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HMRC internal manual

Enquiry Manual

Recalculating Profits: Tax Cases - Coy v Kime 59TC447

The appellant in Coy v Kime was a London cab-driver with no other source of income. He kept a notebook which, he stated, was written up at the end of each day. He did not enter each fare when he received payment. The notebook consistently showed daily takings of £24 or £25. The Commissioners were satisfied that it was not an accurate record.

Coy v Kime shows the importance of ensuring that all relevant facts are brought to the Commissioners’ (now replaced by the tribunal) attention. If facts have been adduced, but are not included in the Draft Stated Case, the Inspector’s comments on the draft should make this clear.

The Inspector sought to recalculate the profits in two ways. Firstly, using a Family Expenditure Survey published by the Department of Employment, he computed the taxpayer’s probable living expenses. His computation showed a weekly deficit of at least £11 in the year to 5 April 1984, and £5.50 in the next year. Secondly, the Inspector prepared a business model on a fuel to takings ratio. This showed further profits of £1009 in the year under enquiry.

Finlay, J felt that one particular point was of prime importance - that the Commissioners found that the notebooks were not an accurate record. Once they had determined that, it was quite open to the Commissioners to use the evidence they felt appropriate in arriving at the assessments. Therefore the Inspector’s evidence in the form of the fuel to takings ratio and the Public Expenditure survey was perfectly admissible.

Averages of expenditure or average profit ratios cannot supplant actual figures. Where you have to use estimates, you should where possible use figures based on the facts of the particular business, as the Inspector used with the fuel to takings ratio. The case does show that in certain circumstances business economics exercises are proper material on which the tribunal (which has replaced the Commissioners) can base a determination and that averages may have some place when actual figures are not available. It also shows, as a study of an investigation, the usefulness of supporting a business economics exercise with some private side arguments - in this case based on the expenditure survey.