Inspectors targeted Farthings Steak House, owned by Trevor and Vivienne Scott, because they thought the 50 per cent gross profits shown in accounts was too low. But tribunal officers ruled the Inland Revenue acted "wholly unreasonably" in demanding pounds 20,000 and in a landmark judgment awarded costs against the Revenue for the first time.
of a family business has won a small but symbolic victory against the taxman.
Tribunal officers ruled the Inland Revenue acted in bad faith and "wholly unreasonably" in demanding pounds 20,000 from a couple running a steak restaurant
The Special Commissioners also ruled that officials had been "heavy handed" in dealing with the small business and in a landmark judgment awarded costs against the Revenue for the first time.
John Gwyer, a tax investigations expert Levy Gee, a firm of accountants, who helped to fight the case, said it underlined the lengths to which the tax inspectors would go, and praised the owners Trevor and Vivienne Scott for having the courage to bring the appeal.
On one occasion a tax inspector from London had eaten incognito at the restaurants in Southend, Essex, to check the number of whitebait on his plate.
Mr Gwyer said: "As a former Inland Revenue Senior Inspector of Taxes, I was embarrassed and ashamed by the behaviour of the department."
The inspectors had targeted the restaurant, Farthings Steak House, because they thought the figure of 50 per cent gross profits shown in the accounts was too low.
They then adopted what Mr Gwyer described as a vindictive approach towards the business as they sought an extra pounds 20,000 in taxes - the difference between survival or failure, he said.
The inspectors were also accused by the commissioners of "betraying a certain amount of prejudice" towards the Scotts' local accountant who had sought to appeal against the Revenue's assessment.
Despite the success of the case, some experts are worried by the fact that from next April, when self-assessment rules are in force, tax inspectors will not have to give any reason for deciding to investigate a self-assessment.
Mr Gwyer said that could lead to officials picking on the clients of those local accountants who dared to appeal, with impunity.
He also called for the commissioners to be able to award costs when the Revenue has been "unreasonable" rather than appellants having to prove "wholly unreasonable" behaviour.
The costs for the Scotts, who were unavailable yesterday, are believed to be many thousands of pounds.
The Inland Revenue was unable to comment on the case yesterday.Reuse content