The First-tier Tribunal (FTT) recently heard an appeal by a fish and chip shop owner against a number of assessments issued by HMRC. The takeaways owner, Ernest Bustard has been supplying fish and chips in Ballymoney, Co. Antrim for more than 30 years and seems to be a local institution.

HMRC visited the premises in 2008 and reached the conclusion that the taxpayer's takings had been under-declared. The taxpayer was unable to produce proper evidence of his turnover as he zeroed his till each week. This prompted HMRC to undertake a mark-up exercise to assess turnover and profits over a five year period. This resulted in Mr Bustard being told that he had underpaid VAT of more than £26,000 and being hit with late payment penalties of over £25,000.

HMRC estimated the businesses gross profit margin at 68% however the Tribunal Judge agreed with the taxpayer that fish and chip shops generally have lower profit margins when other factors such as food waste are taken into account. The taxpayer vehemently disagreed with the underlying calculations and estimated his gross profit margin at 57.5%.

Whilst the Tribunal was clear that it is not HMRC’s job to do the work of the taxpayer in order to form a conclusion as to the amount of tax which is due there was some sympathy for the taxpayer.

In his closing statements Judge Connell said 'although the assessments by HMRC have not been reached capriciously, arbitrarily or as a ‘spurious estimate or guess in which all elements of judgement are missing', in our view, on the information and material available and for the reasons set out above, the assessments to VAT and Income Tax, are not to best judgement.'

The taxpayers appeal was therefore allowed and the VAT assessments and penalties were reduced to nil. Whilst this is a slightly unusual case it does serve to demonstrate the importance for small businesses especially those that deal in cash of keeping proper records to underscore their turnover and profit figures.