UT/2023/000084 - [2024] UKUT 00382 (TCC)

Under this ground Beigebell argues that the FTT misstated and misapplied the burden of proof. There was no dispute that legal burden of proof to show actual knowledge or means of knowledge rests on HMRC, but that the evidential burden may shift.

Mr Brown, who appeared for Beigebell, submitted that [204] and [205] of the FTT Decision show where it went wrong. There the FTT said (emphasis added):

“204.

In relation to the Blue Sphere test, what HMRC are required to prove is that there is a prima facie case for the four elements, and if the appellant advances a positive case to the contrary, the burden is then on the appellant to adduce evidence that supports its positive case. Beigebell is making a positive case that the ‘channel model’ was the credible explanation and the reasonable explanation for the appellant becoming involved in the fraudulent transactions. To that end, the appellant bears the burden to prove its positive case to the requisite standard.

205.

The need for the appellant to prove its positive case is made clear by the Upper Tribunal in Fairford where it is held that once an issue has been raised by HMRC based on some obtainable facts, an appellant taxpayer is required to defend its position, or risk an adverse finding against it…”

Mr Brown submitted the FTT erred in law when it said that the appellant had the burden of proving its positive case that it had a credible explanation (the “channel model”), whereas the burden lay on HMRC to prove the only reasonable explanation for the transaction was that it was connected to fraud.

We disagree with Mr Brown that there is anything in the above paragraphs which shows the FTT mis-stated or misunderstood where the legal burden lay. When it said that “the appellant bears the burden to prove its positive case to the requisite standard” it was plainly referring to the evidential burden: see the reference at [204] to HMRC being required to prove its prima facie case. This is also clear from the FTT’s earlier reference (at [203]) to the burden of proof of all four Blue Sphere elements resting on HMRC.

Further reinforcement for the FTT not having made the alleged error is found in the subsequent analysis. In its discussion of whether there was actual knowledge, the FTT explained at [253]:

“As set out above, we reject the positive case of innocence being advanced for the appellant. The issue turns on the evidence of Mr Orton and his explanation for the circumstances of these transactions. To determine the appeal, it remains to be considered whether the respondents have discharged the burden that the appellant had actual or constructive knowledge that the transactions in question were connected with fraud.”

This highlights that the FTT drew a distinction in its analysis between its conclusion in respect of the appellant’s “positive case of innocence” on the one hand and its determination of the appeal on the other. As Mr Puzey, who appeared for HMRC, pointed out, the FTT’s explanation that “it remains to be considered” shows that the FTT did not hold that a rejection of Mr Orton’s explanation determined the appeal, but that what determined the appeal was whether HMRC had discharged their burden.

As regards actual knowledge. the FTT stated the correct position explicitly at [270]:

“After careful consideration of the total of the circumstantial evidence, we conclude that there is sufficient weight from the cumulative effect of the evidence that HMRC have met the burden of proof that Mr Orton had actual knowledge…”

Mr Puzey also rightly drew our attention to the FTT’s early discussion of the approach to finding actual knowledge (at [255]) which explained that the tribunal hearing the case “will be entitled to rely on inferences drawn from the primary facts established by HMRC…” (emphasis added). The FTT’s conclusion in the alternative on means of knowledge (at [280]) similarly concluded that HMRC had “met the burden” in relation to the “only reasonable explanation” standard.

From the above it is clear the FTT’s statements about the burden being on Beigebell were simply about the evidential burden; it fully appreciated that the burden to show actual knowledge or means of knowledge rested on HMRC, and there was no misapplication by the FTT of that burden.

We therefore reject this ground of appeal.