Best judgment assessment based on a four-day trading period

The taxpayers traded as a partnership in ladies’ fashion until they closed their shop in 2017. HMRC issued a ‘best judgment’ assessment for underdeclared output tax for periods March 2012 to September 2017. This was based on merchant data which showed that total credit/debit card sales made by the business equated to 111% of the turnover declared on VAT returns by the partnership so it was clear that takings had been understated which the partners accepted.

The dispute concerned the level of cash sales made by the business which HMRC based on a four-day trading period from 13 June to 16 June 2016 using a Challenge receipt book where both cash and card sales were recorded. This four-day period showed that cash sales were 28% of total sales which HMRC used to calculate the final assessment for the five-and-a-half-year period. This percentage was subsequently reduced...