Purchases of stock had been suppressed

The taxpayer was a general store operated in partnership by a married couple. HMRC decided that there were suppressed sales and purchases for the period 1 February 2005 until the store closed on 31 October 2012. It issued a ‘best judgment’ output tax assessment along with penalties. Input tax was not an issue because the business used the flat rate scheme and the assessment was calculated in accordance with the scheme.

Using 2010-11 as a base year HMRC calculated an average suppression rate of 164% which it extrapolated to other years and then projected unrecorded takings on these purchases.

It decided that the underpaid VAT was caused by deliberate and concealed behaviour by the partners – hence the assessment covered more than four years. Deliberate underpayments can be corrected by up to 20 years.

The partners said that the suppressed purchases was not deliberate but caused by excessive...