Appellant checked the bills in the morning and that she was the only person with a key to the safe apart from Mr Hou.
78. The Appellant showed herself to be not unintelligent when giving evidence, phrasing her answers with care. It is quite clear from the evidence that, apart from being an active director, she checked the figures daily. We are wholly unable to believe that some 30 per cent of bills were disappearing daily without her knowledge. We find it difficult to believe that Mr Hou could have been unaware. However the Appellant at no time suggested that he attended more than once a week.
79. We are satisfied that there was dishonest evasion in March and April 1999 and March 2000 and that the Appellant was involved.
80. The declared sales for the seven periods 01/99 to 07/00 moved within a narrow band of 7½ per cent either side of £169,250, those for 04/99 being £174,855 and those for 04/00 being £166,832. We have already concluded that there was dishonest evasion in those two periods, the clear inference was that there was dishonest evasion throughout. The declared figure for the last 23 days of October 1998 was £33,961. While we have reservations about Mr Heath's exercise at paragraph 15, on any view the sales were very low compared with drink purchases; it is not as though Mr Au's Restaurant was stocking a cellar, since the drink stock was only some £700. Our conclusion is that there was also dishonest evasion in the first period.
81. The Appellant did not seek to blame anyone; in particular she did not seek to blame Mr Hou. The extent of his involvement is wholly unclear. On the evidence the Appellant was involved throughout. No evidence has been placed before us on which we would be justified in reducing her portion in the light of the decision of Sedley J in Customs and Excise Commissioners v Bassimeh [1995] STC 910.
82. As stated at paragraph 39 above it seems clear that an incorrect figure was used for the initial period. The penalty for the initial period is accordingly reduced to 95 per cent of £2,167, which is £2,058. In future we stress that it is important that the Commissioners retain the original or at least a copy of the relevant returns when an assessment is under appeal.
83. The penalties are reduced by £625 to £72,665. Otherwise the appeal is dismissed.
84. We direct that any application for costs be made within 21 days and should specify the amount claimed. We are minded to disallow a proportion of the costs by reason of the Commissioners' failure to comply properly with the pre-trial directions.
85. Originally there was a Tribunal of three as is normal for evasion appeals however one member was indisposed on 17 May. The parties agreed that the remaining two members of the Tribunal should determine the appeal without any further participation by the other member.

THEODORE WALLACE

CHAIRMAN

RELEASED: 11 August 2003

LON/ 2001/837