UT/2022/000157 - [2024] UKUT 00346 (TCC)

We turn now to the penalties that were issued under the regime in FA 2007 and FA 2008.

Apart from the quantum of the underlying liability on which the penalty was based, the key issues involved in relation to each of the penalties were as follows.

In relation to the registration penalty charged on Global under paragraph 1 Schedule 41 FA 2008, the key matters to be proved are that:

Global was required to register for VAT (i.e. its taxable supplies exceeded the VAT threshold) but failed to register; and

the failure was due to relevant conduct on the part of Global.

In relation to the PLN issued to Mr Malde in respect of the registration penalty under paragraph 22 Schedule 41 FA 2008, the key matters to be proved are that:

a penalty is payable by Global under paragraph 1 for the failure to register;

the failure was deliberate; and

the failure was attributable to Mr Malde.

In relation to the PLN issued to Mr Malde in respect of the inaccuracy penalty under paragraph 19 Schedule 24 FA 2007, the key matters to be proved are that:

a penalty is payable by Global under paragraph 1 Schedule 24 FA 2007, which requires it to be shown that Global submitted a return containing an inaccuracy, the inaccuracy led to a loss of tax, and that the inaccuracy was careless or deliberate on the part of Global;

the failure was deliberate, and

the failure was attributable to Mr Malde.

In relation to the PLN issued to Mr Malde in respect of the excise duty penalty under paragraph 22 Schedule 41 FA 2008, the key matters to be proved are:

that a penalty is payable by Global under paragraph 4 Schedule 41 FA 2008 which requires it to be shown that Global was holding excise goods for which payment of duty was outstanding;

that the failure was deliberate; and

that the failure was attributable to Mr Malde.

At this point, we should note that we have treated Global’s appeal against the decision of HMRC that it was required to register for VAT as subsumed within the appeal against the registration penalty. Although at first sight, it would appear that this is a separate appeal (and not a penalty appeal), in this case, the only practical manifestation of the decision that Global was required to be registered for VAT purposes is the registration penalty. The issues that are relevant – in particular, whether Global made taxable supplies in the UK in excess of the VAT threshold – are the same as those which form the basis of the registration penalty. In our view, any decision on the imposition of the burden of proof in relation to the decision that Global was required to be registered must therefore follow the decision on the burden of proof in relation to the registration penalty.

Leaving aside the issue of the quantum of the penalty, Mr Webster KC says that there was no intention on the part of Parliament to change the burden of proof at the time of the introduction of the revised penalty regime FA 2007 and FA 2008. The position was intended to be the same as that under the civil evasion penalty regime. Mr Webster KC referred us to various extra-statutory materials including Explanatory Notes for the legislation introducing the revised penalty regime and various extracts from HMRC’s manuals.

We prefer not to base our decision on the extra-statutory materials. In our view, we can determine this issue by reference to the principles drawn from the case law to which we have previously referred. These are penalty appeals. On all of the issues relating to the penalty, the burden should fall on HMRC as they are all issues to which Article 6(2) ECHR potentially applies unless there is some good reason to justify a departure from that principle. We have considered whether the presumption of innocence in Article 6(2) ECHR should apply in these cases. This is not a case (such as Euro Wines) of a statutory exception to the general rule which can be tested by reference to whether the exception is a justifiable and proportionate response to a legitimate legislative aim. In the absence of an express statutory provision to the contrary, in our view, the general rule – that on penalty appeals the burden falls on HMRC – should apply. We can see no good reason to depart from the general principle in this case. These are significant penalties. They are dependent on proof of “deliberate” conduct on the part of Global and/or Mr Malde, which even if it does not equate directly to the concept of dishonesty carries similar connotations of moral turpitude.

The question for us is whether that general rule should also apply to those aspects of the appeals where the appellants’ case challenges the penalties on the grounds that call into question essential elements of the relevant tax assessment – principally, in relation to the VAT penalties, whether or not Global made taxable supplies in excess of the threshold, and, in relation to the excise duty penalties, whether Global held excise goods in the UK on which excise duty had not been paid.

As we have described, those points were decided by the FTT’s conclusion that there was an “absence of evidence” that Global was the owner of the goods that were supplied in the UK. That conclusion which was clearly based on its decision on the burden of proof, in effect, decided all the penalty appeals in the appellants’ favour with the exception of the appeal against the DLN.

This is therefore a similar question to that which arose in Zaman, where the Upper Tribunal decided that, in circumstances where no appeal against the underlying liability had been contested, the burden in relation to those elements should remain on the taxpayer.

We will not follow that approach in this case. These are penalty appeals. The general rule is that the burden is on HMRC to prove all aspects of these appeals that relate to the imposition of the penalties consistent with the presumption of innocence in Article 6(2) ECHR. We should only depart from that rule where a justifiable and proportionate exception to the presumption can be justified on the facts and circumstances of the case. We cannot justify an exception on the facts and circumstances of this case for the following reasons:

The penalties in this case are not of a regulatory nature. They are substantial penalties that are only payable if it is shown that there has been “deliberate” conduct on the part of Global and/or Mr Malde that has caused a loss of tax.

The relevant issue in each case is whether Global was the owner of the goods in the UK. That issue is integral to the “failure” on which each of the penalties is based – the failure to register, the failure to provide an accurate return, and the failure to ensure that duty was paid on excise goods that are held in the UK.

That issue has not been the basis of a prior decision of a court or tribunal (as Global was unable to appeal following the failure of its hardship appeal) nor is it the subject of an agreed settlement.

HMRC has not raised any question of issue estoppel or abuse of law.

For the sake of completeness, we note that the FTT decided each of the appeals in relation to the PLNs that were issued under the regime in FA 2007 and FA 2008 by reference to the place of supply issue. As a result, the question of the burden of proof in relation to the quantum of a penalty assessment under each of these provisions does not arise in relation to the appeals before us. We do not need to determine that question to decide these appeals and we do not do so.

For all of these reasons, in our view, the FTT was right to conclude that the burden of proof fell on HMRC in relation to all relevant aspects of the penalty appeals with the possible exception of the quantum of the penalty assessment. Although it is not directly relevant, we take comfort that our view is in line with the guidance of Carnwath LJ in Khan in relation to the previous penalty regime.

We dismiss this first ground of appeal.