Massala Exotic: the Upper Tribunal is not a second chance to prove the case you should have proved at the FTT

The recent Upper Tribunal decision in Massala Exotic Limited and Khosru Miah v HMRC [2026] UKUT 00355 (TCC) contains an important lesson for anyone involved in a VAT dispute.

It concerns HMRC’s use of estimated turnover, merchant-acquirer data, deliberate penalties and a personal liability notice. But perhaps the most important practical point is much simpler:

An appeal is not an opportunity to have another go with the evidence you should have produced the first time.

That message should matter to taxpayers and advisers alike.

The background

Massala Exotic Limited operated an Indian restaurant. HMRC concluded that the company had underdeclared its takings for VAT periods from 09/13 to 09/19 and raised a best-judgment VAT assessment of £280,903.

HMRC also imposed a penalty of £176,966.37, representing 63% of the VAT assessed, on the basis that the inaccuracies were deliberate. A personal liability notice was then issued to the company’s director, Mr Khosru Miah.

The First-tier Tribunal upheld the VAT assessment, the penalty and the personal liability notice.

Mr Miah subsequently sought permission to appeal to the Upper Tribunal. The decision issued on 16 September 2026 concerns that application for permission rather than a substantive hearing of the appeal.

HMRC did not have complete evidence for every period

One of the more striking features of the case was HMRC’s approach to the later VAT periods.

For the earlier periods, HMRC had merchant-acquirer information showing card receipts.

However, after June 2016 equivalent merchant-acquirer information was no longer available.

HMRC therefore took the expected gross-sales figure from the last evidenced period, £240,780.56, and repeated it for each subsequent quarter until September 2019.

That produced the same VAT assessment of £11,236.43 per quarter for approximately three years.

At first sight, that might appear vulnerable. Restaurants do not normally produce precisely identical turnover quarter after quarter for three years.

The taxpayer argued that the calculation failed to account for matters including seasonality, changing trading conditions, declining turnover and the fact that the restaurant ultimately ceased trading.

Nevertheless, the Upper Tribunal refused permission to appeal on this ground.

“Best judgment” does not mean perfect judgment

The important distinction is that a best-judgment assessment does not have to be a perfect reconstruction of the taxpayer’s actual turnover.

The FTT had concluded that HMRC started with empirical evidence: VAT returns and merchant-acquirer information. For periods where merchant-acquirer information was unavailable, HMRC used the last sales figure supported by that evidence.

HMRC could have increased the figure for inflation using RPI but did not do so, something the FTT considered favourable to the taxpayer.

The Upper Tribunal found no arguable error of law in that approach.

The decision refers to the established principle from Van Boeckel that HMRC is not required to carry out exhaustive investigations or effectively do the taxpayer’s work for it. The assessment must instead represent an honest and genuine attempt, based on the available material, to arrive at a reasonable figure rather than an arbitrary one.

This distinction is critical.

It is not enough for a taxpayer merely to say:

“HMRC’s estimate cannot be right.”

The taxpayer must normally be able to demonstrate why it is wrong and, ideally, what a more accurate figure should be.

If turnover really declined, prove it

The Upper Tribunal specifically noted that Mr Miah had not produced documentary evidence to the FTT demonstrating that the restaurant’s turnover had declined or varied after 2016.

That left HMRC’s extrapolation substantially unchallenged from an evidential perspective.

That is an important point in practice.

Suppose HMRC takes merchant-acquirer turnover from 2023 and uses it to estimate turnover for 2024 and 2025.

An adviser can criticise that approach for ignoring changing economic conditions, altered opening hours, staffing problems or a reduction in trading.

But criticism alone is much weaker than producing evidence showing, for example:

• weekly or monthly EPOS reports demonstrating declining sales;
• bank statements showing reduced receipts;
• merchant-acquirer records;
• Deliveroo, Just Eat or Uber Eats transaction reports;
• evidence that the business reduced its opening hours;
• evidence of prolonged closure;
• staffing records showing a reduction in trading capacity; or
• contemporaneous accounts or management information.

If the taxpayer says turnover fell by 30%, the question quickly becomes: where is the evidence?

The more important lesson came later

The strongest practical lesson from Massala Exotic arose when Mr Miah attempted to introduce further evidence after losing before the FTT.

The Upper Tribunal recorded that Mr Miah had provided neither a witness statement nor oral evidence before the FTT and had not attended the FTT hearing.

He subsequently sought to produce a witness statement explaining, amongst other things, the arrangements involving the card machines and the bank accounts.

The explanation put forward was that he had not appreciated the importance of his personal attendance or of providing a formal witness statement.

The Upper Tribunal did not accept that this provided a sufficient basis for admitting the evidence on appeal.

Crucially, the taxpayer had already been warned about the evidential problem.

The Tribunal had specifically told the appellants during the FTT proceedings that they had neither documentary nor oral evidence supporting their appeal and had given directions concerning witness evidence.

Mr Miah therefore had what the Upper Tribunal regarded as more than a reasonable opportunity to produce the evidence first time around.

The bank statements did not rescue the position either

There was then an attempt to rely upon HSBC bank statements.

Again, they had not been produced to the FTT.

Mr Miah argued that original statements had previously been supplied to HMRC and that HMRC should therefore have retained them.

The Upper Tribunal was unimpressed with that argument.

If the statements were important, the taxpayer could have sought replacement copies from the bank or asked the FTT to direct HMRC to disclose the copies said to have been provided to it.

Instead, the FTT had been given only a schedule relating to the HSBC account. The underlying statements had not been produced and there was no oral evidence from Mr Miah explaining the entries.

The Upper Tribunal therefore refused to admit the HSBC material as fresh evidence.

That point deserves emphasis.

A Tribunal is unlikely to be persuaded by:

“We had better evidence, but we did not produce it.”

Where evidence exists, the time to obtain it, analyse it, disclose it and explain it is before the FTT determines the appeal.

An appeal is principally about errors of law

There is a fundamental procedural reason for this.

An appeal from the FTT to the Upper Tribunal is an appeal on a point of law.

It is not ordinarily a rehearing of the evidence and it is not an opportunity to reconstruct the taxpayer’s factual case after discovering why the original case failed. The Upper Tribunal expressly noted that permission would generally require an arguable material error of law in the FTT’s decision.

Fresh evidence can sometimes be admitted, but the hurdle is deliberately high.

Among the matters considered is whether the evidence could, with reasonable diligence, have been obtained and deployed at the original hearing.

In Massala Exotic, the difficulty was obvious: much of the evidence was either already available or could have been obtained before the FTT hearing.

The taxpayer had simply failed to deploy it.

The real battleground is therefore the FTT

This is where the decision becomes particularly important for advisers.

It is very easy during an HMRC enquiry to concentrate on technical arguments:

• Was the assessment made to best judgment?
• Was HMRC’s methodology reasonable?
• Was the penalty behaviour correctly categorised?
• Was the personal liability notice valid?

Those questions matter.

But once the dispute reaches the FTT, the factual evidence is often just as important as the technical argument.

If the case depends upon the proposition that two card machines belonged to other businesses, there needs to be evidence proving that.

If money passing through one bank account belonged to another business, there needs to be evidence tracing those transactions.

If turnover declined significantly, the taxpayer should be able to demonstrate the decline.

And if the director is the only person who can explain what actually happened, serious consideration needs to be given to a properly prepared witness statement and attendance at the hearing to give evidence and face cross-examination.

A carefully drafted skeleton argument cannot fill an evidential hole.

Do not expect the Tribunal to fill gaps in the taxpayer’s evidence

There is another useful lesson here.

Taxpayers sometimes approach disputes on the basis that HMRC should have obtained more documents, made more enquiries or carried out a more sophisticated calculation.

Sometimes that criticism will be justified.

But Massala Exotic reinforces that HMRC is not necessarily required to conduct an exhaustive investigation before making a best-judgment assessment.

Where important information lies primarily within the taxpayer’s knowledge or control, the taxpayer cannot safely sit back and complain that HMRC failed to find it.

That becomes particularly dangerous once the burden moves to the taxpayer to demonstrate that an assessment overcharges it.

The practical response to an excessive assessment is therefore not simply:

“HMRC’s calculation is wrong.”

It should be:

“HMRC’s calculation is wrong, and here is the evidence and our alternative calculation demonstrating the correct position.”

What advisers should do before an FTT hearing

In cases involving estimated turnover, suppression allegations or merchant-acquirer data, advisers should consider building the evidential case from the beginning rather than waiting until litigation is imminent.

That means obtaining and preserving contemporaneous material such as bank statements, merchant-acquirer statements, EPOS reports, accounting records, annual accounts, VAT returns, delivery-platform data, opening-hour records, staffing information and correspondence explaining unusual transactions.

It also means identifying potential witnesses early and asking a simple question:

What facts will the Tribunal need to accept for our case to succeed, and what evidence proves each one?

That exercise can expose evidential weaknesses long before the hearing.

For example, if the case depends on a restaurant having lent a card machine to another company, supporting evidence might include the merchant agreement, bank-flow evidence, correspondence with the other business, its VAT returns, its accounts and witness evidence from those operating it.

The aim is to build a chain of evidence rather than rely on assertion.

The financial consequences can escalate rapidly

This case also illustrates why getting the factual case right matters financially.

The dispute did not stop with the underlying VAT assessment of £280,903.

It progressed to a deliberate penalty of £176,966.37 and then to a personal liability notice against the director.

The progression can therefore be:

VAT assessment → deliberate penalty → personal liability for the director.

In a business with substantial cash or card receipts, an HMRC turnover enquiry can consequently become a very significant personal issue for the individuals running the company.

The practical takeaway

Massala Exotic does not mean HMRC can simply invent a turnover figure and call it best judgment.

An assessment must still represent a genuine and reasoned attempt to calculate the tax due on the information available.

But the decision demonstrates that HMRC may be permitted to extrapolate credible empirical evidence into later periods where better records are unavailable.

For taxpayers, that makes evidence critical.

If HMRC’s assumptions fail to reflect what actually happened in the business, the taxpayer should gather the evidence, calculate the alternative position and put that material before the FTT.

Not after it.

Because perhaps the most useful lesson from Massala Exotic is this:

An appeal is not an opportunity to have another go with the evidence you should have produced the first time.

By the time the case reaches the Upper Tribunal, the opportunity to prove the underlying facts may already have passed.