[2025] UKUT 00005 (TCC)

Mr Downey addressed these grounds together given their overlap. I deal with them in the order raised by Mr Downey at the hearing.

The first point of challenge is that the FTT misconstrued the burden of proof. Mr Downey accepts that burden lay on the appellant to disprove assessment but submits where HMRC’s closure notice was based on and alleged certain facts (here that the implied contract was made on 31 August 2015) it was for HMRC to prove those facts. Mr Downey relies on Kellog Brown & Root Holdings (UK) Ltd v HMRC [2010] EWCA Civ 118 at [47]. Mr Downey’s second challenge is that the FTT wrongly resorted to the burden of proof, when, as Stephens v Cannon [2005] EWCA Civ 222 points out, such resort is exceptional.

On the first point, the context to Kellog Brown was HMRC’s denial of the taxpayer’s setting off of a capital loss because the relevant transactions were between “connected persons” and the scope of the term “group” in the “connected persons” definition in s286(5)(b) TCGA 1992. One of the taxpayer’s points against HMRC’s natural language definition of “group” was a concern that because of the prevalence of institutional shareholdings in quoted companies “it could transpire that many apparently independent large companies… will turn out to be “connected”” ([37[). The Court of Appeal unanimously rejected the taxpayer’s interpretation. The passage (at [47]) which the appellant relies on was in response to the taxpayer’s concern (which Lord Neuberger MR as he then was, and Longmore LJ, but not Smith LJ were sympathetic to):

“The problems which Mr Gardiner (the taxpayer’s counsel) identifies may or may not exist in practice, and, even if they do, they may not have existed in the 1960s, when, we were told, these provisions were first introduced, and when the shareholdings in large publicly quoted companies may have been very differently held from how they are now. In any event, no such problems seem to have arisen until this case, and the facts of this case are very unusual. If HMRC seek to raise the point in relation to two companies which are, and long have been, independent, then it will be very much up to them to prove that section 286(5)(b) is satisfied. The fact that section 50(6) of the Taxes Management Act 1970 places an initial general onus on the taxpayer challenging an assessment does not affect the point that, if HMRC's assessment relies on the fact that two apparently independent companies are "connected" under the terms of section 286(5)(b), then that would be for HMRC to prove.”

As explained in my decision refusing permission on the papers, this paragraph cannot be read as laying down any general proposition that facts relied on by HMRC in a closure notice must be proved by HMRC despite the burden of proof in challenging a tax assessment being placed on the taxpayer. The factual basis for the hypothetical scenario posed above was of two companies who “are” and “have long been” independent. The Court of Appeal’s point simply reflected that where there is sufficient prima facie evidence from the circumstances that a fact underpinning a tax assessment is incorrect (and the taxpayer is as a result straightforwardly able to show that), the evidential burden on whether the fact is correct will then have shifted to HMRC. Interpreting this passage so as to require a starting point that HMRC must prove the facts underpinning the tax charge would render meaningless the clear and established authority (for example Brady (HMIT) v Group Lotus Car Companies [1987] STC 635 as mentioned in the FTT’s refusal of permission decision) that the burden for displacing the assessment lies on the taxpayer.

Mr Downey’s submissions did not persuade me the above analysis was wrong and no other authority was advanced to support the argument that the burden was on HMRC to establish the facts relied on in a closure notice. There was not thus a burden on HMRC to show a contract made at 31 August 2015. The burden was on the taxpayer to show she had been overcharged. In this case, given the taxpayer’s case in relation to the operation of the relevant legislative provisions, that entailed showing the relevant contract was made earlier than 3 December 2014.

As to the second point of challenge, the appellant’s reliance on Stephens v Cannon as regards the exceptionality of resorting to burden of proof does not assist. The facts there concerned a Master who was unable to decide which of the parties’ expert opinions he preferred on a disputed property valuation and where he then resorted to the burden of proof to decide the case. The facts illustrate that the situation where a court or tribunal is said to resort to the burden of proof refers to the situation where the court or tribunal is unable, on the evidence to reach a view either way on the relevant issue but then resolves the issue on the basis that the party upon whom the burden rests has not met it. That sort of situation is exceptional because normally the court or tribunal will be able to reach a conclusion on the relevant issue having evaluated all the evidence.

As I set out in my refusal of permission on the papers, the FTT quite clearly did not resort to the burden of proof in the kind of way the Master did in Stephens v Cannon. Rather, it decided the case in relation to the issue the parties had identified as being determinative in the conventional way: by examining and making findings on the evidence on that issue before it and reaching its conclusion on the disputed issue in the light of those.

Mr Downey’s other oral arguments regarding the FTT’s incorrect identification of the issue in respect of which the burden was applied are considered under the grounds below.