UT-2023-000116; - [2025] UKUT 00164 (TCC)

A right of appeal to this Tribunal from a decision of the FTT lies only on a point of law: section 11(1) Tribunals, Courts and Enforcement Act 2007.

It was common ground that the determination of the correct accounting treatment in this appeal was a question of fact and not of law. Both parties cited and relied upon the decision of this Tribunal in Ball UK.

In Ball UK the taxpayer company argued that a derivative transaction had changed the company’s functional currency from sterling into US dollars, with the result that a foreign exchange loss arose in the relevant year. HMRC disagreed and argued that the company’s functional currency continued to be sterling and that the accounts should have been prepared on that basis. That issue turned on whether the company’s accounts were prepared in accordance with GAAP. The FTT held that the accounts had not been prepared in accordance with GAAP and dismissed the company’s appeal. On appeal to the Upper Tribunal, the issue arose as to whether the correct approach to accounting standards could be characterised as a matter of law or a matter of fact. If it were a question of law, the Upper Tribunal could consider the matter afresh. If it were a question of fact, the role of the Upper Tribunal was limited to determining whether the FTT's conclusions were unsupported (or not sufficiently supported) by the evidence, such that the findings were not ones that it was entitled to make.

The Upper Tribunal said:

“[40] In our view the question of what is generally accepted accounting practice, as well as the question whether a particular set of accounts are prepared in accordance with it, is a question of fact to be determined with the assistance of expert evidence. Professional accountants are best placed to understand accounting statements in their context, and in particular their 'spirit and reasoning'. For example, and relevant to this case, the purpose and significance of the concept of functional currency is not clear without an understanding of accounting concepts and the wider context. We agree therefore with the approach of Arnold J in Smith (Footnote: ⁷).

[41] What is a matter for a court or tribunal, however, is the proper assessment of expert evidence. Clearly a judge may prefer the evidence of one expert to that of another, but this should be fully reasoned and the judge should not simply 'develop his own theory' (see for example Devoran Joinery Co Ltd v Perkins [2003] EWCA Civ 1241, [2003] All ER (D) 140 (Sep), at [24]).”

The Upper Tribunal considered that the FTT had properly considered the conflicting expert evidence and had explained why it preferred the evidence of HMRC’s expert to that of the company’s. Therefore, the company’s appeal was dismissed.

Mr Farrell placed particular emphasis on the final sentence of [41] and argued that in the present case the FTT had developed its own theory about the correct accounting treatment.

The reference in Ball UK to the decision of Arnold J in Smith is also relevant to the present appeal. In that case, which involved a question of the timing of when income should be recognised for accounting and tax purposes, Arnold J at [52] noted that both members of the FTT were chartered accountants (although the judge had ceased to practice in 1980 whilst the other member of the tribunal was still in practice). Arnold J observed:

“52.

The tribunal was thus a specialised tribunal not merely by virtue of its function, but also by virtue of the expertise of its members. That is significant in the present case because the central issue which it faced was whether Mr Smith’s [the taxpayer’s] accounts had been prepared in accordance with generally accepted accounting practice. It follows, for the reasons given above, that particular deference is to be given to its decision.

[53] Secondly, the tribunal's decision was given after a four-day hearing at which a number of witnesses gave oral evidence. In addition to Mr Smith, these included Mr Tidbury and two expert witnesses, Lee Elsworth FCA (for Mr Smith) and Anil Mathew FCCA (for HMRC). In its decision the tribunal considered the evidence of each of the three accountants in detail. This tribunal does not have the advantage, which the tribunal did have, of seeing the witnesses give evidence. It follows, for the reasons given above, that this tribunal should be slow to conclude that the tribunal was not entitled to reach the conclusions it reached….

[54] Thirdly, counsel for HMRC submitted that in reality the appeal was an attempt by Mr Smith to re-argue questions of fact and evaluation which had been decided by the tribunal with a view to trying to persuade this tribunal to take a different view. In my judgment this submission is well founded.” (Emphasis added)

We consider that the observations of Arnold J in Smith are particularly relevant in the present case. As already noted, the FTT in the present appeal consisted not just of an experienced judge but also a Fellow of the Institute of Chartered Accountants in England and Wales and a Fellow of the Royal Institution of Chartered Surveyors. The FTT had the benefit of extensive written and oral evidence and was able to question the expert witnesses (both on accounting and valuation issues), bringing to bear its own expertise. We did, however, have a full transcript of the hearing before the FTT, unlike the Upper Tribunal in Smith. Like Arnold J, we consider that considerable deference should be given to the FTT’s views and that we should be slow to conclude that its decision was one which could not reasonably be reached on the evidence before it.

The Edwards v Bairstow principle is well known and has been summarised in a number of authorities. Briggs J (as he then was) summarised the position in Megtian Ltd (In Administration) v HMRC [2010] STC 840 at [11]:

“The question is not whether the finding was right or wrong, whether it was against the weight of the evidence, or whether the appeal court would itself have come to a different view. An error of law may be disclosed by a finding based upon no evidence at all, a finding which, on the evidence, is not capable of being rationally or reasonably justified, a finding which is contradicted by all the evidence, or an inference which is not capable of being reasonably drawn from the findings of primary fact”.

We are also referred to the well-known decision of the Court of Appeal in Georgiou v Customs and Excise Commissioners [1996] STC 463 (“Georgiou), in relation to appeals said to involve points of law of the kind identified in Edwards v Bairstow. Evans LJ (with whom Saville and Morritt LJJ agreed) said at 476-468:

“As I have said, it seems to me that one cannot take a more advantageous line for the taxpayer than to regard that as the applicable principle when considering the function of the court in relation to the tribunal's findings in this kind of case. This is indeed the nature of the questions of law that are raised or sought to be raised in the present case, that the findings were unsupported by the evidence or contrary to the evidence that was given.

It is right, in my judgment, to strike two cautionary notes at this stage. There is a well-recognised need for caution in permitting challenges to findings of fact on the ground that they raise this kind of question of law. That is well seen in arbitration cases and in many others. It is all too easy for a so-called question of law to become no more than a disguised attack on findings of fact which must be accepted by the courts. As this case demonstrates, it is all too easy for the appeals procedure to the High Court (Footnote: ⁸) to be misused in this way. Secondly, the nature of the factual inquiry which an appellate court can and does undertake in a proper case is essentially different from the decision-making process which is undertaken by the tribunal of fact. The question is not, has the party upon whom rests the burden of proof established on the balance of probabilities the facts upon which he relies, but, was there evidence before the tribunal which was sufficient to support the finding which it made? In other words, was the finding one which the tribunal was entitled to make? Clearly, if there was no evidence, or the evidence was to the contrary effect, the tribunal was not so entitled.

It follows, in my judgment, that for a question of law to arise in the circumstances, the appellant must first identify the finding which is challenged; secondly, show that it is significant in relation to the conclusion; thirdly, identify the evidence, if any, which was relevant to that finding; and, fourthly, show that that finding, on the basis of that evidence, was one which the tribunal was not entitled to make. What is not permitted, in my view, is a roving selection of evidence coupled with a general assertion that the tribunal's conclusion was against the weight of the evidence and was therefore wrong. A failure to appreciate what is the correct approach accounts for much of the time and expense that was occasioned by this appeal to the High Court” (emphasis added)

Although often cited, the terms of Evans LJ’s judgment repay careful attention. In particular, Evans LJ emphasised the need for a party relying on the Edwards v Bairstow principle to “identify the evidence… which was relevant to that finding [i.e. the finding in dispute].”

Also, in HMRC v Marlborough DP Ltd [2024] UKUT 98 (TCC) (Edwin Johnson J and Judge Brannan) (“Marlborough”) the Upper Tribunal said at [180]:

“Where an appeal is made on Edwards v Bairstow grounds, it is important to particularise, in advance of the hearing, the parts of the relevant decision and the parts of the evidence before the FTT which are the subject matter of the appeal.”

We return to this issue later.

There is, relevant to this appeal, a further circumstance in which this Tribunal may interfere with a decision of the FTT: we may set aside a decision of the FTT if it took into account irrelevant considerations or failed to take into account relevant considerations. On this ground, it must further be shown that the considerations wrongly taken into or left out of account must be material in the sense that they might (not would) have affected the outcome: see Henderson LJ in Degorce v HMRC  [2017] EWCA Civ 1427 at [95] and Lord Millett in Begum v Tower Hamlets LBC [2003] 2 AC 430 at [99].