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Drycleaners lose £25k tax appeal over Bank Holiday pricing

  • Writer: Will Drysdale
    Will Drysdale
  • Jun 9
  • 4 min read
Will Drysdale, Senior Reporter, Business & Accountancy Daily
Will Drysdale, Senior Reporter, Business & Accountancy Daily

The owners of a dry cleaners in Camden have lost an appeal against personal liability notices (PLNs) after failing to prove the average price of their service was lower than HMRC said.


This relates to a historic tax dispute which originated from VAT issues dating from over 16 years ago.


Paradise Dry Cleaners in Camden in London was issued a VAT assessment in 2017 for £102,170 for output tax between August 2009 and May 2016, which was subsequently reduced to £46,292.


But along with the VAT assessment was an inaccuracy penalty for £53,639 as HMRC said the company had deliberately underdeclared its VAT obligations, although this were recalculated to £24,291 to reflect the reduction in the VAT assessment.


Two years later, in March 2019, as the assessments remained unpaid, HMRC issued personal liability notices to the two directors, Hamid Mojarad and David Mojarad, for £12,145.50 each when the company was being dissolved.


The PLNs were issued as the company did not pay the penalty before going into liquidation. It was officially dissolved in July 2024.


The appeal by the Mojarad brothers was made late, but HMRC allowed it to go ahead as there had been a miscommunication between the two parties about the timing of the creditors’ meetings which affected the appeal submission.


Throughout 2016 HMRC officers James Ellis and Marie Evans visited the Paradise Dry Cleaners, sometimes unannounced as there were two ongoing investigations into VAT and corporation tax.


The officers issued the first assessment in March 2017, then the penalty in May the same year.


When Ellis first visited Paradise Dry Cleaners the till was broken and cash was kept in a lockable draw underneath the counter. The dry cleaners did not accept cards and traded from one NatWest business account.


Ellis checked the cash in the till draw which did not match with the amount of tickets that had been processed through the day, but Hamid Mojarad said his brother removed the rest of the cash earlier in the day as they did not like having too much money on site.


Hamid Mojarad provided Ellis with purchase invoices and bank statements, as well as a copy of the ticket book used to record customers’ purchases. One of the ticket books was not available. The appellants said the old ticket books were not kept on site either.


Officer Ellis conducted a VAT enquiry into the dry cleaners after this, while officer Evans conducted a corporation tax enquiry, with both enquiries evidence used in the hearing. By the time of the tribunal, the company was in liquidation, and the Mojarads’ representative and accountant, Dhiren Doshi, claimed the accounts were inaccessible due to this.


Doshi, the accountant of the dry cleaners, argued that the actions of the appellants were not deliberate, and that the PLNs were excessive due to the average ticket price used by HMRC in the investigation being too high.


HMRC representative, Paul Marks, did not back down on the average ticket price as the officers found that 375 tickets equated to £7,370.95 worth of sales, or £19.65 per ticket.


Doshi stated that the average price calculated by HMRC ‘fails to take into consideration that it is unlikely that prices would have been static for seven years’.


David Mojarad created an average price list from memory, claiming the most expensive service would cost £12.50 in 2016, £10.50 in 2009 and £7.50 in 2005.


Doshi calculated that the average ticket price should be closer to £13.97 for 2016. The accountant also argued that HMRC’s average price was higher due to the data being taken from around the May bank holiday, resulting in an influx of customers bringing bigger items to be cleaned.


Doshi also described the period around the May bank holiday like ‘Christmas for dry cleaners’, adding to the inflated invoices.


Tribunal Judge Rosa Pettifer said: ‘We note that the price list involves a gap of four and then seven years between changing prices, ie, even on the appellants’ case seven years may elapse before prices are changed.


‘Therefore, we do not accept that the price list is a credible or reliable basis on which to calculate the average ticket price and do not accept Mr Doshi’s submission that the prices must have changed in the preceding seven years.’


David Mojarad then claimed that between 10 working days in 2018 the business issued 89 tickets worth £1,243, making the average ticket price £13.97. However, there was no evidence brought forward to prove this.


Judge Pettifer added: ‘We have some sympathy with the broad proposition that for a dry cleaner May – June might involve a greater concentration of higher-than-average ticket prices because of the two bank holidays in May.


‘However, in order to form part of our decision as to average ticket price we are required to consider the evidence before us. The appellants’ position is that we should simply discount the larger priced items and create a new average ticket price.’


The tribunal sided with HMRC, keeping the average price per ticket at £19.65 and therefore the PLNs were upheld.


The appeal was dismissed.


 
 
 

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