Analysis – What exactly is an honest citizen?

Are we required simply to comply with the legal obligations parliament has placed upon us or is there also an obligation to dance to whatever tune the tax authorities may from time to time choose to play? Before reading the decision in Stuttard v C & E Commissioners I thought I knew the answer to that.

Now I am not so sure.

Mr Stuttard bought a restaurant business. He took over the vendor’s accounting system. This was an unconventional one. When a customer ate in the restaurant the waitress made out an order slip. At the end of the day these were reconciled with the appropriate items on the till roll. For take-away food the assistant ticked the item on the till roll. Some items on the till roll were neither ticked nor matched by an order slip. Mr Stuttard assumed these were take-aways and that his staff had forgotten to tick them.

Both the VAT tribunal and Mr Justice Carnwath considered that giving oneself the benefit of the doubt in this way is inherently dishonest.

I find this puzzling. Lord Keith in his report on tax compliance saw nothing wrong with giving oneself the benefit of the doubt – he rejected a suggestion that people should have to tell the Revenue when they did this.

It seems to me far more likely that a person would forget to put a tick on a till roll than that a waitress could deliver a meal without creating an order form or that the order form could get lost. In these circumstances giving oneself the benefit of the doubt reflects probability. What is wrong with that?

When Customs requested permission to invigilate at the restaurant Mr Stuttard declined. The tribunal could not accept his ‘apparent indignation at the idea that this should be regarded as non-co-operation … one might have felt that a fortiori an innocent person … would welcome the opportunity to demonstrate his innocence’. I would have been indignant too. I am even more indignant at the approach of the tribunal. How can asserting one’s legal rights be non-co-operation? Parliament has decided it is appropriate to give specific powers to the tax authorities and not to give them other powers. In my view Customs should administer VAT within the confines of the powers that parliament has thought appropriate. It is wholly unreasonable to damn a person because he is not prepared to let them go beyond those powers.

Most people would, I suspect, find laughable the concept that if the tax authorities say to you ‘I think you are a crook; please can I come and sit in your shop to find evidence to support my views?’ the honest taxpayer would welcome them with open arms. I certainly wouldn’t. That is nothing to do with honesty. It is to do with the likelihood that however honest I am it could cause me a great deal of aggravation in a system where the tax authorities can raise an assessment on the basis of fairly flimsy evidence leaving me to disprove it.

I would rather not take the risk of them jumping to conclusions as to the conduct of my business over several years on the basis of one day’s observations. In this case Customs’ unofficial invigilation concluded only 1.15% of the transactions were zero rated whereas the tribunal found 12% was a more reasonable figure. That is not a little bit out. It is an enormous difference.

The tribunal also commented: ‘It might be asked by anyone with the slightest knowledge of commercial procedures why the Heath Robinson system of ticking the till roll was necessary at all; surely a modern till can distinguish between two types of transaction’. I for one wouldn’t have asked that. I would far rather a client use a system that he is comfortable with than adopt a ‘modern’ or conventional system that he is wary of. And I can see no rational reason why a shop assistant who forgets to tick a till roll will remember which special button to hit on a till.

They were also concerned that when Customs wrote Mr Stuttard a letter that made no sense he ignored it. If someone writes me nonsense, I admit that I ignore it too. I am horrified if this labels me dishonest. I wonder if lawyers are the right people to determine what a reasonable businessman would do. – Robert Maas is a tax partner at Blackstone Franks.

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