![UT/2022/000157 - [2024] UKUT 00346 (TCC)](https://backend.juristeca.com/files/emisores/logo_ICfrj4g.png){kind=logo}
The FTT Decision
The FTT Decision
The FTT commenced the relevant section of the FTT Decision by noting that the “general position” on tax appeals was that it was “for the taxpayer to establish the correct amount of tax due” and that “this burden of proof does not change merely because allegations of fraud may be involved”. The FTT said this (at FTT [593]):
In tax appeals the general position, as is clear from the decision of the Court of Appeal in Awards Drinks Limited v HMRC [2021] STC 1590 at [13] (citing Carnwath LJ, as he then was, at [69] in Khan (t/a Greyhound Cleaners) v HMRC [2006] STC 1167), is that it is for the taxpayer to establish the correct amount of tax due and that this burden of proof does not change merely because allegations of fraud may be involved (see eg Brady (Inspector of Taxes) v Group Lotus Car Companies plc [1987] STC 635 at 642… per Mustill LJ).
The FTT went on to identify two exceptions to this general rule.
The first was where “a connection to fraud is an essential element of the basis of assessment” such as in the case of MTIC appeals based on the Kittel principle (Footnote: 4) (FTT [594]).
The second was where fraud or dishonesty is pleaded by HMRC with full particularity (FTT [594]):
“In addition, in any case where fraud or dishonesty is pleaded with full particularity, as in the present case, HMRC adopts the burden of proof in relation to those allegations which should not be made without evidence by which the allegations can apparently be justified.”
The FTT referred to the judgment of Carnwath LJ, as the then was, in Khan (t/a Greyhound Dry Cleaners) v Customs & Excise Commissioners [2006] EWCA Civ 89 (“Khan”) (at Khan [73]-[74]) as authority for this exception.
The FTT then drew a contrast with cases involving a penalty. In such cases, HMRC bore the burden of proving that a person was liable to a penalty on the grounds that Article 6 of the European Convention on Human Rights (“ECHR”) was engaged. The FTT said this (at FTT [595]):
In contrast to the general rule for tax assessments, it has also long been accepted that HMRC bears the burden of proving that a person is liable to a penalty (see e.g. King v Walden [2001] STC 822 at [71] and Massey v HMRC [2016] STC at [58]). In penalty proceedings, which are punitive and do not concern liability to tax, and which engage Article 6 ECHR (right to a fair trial), the normal common law on burden of proof applies, i.e. that the person who makes the allegation must prove it. It is therefore for HMRC to prove the default which is the trigger for the penalty.
On that basis, the FTT concluded that it was for HMRC “to establish the allegations before the tribunal and the liabilities to penalties” (FTT [596]), with the exception of issues of the quantum of the liability for the purposes of the best judgment assessments (which would inform the quantum of any penalty), which the FTT proposed to address separately. As we understand it, the FTT reached this conclusion because:
in the present case, HMRC had pleaded a particularized case of fraud against Global and Mr Malde, and so, in relation to Global’s appeal against HMRC’s decision that Global was liable to be registered for VAT, the burden of proof was on HMRC;
all the other appeals were penalty appeals, and so, once again, the burden of proof was on HMRC.
- Heading
- Introduction
- Background
- VAT
- Excise duties
- The FTT Decision
- The Grounds of Appeal
- Ground 1: the burden of proof
- Background
- The FTT Decision
- The parties’ submissions in outline
- The relevant case law principles
- The burden of proof in tax appeals
- The burden of proof in penalty appeals
- DLN
- Penalties under Schedule 24 FA 2007 and Schedule 41 FA 2008
- Ground 2: approach to the issues and evidence
- Background
- The FTT Decision
- Discussion
- Conclusion
- Ground 3: conclusions inconsistent with the underlying evidence
- Background
- The FTT decision
- The parties’ submissions in outline
- Discussion
- Application to the facts of this case
- Conclusion
- Ground 4: breach of “best judgment” requirement
- Background
- Relevant case law principles
- There are two distinct questions which arise where an assessment purports to be made under section 73(1) VATA: first, whether the assessment has been made under the power conferred by that section; an
- The test as to whether an assessment is made to the best of HMRC’s judgment is classically set out in the judgment of Woolf J in Van Boeckel , at page 292e-293a, where he said this
- As to whether an alleged error in an assessment is to be taken as evidence that the assessment was not made to the best of HMRC’s judgment, the relevant question is whether the mistake is consistent w
- There are, however, dangers in an over-rigid adherence to a two-stage approach (i.e. first, validity; second, quantum) to a challenge to a best judgment assessment. The important issue for the tribuna
- The FTT Decision
- The parties’ submissions in outline
- The only relevant test of whether the assessment met the best judgment requirement was whether the mistakes in the assessment were “consistent with an honest and genuine attempt to make a reasonable a
- Application to the facts of this case
- Ground 4
- Ground 5
- Conclusion
- Background
- In relation to Ground 3
- In relation to Ground 4
- In relation to Ground 5 Why, if there was a breach of the best judgement requirement, it rejected the Court of Appeal’s guidance in Pegasus Birds at [23-29] not to automatically set aside the whole assessment but instead to
- If the Tribunal considered Mr Foster’s failure to consider the York Wine bank statements was so “serious or fundamental” that it required the whole assessment to be set aside ( Pegasus Birds [29]), wh
- The parties’ submissions in outline
- Discussion
- Application to the facts of this case
- Conclusions