THE taxman has been made to eat humble pie after a Chinese restaurant had a £200,000 tax bill and penalties quashed by a tribunal.

Tax inspectors calculated from takings on two Friday nights at Kong’s restaurant in Abergavenny’s Brewery Yard that the business had under-declared its corporation tax and VAT liabilities.

They claimed that £105,000 was owed in total over a three-year period and imposed penalties of £95,000 on top for “deliberate concealment”.

But the inspectors were slammed by the First Tier Tax Tribunal after it heard that two unannounced spot checks happened on two of the restaurant’s busiest nights of the year - Chinese New Year’s Eve in January 2017 and Midsummer pay day in June later that year.

Former owner Cherry Kong, 32, said she was shocked to receive the £200,000 bill just after the birth of her daughter in February 2018, and told the tribunal they were not typical of a normal night’s takings.

She contacted an accountancy firm to fight the case and told the Times this week: “I felt confused and pretty clueless.

“You can imagine how stressed I was just a month after the birth of my first child.”

HMRC claimed turnover was £1.26m over the previous three years, compared to the owner’s declaration of £858,000.

It also claimed there were discrepancies in till records, voided till transactions and supplier records which didn’t match purchases.

But the tribunal said that a “proper investigation of the facts would have pointed away from an attempt to conceal sales”.

It accepted there were “difficulties with the till” which “was complicated and the support given by the supplier was extremely limited”.

“It was very easy to touch the wrong place on the touchscreen, which could mean having to cancel a transaction and start again,” it said.

“If customers wanted to split a bill and pay part in cash and part by card, that would mean the whole bill would need to be cancelled and re-entered in two parts.

“Ultimately, because the errors could all be corrected and did not affect the final outcome in terms of the takings recorded on the till, not much attention was paid to them.

“It was no surprise that on one day picked by HMRC, there were 57 errors in 60 orders.”

And it said the HMRC had not provided “any material evidence of irregularities which would support its view that there had been long-term systematic suppression of takings, partly or wholly disguised through the voids and cancellations shown on the till”.

The tribunal ruled that the investigators “assumed the worst” without seeking explanations from the restaurant owners or assessing whether the information obtained supported its view, and labelled the HMRC’s behaviour “entirely unreasonable”.

Quashing the £105,000 tax bill and £95,000 penalty, it added: “HMRC did not exercise their best judgment in reaching the assessment.”

“Our conclusion in this regard is reinforced by considering how we might approach the task of quantifying the correct amount of tax if we were to find that the original assessment was made to the best of HMRC’s judgment,” added judges Kevin Poole and Terry Bayliss.

“Given our view of the entirely inadequate basis of HMRC’s calculations and the paucity of other relevant evidence before us, we can see no way in which we could approach that task sensibly.”

Cherry Kong, who has since sold the restaurant but still works there part-time, told The Times the case had “tormented” her family and she was “relieved” by the ruling.