Best On Convenience Store v HMRC concerned an appeal by Best On Convenience Store, a partnership operated by former spouses Tasleem and Salim Balesaria, against assessments of unpaid VAT and income tax issued by HMRC. The assessments related to the periods from 2005 to 2012, during which the store traded in Blackpool. HMRC opened an investigation after discrepancies were found between the declared income and VAT in the store’s tax returns and the income evidenced by the partners’ bank statements. The investigation subsequently found deliberate suppression of sales and purchases in the records provided to HMRC.

The First-Tier Tax Tribunal upheld the assessments, finding that Mr and Mrs Balesaria had deliberately provided inaccurate and incomplete information to evade tax liabilities over a sustained period. Penalties for dishonest and deliberate conduct were also upheld.

This case warns other small businesses who may be tempted to under-declare income and fiddle with their accounts. But it also highlights lessons on how tax investigations are conducted, how suppression of information is detected, and the importance of full cooperation when irregularities come to light.

The Dangers of Persistent Evasion

A key takeaway from this case is the severe consequences businesses face that engage in sustained and systematic tax evasion over many years. The suppression of sales and purchases at Best On was not an isolated incident or one-off mistake – the Tribunal found deliberate concealment took place continuously over eight years.

Once an investigation commences, persistent evaders have no opportunity to confess to isolated errors. By denying and concealing the truth, they become trapped in their web of deception.

The result was a large tax bill with interest and maximum civil penalties for dishonesty. Further prosecution was only avoided by cooperating under HMRC’s contractual disclosure rules. Other cases have seen criminal convictions.

For businesses struggling with cash flow who may contemplate short-term fiddling, this case shows how easily evasion can become habitual. It also shows how investigations intensify when initial suspicions are confirmed, making full disclosure impossible. The consequences aren’t worth the risk.

COP9 Investigation Methodology

This case provides insight into HMRC’s methods for identifying possible tax evasion and how suspicions are confirmed during an investigation. The alarm bells rang here after a routine check spotted discrepancies between declared income and the partners’ bank statements. Bank evidence is frequently pivotal – HMRC can access suspects’ accounts for many years.

The initial evidence led to a full Code of Practice 9 investigation. By collecting further data, including supplier sales records, HMRC established that under-declaration of income was systemic and long-running.

Significantly, the Tribunal did not accept the taxpayers’ explanations – purchase invoices blew away, and receipts were accidentally discarded. It found these claims simply not credible over such a long period.

This shows businesses should not underestimate how much evidence HMRC can unearth nor rely on implausible excuses being believed without hard proof. Once suspicions arise, expect investigations to be rigorous and extensive.

The Dangers of Incomplete CDF

A further lesson is the danger of responding inadequately when irregularities emerge.

Here, Mr and Mrs Balesaria cooperated initially by entering a Contractual Disclosure Facility (CDF). This meant providing full details of any tax irregularities in return for immunity from prosecution.

However, the Tribunal found the disclosure was deliberately incomplete. Critical information was withheld, and the scale of evasion was understated. The taxpayers stuck to their implausible explanations when queried by investigators.

The result was that they lost any credit for cooperating early. Penalties took no account of mitigation for voluntary disclosure. This shows that half-hearted cooperation may be worse than none – if confession is avoided, any lies or omissions will be exposed in due course.

For any business-facing investigation, this case emphasises the need for unrestricted self-disclosure at the earliest stage. Seek professional advice on using CDCs, but resist any temptation to hold information back. The risks are too great.

Approach to Appeals

For those facing tax assessments, important lessons can be drawn on the most effective grounds for appeal.

The Tribunal was clear that the burden of proof rested with HMRC to show Best On’s assessments were correctly calculated on a ‘best judgement’ basis. However, once a prima facie case is made, the burden shifts to taxpayers to show why HMRC’s figures are wrong.

Here, the Tribunal found the appellants’ blanket denials of dishonesty and evasion unconvincing without supporting evidence. They could not cast credible doubt on HMRC’s methodology or the external supplier records confirming large unexplained discrepancies.

This suggests appeals have limited prospects of success without substantive evidence countering HMRC’s calculations methodically point-by-point. Vague objections or relying on implausible excuses are unlikely to satisfy a Tribunal without solid proof. Professional representation is advisable.

Lessons for Tax Compliance

The overall message from this case is unequivocal – persistent tax evasion doesn’t pay. But some important lessons emerge on how smaller businesses can meet their fiscal obligations and demonstrate compliance:

• Maintain detailed and accurate records for at least six years to support income and expenditure. Refrain from relying on estimates.
• Reconcile business accounts frequently and ensure they match secondary evidence like bank statements. Investigate and resolve discrepancies – pay attention to them.
• Comply with VAT rules—Cross-check supplier invoices against VAT returns and bank payments.
• Seek professional advice at the earliest opportunity if errors emerge. Using a CDF can provide immunity if full disclosure is made.
• Cooperate fully during any tax investigation and answer questions transparently. But take professional advice before volunteering information.
• Be aware that HMRC has extensive powers to gather evidence from third parties like banks. Taxpayers’ explanations will be rigorously challenged.
• In appeals, accept that the burden of proof lies with the taxpayer once HMRC establishes a prima facie case. More than vague assertions will be required.

Conclusion

Cases like Best On Convenience Store demonstrate HMRC’s determination to clamp down hard when systemic tax evasion is detected. For small businesses struggling to make ends meet, the temptation to keep some undeclared cash may be strong. But as this case shows, the consequences of succumbing far outweigh any short-term gain.

For COP9 Tax Investigations, tax resolution or compliance, please contact Tax Accountant at 0800 135 7323 or email info@taxaccountant.co.uk for expert advice.