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N9: Burden of proof
Tribunal must determine burden of proof
“Nonetheless, the question on whom the burden of proof lies is one for the Tribunal and not for the parties to either agree or concede.” (British-American Tobacco v. HMRC [2017] UKFTT 190 (TC), §535, Judge Brannan)
Not affected by who opens the case
“Whatever the decision as to who should open the case, it could not affect the burden of proof.” (Hurley v. Taylor [1999] STC 1 at 13, Aldous LJ);
Order in cases with mixed burdens
“Our conclusion is that there is no definitive guidance in the authorities for what the order of proceedings should be when a case involves arguments in which the onus of proof shifts between parties, even taking account of Hargreaves. The statements of Arden LJ in that case suggest that the question comes down to one of case management and the overall obligation of the Tribunal to deal with cases fairly and justly, which would usually mean that the party with the burden of proof should open the case…We decided that HMRC should open on the s 29 point, and that we should then proceed to hear the substantive appeal unless, which we made clear we considered to be unlikely, there was no real doubt in our mind at the end of the s 29 evidence and submissions on s 29 that there had been no valid discovery.” (Anderson v. HMRC [2016] UKFTT 565 (TC), §§85 – 86).
HMRC ordered to go first
“I agree with [the taxpayer] that merely requiring HMRC to present their case first does not, of itself, amount to the Tribunal determining a preliminary issue by the back door for the reasons he outlined in his submissions summarised at [8(3)] above. I will, therefore, direct that HMRC should open at the hearing by presenting their case on the discovery issue.” (Addo v. HMRC [2018] UKFTT 93 (TC), §13, Judge Jonathan Richards).
Function of the burden of proof
“The burden is material only to the question of which party succeeds if the tribunal is left in doubt” (Brady v. Group Lotus [1987] STC 635 at 644);
“It is never entirely satisfactory for a decision to be based upon the burden 5 of proof, for that necessarily involves the purely negative finding that a party has failed to make out his or her case. But that is precisely why the burden of proof exists: to enable a tribunal to make a determination when the evidence is such that it is impossible to make a finding one way or the other on an issue of fact. Phipson puts it this way: “While a judge or tribunal of fact should make findings of fact if it can, in exceptional cases it may be forced to the conclusion that it cannot say that either version of events satisfies the balance of probabilities. In such a case, the burden of proof may determine which party succeeds. The judge or tribunal of fact may only dispose of a case on this basis if it cannot reasonably make a finding one way or the other on a disputed issue.” (White v. HMRC [2018] UKUT 257 (TCC), §37(3), Marcus Smith J and Judge Jonathan Richards).
“Given that Mr and Mrs Morris intend to give evidence and not to make a submission of no case, no issue about the burden of proof is likely to arise. The Special Commissioners will have heard the evidence about residence and will have to reach a decision as to whether or not they believe the explanations given. It therefore makes no difference whether the burden of proof is on the Revenue in the penalty appeals (which it is) or in all of the appeals. The procedure to be adopted will be unaffected by this point and at the end of the evidence the issue will be one of credibility not burden of proof.” (Morris v. HMRC [2007] EWHC 1181 (Ch), §55).
“If they provide sufficient compelling evidence to satisfy me of their case or any aspect of it, their case will be proved to that extent unless HMRC can successfully attack that evidence. However, if they do not provide sufficient compelling evidence then they do not discharge the burden of proof and that aspect of their case fails without HMRC doing anything to disprove it.” (Taylor Wimpey plc v. HMRC [2014] UKFTT 575 (TC), §34)
Effect of burden of proof
“… if B chooses to call no evidence he will lose the issues on which he bears the burden (unless he can make his case on them through A’s evidence).” (Hargreaves v. HMRC [2014] UKUT 395 (TCC), §28).
Exceptional for issues to be decided based on the burden of proof
"[20]...There is also no issue about the exceptionality of resorting to the burden of proof to determine a case: see [24] of Verlander which makes it clear that “exceptional” in that context just means that such resort is only necessary where the evidence is “conflicting and/or uncertain and/or falling short of proof, there is nothing left but to conclude that the Claimant has not proved [his or her] case”." (Qolaminejite v. HMRC [2021] UKUT 118 (TCC), Judge Raghavan and Judge Andrew Scott)
- Distinction between lack of any evidence and equally matched evidence
"[29] In my judgment the Judge could not, given her assessment of the evidence before her, have reached a conclusion on whether Mr Constandas used the money for the down payment. The dilemma facing the Judge in this case was different from the dilemma facing the judges in many of the earlier cases. In Stephens v Cannon and in Cooper the problem was not a lacuna in the evidence needed to establish a particular fact but the presentation of two conflicting versions of the evidence and the difficulty of choosing between them. Choosing between conflicting factual and expert evidence is a primary judicial function and, however well matched and convincing the parties' witnesses may appear to be, the judge's task is generally to decide the case by choosing one over the other and to describe as fully as possible the factors that led to that choice: see the discussion of this judicial duty in Morris v London Iron and Steel Co Ltd [1988] 1 QB 493, 504. Here the problem facing HHJ Faber was a more fundamental problem and one which can properly be described as exceptional. Many years had elapsed since this disputed payment was made, the documentary evidence as to the provenance of the money was understandably sparse, the Respondents' direct evidence as to what had happened was not available at all because of their infirmity and Mr Constandas' direct evidence was rejected because of his lack of credibility." (Constandas v. Lysandrou [2018] EWCA Civ 613, Rose J, Kitchen LJ)
No burden of proof on points that are admitted
"[33] In short, the parties’ common position throughout was that supplies of the alcohol had taken place. Accordingly, that fact was established without any need for proof. No proof being needed, there was no “burden of proof” to be allocated on this issue. The proceedings before the FTT were adversarial and accordingly it was for the parties to decide which issues of fact and law they wished to contest. It was for the tribunal to decide the contested issues, not the agreed ones. Where the parties to adversarial proceedings agree an issue it is not the function of the tribunal to go behind that agreement and undertake its own investigation or reach its own independent determination about the issue. The FTT should not place an onus on one or other party to prove an agreed fact." (HMRC v. Donnelly [2021] UKUT 296 (TCC), Miles J and Judge Richards)
Overall burden generally on the taxpayer
“Where the assessments are made in time…the burden lies on the taxpayer from the start to displace the assessments” … “however unacceptable the idea may be to the ordinary member of the public, it has been clear law binding on this court for sixty years that an inspector of taxes has only to raise an assessment to impose on the taxpayer the burden of proving that it is wrong” (Brady v. Group Lotus [1987] STC 635 at 639 and 642);
“Viscount Simonds in Hochstrasser v. Mayes [see below] cannot have intended to qualify the clear terms of s.50(6)” (Sugarwhite v. Budd 60 TC 679 at 697, Nourse LJ);
“I have no doubt that there are cases in which the evidence before the Special Commissioners is so unsatisfactory that the only just course for them to take is to hold that the taxpayer has not discharged the burden of proof which s.50(6) TMA 1970 has placed upon him…” (Wood v. Holden [2006] EWCA Civ 26, §33);
“not arguable” that burden of proof is otherwise than on the taxpayer (Norman v. Golder 26 TC 293 at 297);
“In this case the onus was on the appellants…[N]either party could establish ‘the’ answer to the problem of the extent to which the accounts were faulty, even to the standard of probabilities.” (Sharifee v. Wood [2004] STC (SCD) 446 §§76 – 77).
“…that the onus of adducing evidence and satisfying the tribunal that the assessment is wrong lies on the appellant under [VAT law] I have not any doubt at all.” (Tynewydd Labour Working Men’s Club and Institute Ltd v. CEC [1979] STC 570 at 580, Forbes J).
- Burden on taxpayer re correct customs classification
"[74] We agree with [Counsel for HMRC] that the burden of proof is upon Laurence Supply. In Vital Nut Co Ltd v HMRC, supra, the Upper Tribunal made the point that it is not for HMRC to justify the classification in the C18 but it is instead for the taxpayer to establish that the classification is wrong and what it should be instead. The Upper Tribunal stated as follows at [15](4)(c):
"(c) Before the FTT, it was common ground between the parties that the burden of proving which was the applicable class fell on the taxpayer, here Vital Nut. This was also not a controversial point before us. In this case, the Commissioners issued a C18 Post Clearance Demand Note (C1802/163608) which was predicated on the classification of the papaya under commodity code heading 20.06. Vital Nut accepted that it was not for the Commissioners to justify this classification. Rather, the onus was on Vital Nut to show that the 20.06 classification was wrong and that commodity code heading 20.08 was the appropriate one: Brady (HM Inspector of Taxes) v. Group Lotus Car Companies plc [1987] 3 All ER 1050."" (Laurence Supply Co (Leather Goods) Limited v. HMRC [2024] UKFTT 124 (TC), Judge Chapman KC)
- Burden of proving not only that the assessment is wrong but also what the correct position is
“The application of section 41 is not excluded as soon as it is shown that an element of the assessment is a guess or that it is very probably wrong. It is prima facie right and remains right until the appellant shows it is wrong. The taxpayer must as a general rule, show not only negatively that the assessment is wrong but also, positively, what correction should be made to make it right or more nearly right.” (N Ltd v. Commission of Taxes (1962) 24 SATC 655 at 658, High Court of Nyasaland, cited by Lord Lowry in Bi-Flex Caribbean Ltd v. IRC 63 TC 515 at 519).
“Applying the approach set out in Bi-Flex Caribbean Ltd v The Board of Inland Revenue referred to at [65], we do not consider that Mr England was in a position, at the hearing before us, to discharge his burden of showing positively what corrections need to be made to the assessments relating to income tax and Class 4 NIC. Mr Kamal criticised HMRC for seeking to assess Mr England on an amount of income that was in excess of the amount he is claiming from Mr Jenner and, more generally, criticised those figures as mere estimates and as failing to give appropriate relief for expenses. However, those arguments do not demonstrate what the correct amount of Mr England’s trading income was.” (England v. HMRC [2016] UKFTT 627 (TC), §70)
- Must establish figures that are more reliable than HMRC's
"[33] In an appeal against quantum, generally the burden lies on the taxpayer to establish the correct amount of tax due. The HMRC assessment is prima facie right, and remains right until the taxpayer shows not only that it is wrong, but also shows positively what corrections should be made in order to make the assessment right or more nearly right. There is an element of guess-work and an almost unavoidable inaccuracy in a properly made best of judgment assessment. It is therefore not enough for an appellant to show shortcomings in the HMRC methodology. The Appellant must by evidence and argument positively show a methodology and/or figures that are more reliable than those used by HMRC in making the assessment, even if the Appellant's methodology and figures may also have their own inevitable shortcomings. (See Khan v Revenue and Customs [2006] EWCA Civ 89 at [69].)" (Byrne v. HMRC [2024] UKFTT 103 (TC), Judge Staker)
- Even where HMRC change the reasons in support of the assessment
“The primary task of FTT is to determine correct amount of tax (per Carnwath LJ in Pegasus Birds at [38]) and that remains the case even where the reasons for assessment have changed. But in the instant case CJS has discharged the burden of demonstrating that the amount assessed was not due because it was entitled to claim a refund of the input tax.” (HMRC v. C Jenkin & Son Limited [2017] UKUT 239 (TCC),§§29…30, Norris J and Judge Sinfield)
- Possible statements that burden is on HMRC
“It is for the Crown, seeking to tax the subject, to prove that the tax is exigible, not for the subject to prove that his case falls within exceptions which are not expressed in the Statute but arbitrarily inferred from it” (Hochstrasser v. Mayes 38 TC 673 at 706, Lord Simons; see also 709, Lord Cohen “…that it is not enough for the Crown to establish…”);
“I must add that the language of the rule is so obscure and so difficult to expound with confidence that – without seeking to apply any different principle of construction to a Revenue Act than would be proper in the case of legislation of a different kind – I feel that the taxpayer is entitled to demand that his liability to a higher charge should be made out with reasonable clearness before he is adversely affected” (Russell v. Scott [1948] AC 422 at 433, Viscount Simon);
“It is not always sufficiently appreciated that it is for the taxing authority to bring each case within the taxing Act, and that the subject ought not to be taxed upon refinements or otherwise than by clear words” (Munro v. Stamp Duties Commissioner [1934] AC 61 at 68, Lord Tomlin);
“The onus of proving that the company comes within s.75 lies on the Revenue” (Stephens v. Pittas 56 TC 722 at §8.2, §13)
Reasons for location of burden of proof
He who asserts must prove
“If the taxpayer wishes to have the assessment altered, he must go to the tribunal, and unless the tribunal finds the commissioners are wrong, the assessment still stands. It seems to me, in those circumstances, that any taxpayer who appeals to the tribunal takes upon himself the burden of proving the assertion he makes, namely that the assessment is wrong, because unless he proves this there is nothing on which the tribunal can find an error in the assessment.” (Tynewydd Labour Working Men’s Club and Institute Ltd v. CEC [1979] STC 570 at 580, Forbes J).
“I base this conclusion on the structure and wording of paras 42 to 45, and on the general principle that the legal or persuasive burden of proof “lies upon the party who substantially asserts the affirmative of the issue”: see Phipson on Evidence, 16th edition, para 6-06. The matter can usually be tested by asking which party would succeed if no evidence were adduced on the issue…” (HMRC v. Household Estate Agents Ltd [2007] EWHC 1684 (Ch), §46).
Typically taxpayer has the relevant evidence
“We think that the primary reason for the rule that a taxpayer has the burden of proof for proving an assessment is wrong is that the taxpayer, as the person carrying out the business or otherwise earning the income or profits, would be or ought to be in possession of the evidence relevant to the question of his liability while the tax authorities would not possess the evidence. While it might be hard to prove a negative, it is impossible to discharge a burden of proof without any evidence at all.” (Hutchings v. HMRC [2015] UKFTT 9 (TC), §112).
“I find further support for my conclusion in considerations of policy and common sense…Quite apart from the difficulties involved in establishing a negative, the question whether a mistake was made is likely to depend on matters within the exclusive knowledge of the taxpayer, and the question of the existence of a settled practice will depend on the evidence of taxpayers and their professional advisers at least as much as on the practice of HMRC.” (HMRC v. Household Estate Agents Ltd [2007] EWHC 1684 (Ch), §47).
“…the Taxes Management Act 1970 throws on the taxpayer the onus of showing that the assessments are wrong. It is the taxpayer who knows and the taxpayer who is in a position (or, if not in a position, who certainly should be in a position) to provide the right answer, and chapter and verse for the right answer, and it is idle for any taxpayer to say to the Revenue, 'Hidden somewhere in your vaults are the right answers: go thou and dig them out of the vaults.' That is not a duty of the Revenue. If it were, it would be a very onerous, very costly and very expensive operation, the costs of which would of course fall entirely on the taxpayers as a body. It is the duty of every individual taxpayer to make his own return and, if challenged, to support the return he has made, or, if that return cannot be supported, to come completely clean; and if he gives no evidence whatsoever he cannot be surprised if he is finally lumbered with more than he has in fact received. It is his own fault that he is so lumbered.” (Nicholson v. Morris [1977] STC 162 at 168, Goff LJ approving Walton J)
Otherwise taxpayers could simply keep no records
“The practice of requiring the taxpayer to assume the burden of challenging an assessment to income tax as too high is apparently of very long-standing and was explained by Atkinson J in the Dixon & Gaunt case at 293 as being justified by the “very good reason” that “otherwise the taxpayer would only have to keep no books, no banking account, insist on being paid in Treasury notes, and no one living could ever prove what his income was or establish any liability to Income Tax” (Hargreaves v. HMRC [2014] UKUT 395, §29).
“I have considered it clear from the above citations that, fundamentally, the reason that the burden is on the appellant to disprove the assessment is because the appellant exclusively has control of the evidence. The tax system could not function effectively if HMRC had to prove assessments as the taxpayer could simply lose the necessary evidence of liability.” (Hilden Park LLP v. HMRC [2017] UKFTT 217 (TC), §58, Judge Mosedale).
Possibly because of section 50(6)
“Section 50(6) in its present and earlier incarnations has always been the principal justification for holding that the burden lies on the taxpayer to displace an assessment made within normal time limits: see, for example, Brady v Group Lotus at 387A-D. However, I do not think it can safely be inferred from the mere fact that an objection to a discovery assessment has to be made in an appeal against the assessment that the burden is on the taxpayer to establish that paras 43 or 44 do not apply. After all, there is a similar provision in TMA 1970 s 34(2), but neither that provision nor s 50(6) have deterred the courts from holding that the onus is on HMRC to establish fraud or negligence outside normal time limits. The true proposition, I think, is that if an assessment is validly made the onus is then on the taxpayer to displace it, in the absence of specific provision to the contrary. If, however, an issue arises as to whether an assessment has been validly made in the first place, s 50(6) provides no assistance in answering the question where the burden of proof lies in relation to the alleged invalidity. The direction that the point must be taken, if at all, in an appeal against the assessment is best explained as a purely procedural requirement, not as an indication that the burden of proof necessarily lies on the taxpayer.” (HMRC v. Household Estate Agents Ltd [2007] EWHC 1684 (Ch), §49).
“This “stand good” language has been part of the Management Acts since at least section 57 of the Taxes Management Act 1880. It is the statutory basis for concluding that the taxpayer has the legal burden of demonstrating that he is overcharged by an assessment. The justification for placing this burden on the taxpayer, even though it may be the Revenue which is asserting that tax is due, is that the taxpayer and not HMRC is ordinarily in possession of the relevant facts and figures. Essentially, HMRC are entitled to call for an explanation from the taxpayer of the circumstances surrounding the determination of his tax position and ultimately put the taxpayer to proof of the facts behind those circumstances. In that respect HMRC may issue an assessment because they are in possession of particular evidence suggesting that the taxpayer’s explanation is untrue but it may also be that HMRC are not satisfied that what the taxpayer is telling them fully explains the particular circumstances with which they appear to be confronted. That is the justification but it is the particular statutory language used that places the legal burden on the taxpayer to satisfy the tribunal that the assessment is wrong and should be reduced or discharged.” (Hull City AFC (Tigers) Ltd v. HMRC [2017] UKFTT 629 (TC), §58, Judge Gammie QC).
“Light” overall burden on taxpayer
“…there plainly comes a point where the taxpayer has produced evidence which, as matters stand then, appears to show that the assessment is wrong. At that point the evidential basis must pass to the Revenue” (Wood v. Holden [2006] EWCA Civ 26, §§30 – 31);
“The issue of the burden of proof arises if the appellant advances no evidence or if the appellant advances evidence but that evidence is so unsatisfactory as to leave the tribunal in real doubt as to whether it has any value…But given the comments of Lord Russell [in Joseph Constantine Steamship], the weight of the evidence necessary to raise the issue to a point at which the appellant would succeed unless the respondents advanced their own evidence would be light” (Gutteridge v. HMRC [2006] STC (SCD) 315, §100)
“We accept [the appellant’s] submission that, where the legal burden of proof lies upon the taxpayer, if the taxpayer adduces sufficient evidence to establish a prima facie case in favour of the validity of its claim the evidential burden then passes to HMRC so that, if HMRC produces no evidence of its own, the taxpayer must win.” (Perenco Holdings v. HMRC [2015] UKFTT 0065 (TC), §103).
But there must be something
“We do not consider that the Appellant has made even a prima facie case which would shift the evidential burden to the Respondent’s…However light the Appellant’s weight of evidence needs to be, we do not consider that she has reached even that low threshold.” (Porter v. HMRC [2016] UKFTT 792 (TC), §§112…113, Judge McKeever).
Location of evidentiary burden of proof shifts and is a matter of common sense rather than law
“Although [the term ‘evidentiary burden of proof’] is widely used, it has often been pointed out that it simply expresses a notion of practical common sense and is not a principle of substantive or procedural law. it means no more than this, that during the trial of an issue of fact there will often arrive one or more occasions when, if the judge were to take stock of the evidence so far adduced, he would conclude that, if there were to be no more evidence, a particular party would win.” (Brady v. Group Lotus Car Cos plc [1987] 3 All ER 1050 at 1059, Dillon LJ)
HMRC must have some reliable evidence to support their assessment
“in our view the Appellants have discharged that burden. For the reasons already given, we cannot accept that the observation regards have that degree of reliability properly to be expected if they are to form the basis of an assessment.” (Forati v. CEC, (2001) VTD17382, Judge Bishopp);
“the Tribunal finds that the items of HMRC evidence do not have that degree of reliability properly to be expected if they are to form the basis of an assessment.” (Kelly v. HMRC [2014] UKFTT 1012 (TC), §66, Judge Staker)
“The Tribunal, accordingly, did not believe that HMRC had carried out sufficient investigation nor made a genuine attempt to make a reasoned assessment given the reliance on only one source of evidence and no other and that HMRC had at least been advised that MM had learning difficulties.” (McAllister v. HMRC, TC03991 (2014) §91, Judge Gemmell)
He who asserts must prove/no burden to prove a negative
"[64] Here, as generally, the rules of pleading are a good guide to where the burden lies in accordance with the principle that the person who asserts (and not the person who denies) must prove: see, eg, Imperial Smelting Corpn Ltd v Joseph Constantine Steamship Line Ltd [1942] AC 154, 174. It is not the practice, when pleading claims for the remedy of damages for the tort of negligence, for claimants to allege that losses claimed were of a reasonably foreseeable type any more than it is the practice for claimants to plead that they took all reasonable steps to mitigate the loss, or that they were not contributorily negligent, or that no intervening cause broke the chain of causation. In all these cases, in our view, the pleading practice is an accurate indication that the defendant bears the burden of proof." (Armstead v. Royal & Sun Alliance Insurance Company Ltd [2024] UKSC 6, Lord Leggatt and Lord Burrows)
“The fact that s 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 s 286(5)(b), then that would be for HMRC to prove.” (Kellogg Brown & Root Holdings (UK) Ltd v. HMRC [2010] EWCA Civ 118, §47).
“…the task of proving a negative…would be a most exceptional burden to impose on a litigant…I know of no case…in which an attempt has been made, or called for, to prove the suggested negative.” (Joseph Constantine Steamship Line v. Imperial Smelting Corporation Ltd (1942) AC 154 at 177, Lord Russell);
“it is the duty of those who assert and not of those who deny to establish the proposition sought to be established” (Secretary of State in Council of India v. Scoble [1903] AC 299 at 302; cited in Laird v. CIR 14 TC 395).
“It appears to us that the only way of reconciling these opposing factors in such circumstances is to require HMRC to show a prima facie case in respect of the matters which would otherwise require the appellant taxpayer to prove a negative, and then to require the appellant taxpayer to produce evidence to show that HMRC’s prima facie case should not be accepted. We regard this approach as consistent with the authorities setting out the principles applicable to discovery assessments, such as Aramayo.” (Thomas v. HMRC [2016] UKFTT 133 (TC), §122)
“there is no good reason why the normal position should not prevail, that is, that the person alleging the default should bear the onus of proving the allegation made” (Rushworths Furniture Ltd v. HMRC [2011] UKFTT 480 (TC), §10, Judge Geraint Jones);
“From time to time the issue of proving a negative arises…In these circumstances the general rule that it is better to require proof of a positive rather than a negative proposition applied and the burden will shift to the respondent.” (HMRC Manual AH1775).
However:
“I have some sympathy with him because he faced the almost impossible task of proving a negative...he was compelled…to rely upon mere assertion and supposition.” (West Somerset Railway v. Chivers [1995] STC (SCD) 1, §15).
“In one sense that is the assertion of a negative, and we have been pressed with the proposition that when a negative is to be made out the onus of proof shifts. That is not so. If the assertion of a negative is an essential part of the plaintiff’s case, the proof of the assertion still rests upon the plaintiff.” (Abrath v. North Eastern Railway (1883) 11 QBD 440 at 457, Bowen LJ).
“In essence, the approach in Gutteridge is that if the Appellant produces some cogent evidence, she will be likely to win unless HMRC can provide evidence of its case. If it does, the Tribunal must weigh the evidence of the parties. The issue of the burden of proof arises if the Appellant provides no evidence or evidence which is so unsatisfactory that the Tribunal has real doubts as to its value. In such circumstances the appeal would have to be dismissed…We accept the approach to the evidential burden set out in Wood v Holden as expanded upon in Gutteridge.” (Porter v. HMRC [2016] UKFTT 792 (TC), §§91…92, Judge McKeever).
Human rights (he who asserts need not always prove)
“Convention proceedings no not in all cases lend themselves to a rigorous application of the principle affirmanti incumbit probatio (he who alleged something must prove that allegation – Atkas v. Turkey ]2003] ECHR 24351/98 at para 272). In certain circumstances, where the events in issue lie wholly, or in large part, within the exclusive knowledge of the authorities, the burden of proof may be regarded as resting on the authorities to provide a satisfactory and convincing explanation…” (DH v. Czech Republic [2007] ECHR 57325/00, §179; HMRC v. Humphreys [2009] UKUT 24 (AAC), §18)
Facts in relation to which HMRC alone had the evidence
“The burden of proof rests with HMRC to show when the clock should stop running against them (Marlico Limited para 81).” (Global Foods Ltd v. HMRC [2017] UKFTT 577 (TC), §74(11), Judge Amanda Brown – in respect of VAT repayment supplement which depends on when HMRC decide to make specific enquiries).
“There was a dispute as to when CenPOL changed its view and in particular whether it was before or after the decision and review decision at issue in this appeal. I had no evidence on this: Mr Kane simply did not know. [HMRC’s] view was that if it was the appellant’s proposition that CenPOL changed its view before the information notice was issued, then the appellant had the burden of proof: [the appellant] said HMRC had the burden of proof on this as only HMRC could possess the evidence of this. I agree with the appellant over this for the reasons given by the FTT in the decision of Royal Borough of Kensington & Chelsea [2014] UKFTT 729 (TC) at §§60-63. So I find the change of view was sometime before the issue of the information notice as HMRC were the only party who could have known the truth on the date of the change and they adduced no evidence on it.” (Distinctive Care Ltd v. HMRC [2016] UKFTT 764 (TC), §33, Judge Mosedale).
“We accept that HMRC were the only ones (as between the parties) who would have held such evidence and had such knowledge…We do not accept Mr Shepherd’s submission that the fact that HMCE (or HMRC) were not obliged to retain such evidence beyond six years means that they do not bear the evidential burden of proving what relevant applications were made. Of the two parties, HMRC were the only ones to have ever held such evidence, or to have had knowledge of relevant applications having been made. It would be unreasonable, and unjust, to expect RBKC to adduce evidence of relevant applications not having been made (quite apart from the obvious difficulty of requiring them to prove a negative).” (Royal Borough of Kensington & Chelsea v. HMRC [2014] UKFTT 729 (TC), §§61 – 62)
“In the RBKC case, the taxpayer never had the information (viz the information on what claims had been made directly to HMRC) which was critical to the determination of the appeal. It was HMRC and HMRC alone that had possessed that information. In this case, however, Perenco did at one stage have the information but had destroyed it in accordance with document retention policy.” (Perenco Holdings v. HMRC [2015] UKFTT 0065 (TC), §91).
Facts in relation to which HMRC has definitive evidence
“If they have in fact checked the register and have kept the result of that check to themselves I would regard it as most egregious conduct on their part then to put the appellant to proof of a fact known to them. If they have lost part or all of the register I regard it as being somewhat at odds with their criticisms of the appellant and its predecessors to the effect that they should have kept documents dealing with the transfers of rights. If they have not checked the register then it is time they did.” (Northern Lincolnshire & Goole Hospitals NHS Foundation Trust v. HMRC [2015] UKFTT 103 (TC), §13 – re whether the taxpayer’s predecessors were VAT registered).
Facts in relation to which the Tribunal has the evidence: no burden on the parties
“But I am entirely satisfied that the Tribunal's correspondence of 19 September 2016 and 11 October 2016 were sent to the Appellant's representatives and the directions were drawn to the attention of the Appellant's representatives. For the sake of completeness, I should add that because HMRC was not the author of those letters, it was not in a position to satisfy itself whether that had been done. But I am in such a position, since copy letters marked as sent appeared on the Tribunal's file.” (McCord v. HMRC [2017] UKFTT 620 (TC), §63, Judge McNall).
Burden of proof on matters not explicitly challenged
- Burden of proof must still be discharged even if other party does not raise the issue unless clear concession
"[64] Accordingly, unless HMRC has advanced a positive case on the matters preconditioning the validity of the discovery assessment upon which it bears the burden of proof, or the appellant has conceded those issues, a tribunal will be unable to find that HMRC has discharged its burden of proof on those matters with the result the assessments could not be regarded as having been validly made." (Jones v. HMRC [2020] UKUT 229 (TCC), Judge Raghavan and Judge Greenbank)
“In this case, therefore, HMRC had the duty of establishing their case on both the competence and time limit issues. The burden of proof lay on them in each of those respects. There was no obligation on the part of Mr Burgess or Brimheath to raise those issues... HMRC did, in their statement of case, make a positive case with respect to both the competence and time limit issues. However, it was not open to them to seek to discharge the burden that lay upon them of proving those cases by purporting to limit the issues before the FTT to the substantive issues. Nor can HMRC’s assertion that there had been no appeal made by the appellants on the competence and time limit issues serve to shift the onus of making a positive case onto Mr Burgess or Brimheath. Any concession or waiver by the appellants on those issues would have to have been clearly given, and HMRC could not assume that silence implied any such concession or waiver. It was not incumbent upon the appellants to respond to HMRC’s assumption as to what they would, and would not, be required to prove.” (Burgess v. HMRC [2015] UKUT 578 (TCC), §§43…44, Judges Berner and Tom Scott)
"[79] Burgess means, as both parties recognise, that the Tribunal must consider the validity of any assessment which has been appealed to it." (Monmore Properties Ltd v. HMRC [2024] UKFTT 137 (TC), Judge Anne Scott)
Query whether limited to questions of validity:
"[18] And there is no logic or justice in HMRC’s suggestion in any event. If the person with the burden of proof was required to prove everything, even those matters which the other party had not clearly disputed, then preparation for, and hearings of, appeals would be much longer and a great deal of time and money would be wasted. Moreover, trial by ambush is not justice: each party should be able to prepare to meet the other party’s case in advance of the hearing to increase the likelihood that the outcome of the appeal will be in accordance with the true facts of the case. Each party must therefore state in advance in summary terms what is in dispute and why.
...
[22] While at first glance this case might appear to support HMRC’s contention that the party without the burden of proof can simply say that they put the other party to strict proof of their case and do no more, I do not think that the Upper Tribunal actually said that. It is only authority for the much narrower point that, where a party expressly (and perhaps impliedly) disputes a matter sought to be proved by the other party, the Tribunal cannot assume, when that issue is not referred to at the hearing, that it has been conceded.
[23] It may be that the appellant’s pleadings in Burgess & Brimheath were defective in not setting out in summary form the key objections to HMRC’s allegations, but if so, HMRC had the chance to raise the matter at or before the hearing. Instead they said nothing but proceeded in the hearing on the assumption that the point had been conceded despite the express statement by the appellant that it had not been. Burgess & Brimheath is not about the adequacy of the pleadings, it is about the effect of (inadequate) pleadings being ignored by the other party and the Tribunal; on reflection, it is not relevant here and of no assistance to HMRC’s case in this application that not having the burden of proof relieves them from the need to plead their case." (Allpay Limited v. HMRC [2018] UKFTT 273 (TC), Judge Mosedale)
- Light burden:
“No competing evidence to show that para 25(2) did not apply was adduced on behalf of the company, nor was it even argued that it did not. In those circumstances very little material indeed would in my view entitle the commissioners to hold that the paragraph did apply, and in my judgment there was just enough to entitle them to do so in the shape of the correspondence which was before them and in the unchallenged fact that the company elected in favour of a valuation as at 6 April 1965 in preference to a straightline apportionment of the gain…The only question is whether there was such a vacuum in the evidence on the original cost of the lease that the commissioners could not properly find that para 25(2) applied. In my judgment there was very little but just enough to fill the vacuum.” (Tod v. South Essex Motors (Basildon) Ltd [1988] STC 392 at 409 – 410 per Knox J)
- Not sufficient for HMRC to note the burden is on them to prove carelessness
"[66] Both the Statement of Case, and the FTT Decision (at FTT [24]) recounted HMRC’s acceptance “that the onus was upon them to show that there is a discovery, leading to a loss of tax, and that this was brought about by the carelessness or deliberate action of the Appellant under ss29 & 36(1)/36(1A)(a) TMA”. However, there was nothing in the Statement of Case which then set out what HMRC’s case was on the conduct considered to constitute Miss Jones acting carelessly or deliberately." (Jones v. HMRC [2020] UKUT 229 (TCC), Judge Raghavan and Judge Greenbank)
- But other party may be prevented from challenging case if insufficient notice of challenge given:
“Whilst the burden on this appeal is on the Appellant, if the Respondents intended to take issue with the classification of the Nano Products then that case ought to have been set out in their Statement of Case. Tribunal Rule 25(2) requires the Respondents to set out their position in relation to the case. The Respondents did not set out their position on the Nano Products, nor indeed was it set out in any correspondence or other document at any stage prior to 10 December 2015. Whilst the burden was on the Appellant, it would not be fair to permit the Respondents to challenge the Appellant’s case without warning as to the nature of the challenge. The classification of the Nano Products is clearly a significant issue which the Respondents were seeking to address extremely late in the day. Plainly there would be prejudice to the Appellant if it were expected to meet the Respondents’ arguments without prior warning, or at least on notice amounting to only one business day prior to the hearing…Taking all the circumstances into account we are satisfied that it would be just and fair to refuse the Respondents’ application to amend their case and to rely on the Supplementary Report. Further we are satisfied that the Respondents should be barred from cross examining the Appellant’s expert witness and from making submissions on the Appellant’s case in relation to the Nano Products. We would have been minded to summarily allow the appeal in relation to the Nano Products but it is not clear to us that we have such jurisdiction” (Moreton Alarm Services (MAS) Ltd v. HMRC [2016] UKFTT 192 (TC), §§49…70)
- Not sufficient for HMRC to note the burden is on them to prove carelessness
- Or: No burden of proving matters not properly raised
“The prosecution do not have to disprove matters which the defendant’s evidence or case do not properly raise” (DPP v. Wright [2009] EWHC 105 (Admin), §40)
Customs and excise appeals where the burden is on HMRC
"(6) On an appeal under this section the burden of proof as to—
(a) the matters mentioned in subsection (1)(a) and (b) of section 8 above,
(b) the question whether any person has acted knowingly in using any substance or liquor in contravention of section 114(2) of the Management Act, and
(c) the question whether any person had such knowledge or reasonable cause for belief as is required for liability to a penalty to arise under section 22(1), (1AA), (1AB) or (1AC) or 23(1) of the Hydrocarbon Oil Duties Act 1979 (use of fuel substitute or road fuel gas on which duty not paid),
shall lie upon the Commissioners; but it shall otherwise be for the appellant to show that the grounds on which any such appeal is brought have been established." (FA 1994, s.16(6))
Increasing an assessment on appeal (burden on HMRC)
"[85] Where HMRC wishes to assert that an assessment (including an amendment to a self-assessment) is to be increased by virtue of section 50(7) TMA, the burden is on them to show that the original assessment or amendment undercharges the taxpayer (see Revenue and Customs Commissioners v C M Utilities Limited [2017] UKUT 5 0305 (TCC), at [42])." (HMRC v. West [2018] UKUT 100, Vos J and Judge Berner)
So far as the last one is concerned, that was (having regard to the fact that the Commissioners increased the assessment) governed by s 50(7) of the Taxes Management Act 1970, which reads: "If on any appeal it appears to the Commissioners that the person assessed ought to be charged in an amount exceeding the amount contained in the assessment, assessment shall be increased accordingly." Therefore, the onus there was upon the Inspector of Taxes." (Cutmore v. Leach 55 TC 602 at 606, Walton J)
Questions of law (no burden of proof)
“The legal burden is the burden of establishing the facts relevant to the determination of the disputed issue and, based on those facts, putting forward contentions that persuade the tribunal of the correctness of the appellant’s case, namely that he is overcharged by the assessment. This remains constant throughout the appeal process.” (Hull City AFC (Tigers) Ltd v. HMRC [2017] UKFTT 629 (TC), §§62…80, Judge Gammie QC).
Reasonableness (possibly no burden of proof)
“It follows from the nature of the reasonable man, as a means of describing a standard applied by the court, that it would misconceived for a party to seek to lead evidence from actual passengers on the Clapham omnibus as to how they would have acted in a given situation or what they would have foreseen, in order to establish how the reasonable man would have acted or what he would have foreseen. Even if the party offered to prove that his witnesses were reasonable men, the evidence would be beside the point. The behaviour of the reasonable man is not established by the evidence of witnesses, but by the application of a legal standard by the court. The court may require to be informed by evidence of circumstances which bear on its application of the standard of the reasonable man in any particular case; but it is then for the court to determine the outcome, in those circumstances, of applying that impersonal standard.” (Healthcare at Home Ltd v. Common Services Agency [2014] UKSC 49, §3).
“the thing to be proved is an unreasonable withholding from distribution. But given a withholding, the reasonableness or unreasonableness of it is not susceptible of direct proof short of, so to speak, a plea of guilty by the company” (Mucklow v. IRC [1954] 2 ALl ER 508 at 526, Jenkins LJ)
“it is not appropriate to speak of the prosecution carrying some burden of satisfying the jury of the reasonableness of the suspicion. The jury’s opinion in that respect, as distinct from the proof of the underlying grounds or reasons, cannot be graded by reference to the standards of proof applicable in different jurisdictions to contested facts. A suspicion is either reasonable or unreasonable. To contrast a suspicion that is reasonable on the balance of probabilities and the suspicion that is reasonable beyond reasonable doubt is to misconceive the requirements of [the section].” (R v. Zotti [2002] SASC 164, §6, Prior J)
Domicile
On the person contending a domicile of choice was acquired
“Although Andreas's intentions regarding both Cyprus and England are closely interrelated, the adhesiveness of the domicile of origin, the incidence of the burden of proof and the level of the standard of proof all require the person contending for a domicile of choice to establish a clear case that Andreas intended to live permanently or indefinitely in England. For example, in paragraph 91 quoted above the deputy judge observed that, if Andreas had continued with a string of short term girl friends, "he might eventually have decided to sell up and go and live permanently in Cyprus." In my judgment, the question is not so much whether Andreas intended eventually to return to live permanently in Cyprus, but whether it had been shown that, by the date of his death, he had formed the intention to live permanently in England. The crucial point is that Andreas had a domicile of origin in Cyprus until it was proved that he intended to reside permanently or indefinitely in England.” (Cyganik v. Agulian [2006] EWCA Civ 129, §49, per Mummery LJ)
Extended time limit assessments (initial burden on HMRC)
“With such out of time assessments, the onus is clearly on the Revenue to prove the fraud or wilful default” (Brady v. Group Lotus [1987] STC 635 at 639); “It is accepted that when considering an extended time assessment, the burden of proof is on the Revenue to establish loss of tax due to fraudulent or negligent conduct.” (Hurley v. Taylor [1999] STC 1 at 5, Aldous LJ);
As regards the burden of proof in relation to a discovery assessment, it is clear that HMRC bear the burden (on the balance of probabilities) in relation to demonstrating that either of the conditions in s 29 (4) or (5) TMA are satisfied and that they also bear the burden in relation to s 36 (1A) TMA in demonstrating that some loss of tax was brought about deliberately by the taxpayer.
39. Once HMRC have satisfied these burdens, the burden then shifts to the taxpayer to prove that the assessment is incorrect: see Park J in Hurley v Taylor (Inspector of Taxes) [1998] STC 202 at 219 where he said:
“I will first set out certain propositions of law, and then I will relate them to the facts of the case. My propositions of law are as follows.
1. By s 36(1) of the Taxes Management Act 1970 an assessment to income tax can be made on a person outside the normal six years period (but subject to a maximum 20 years cut-off) “for the purpose of making good to the Crown a loss of tax attributable to his fraudulent or negligent conduct”.
2. This requires the Revenue to show: (1) fraudulent or negligent conduct by the taxpayer; and (2) a loss of tax attributable to it.
3. On appeal to the commissioners the burden rests on the Revenue of establishing para 2(1) and (2). If they do not discharge the burden the appeal should be allowed (see e g Hillenbrand v IRC (1966) 42 TC 617 at 623 per the Lord President (Clyde)). I will call this “the s 36 burden”.
4. The burden does not rest on the Revenue to any greater extent than the s 36 burden. If they establish some fraudulent and negligent conduct and some loss of tax attributable to it they have satisfied s 36. From then on s 50(6) takes over and applies as it does for in-date assessments: that is to say, thereafter the burden rests on the taxpayer to establish that the assessment is wrong (see e g Johnson v Scott (Inspector of Taxes) [1978] STC 48 at 53).
5. Reverting to the s 36 burden which rests on the Revenue, it may or may not be discharged simply by capital statements which show deficiencies. Whether it is so discharged or not depends on whether the taxpayer tenders any explanation of the deficiencies, and if he does, on how the commissioners view his explanation..." (Personal Representative of Wood v. HMRC [2016] UKUT 346 (TCC), Morgan J and Judge Herrington)
“[59] We do not weigh that in the balance since the issue for us is whether HMRC have established whether there was a loss of tax which is the starting point.
…
[65] The onus of proof, for all but the last two years, is on HMRC to show a loss of tax.
…
[66] On the evidence before us we cannot find that there is a loss of tax in any year. The appeal succeeds to that extent.
[67] At the outset we indicated that this was not a satisfactory case. It was not. Neither party “proved” their case. It came down to the burden of proof and HMRC have not established a loss of tax because of deliberate or careless behaviour in the years for the discovery assessments. For the Closure Notices, we do not find that there is a loss of tax in regard to the rental income. Because we do not accept that the till receipts in the disputed period were “sales” the appeal must succeed in that regard.” (Islam v. HMRC [2022] UKFTT 188 (TC), Judge Anne Scott)
“Notwithstanding the direction in section 50(6) and Regulation 10 of the 1999 Regulations that the assessment or decision should ‘stand good’, it is accepted that in certain cases HMRC bear an initial burden of showing that the assessment is validly made. Most obviously, if the assessment is for a year of assessment that is out of time HMRC must be able to demonstrate the basis for saying that circumstances exist permitting the assessment to be made for that year… I think it is clear, therefore that the burden falls on HMRC to demonstrate that an assessment has been validly made where the statute attaches conditions to the making of the assessment, such as those that allow HMRC to raise an ‘out of time’ assessment or as currently attach to the making of an in-time discovery assessment.” (Hull City AFC (Tigers) Ltd v. HMRC [2017] UKFTT 629 (TC), §§62…80, Judge Gammie QC).
“For instance, where an assessment is raised under s 29 TMA 1970 it appears it is accepted that HMRC must prove that the conditions for raising the assessment have been met, and that includes proving the requisite state of mind in the appellant. Nevertheless, this is also a case where at least to some extent HMRC ought to possess or even control the evidence (eg of discovery): the issue does not turn on liability to tax, the evidence for which is in the exclusive control of the taxpayer.” (Hilden Park LLP v. HMRC [2017] UKFTT 217 (TC), §67, Judge Mosedale).
“The assessment laid on the taxpayer was an extended time limit assessment and in those circumstances Mr Tidmarsh accepted on behalf of the Crown that the burden of proof lay with his client, in order to establish the validity of the assessment” (Billows v. Hammond [2000] STC (SCD) 430 at 439);
Burden limited establishing some fraudulent/negligent conduct and some loss of tax attributable thereto
“If they establish some fraudulent and negligent conduct and some loss of tax attributable to it they have satisfied s.36…thereafter the burden rests on the taxpayer to establish that the assessment is wrong” (Hurley v. Taylor [1999] STC 1 at 8 - 9, Aldous LJ);
VAT assessment outside short-stop time limit (mixed)
Overall burden on taxpayer
"...(6) The burden is on the taxpayer to show that the assessment was made outside the time limit specified in section 73(6)(b) of VATA.
I think that principles 1 to 3 and 6 were common ground. I need to say no more about them." (Pegasus Birds Ltd v. CCE [1998] EWHC Admin 1096, Dyson J)
For HMRC to prove what evidence of facts they relied on
This is a question in relation to which HMRC alone have the evidence (given that it is based on the subjective view of their officer as to what was sufficient), accordingly, the principle set out above should apply. It appears generally impossible for the taxpayer to prove the point at which HMRC's officer subjectively formed the view that they had sufficient evidence.
However:
"[38] Mr Smith suggested that the Sage data did not relate to the 08/15 period. But there was no evidence to this effect. Similarly, Ms Hickey suggested that the reference in Officer Bell’s email of 24 May 2018 to VAT Nominal Accounts 3302 and 3301 were references to Sage. She said that Sage used four-digit reference codes. Again, there was no evidence to support this suggestion. Accordingly, we have disregarded the suggestions made by Mr Smith and Ms Hickey in relation to the Sage data.
[39] It was conspicuous that the Appellant did not provide witness evidence to clarify the data that was in the possession of Officer Bell. Such a witness could easily have confirmed, for example, whether the Sage data was irrelevant to the 08/15 period and whether the reference codes related to Sage data. But no such evidence was forthcoming.
[40] Instead, we are left with the documentary evidence which, in our view, does not demonstrate that the Sage data was irrelevant to Officer Bell’s knowledge of the facts before 9 May 2018. On the evidence, therefore, it is impossible for us to conclude that the evidence of the facts, sufficient in the opinion of Officer Bell to justify the making of the assessment, came to his (and therefore HMRC’s) knowledge on 20 April rather than 9 May 2018. In other words, the Appellant has failed to discharge the burden of proof on the balance of probabilities. It follows, therefore, that the assessment was not time-barred by section 73(6)(b) VATA." (Nottingham Forest Football Club Limited v. HMRC [2022] UKFTT 305 (TC), Judge Brannan)
Abuse (VAT) (burden on HMRC)
"[38] Having regard to those considerations, in circumstances such as those at issue in the main proceedings, in which the competent tax authority has adduced no evidence demonstrating the existence of an abusive practice, the taxable person cannot be refused the right of deduction." (Kuršu zeme' v Valsts ienemumu dienests, C-273/18)
“In determining who bears the burden of proof in an appeal where abuse of law is alleged, it is necessary to consider which party substantially asserts that there is or has been an abuse. As discussed above, it is the nature of an abusive arrangement that the taxpayer’s appeal would succeed on the purely formal application of the legislation. The appeal will only fail if it can be shown that there is an abuse, ie the resulting tax advantage is contrary to the VAT Directives and the essential aim of the transactions is to obtain a tax advantage. If abuse were not alleged or, having been alleged, cannot be established then the appeal must be allowed. It follows that establishing that a tax advantage is contrary to the VAT Directives and the essential aim of the transactions is to obtain a tax advantage is an essential part of HMRC’s case in an appeal where abuse of law is alleged. Accordingly, HMRC bear the burden of proving those matters.” (Massey and Massey t/a Hilden Park Partnership v. HMRC [2015] UKUT 405 (TC), §60, Rose J and Judge Sinfield)
“Nevertheless, the Upper Tribunal’s view could be explained as a decision that allegations of Halifax-abuse should be treated the same as allegations of fraud or sham in the sense that they are allegations that the Upper Tribunal did not think HMRC should make without evidence amounting to a prima facie case of what was alleged. The word ‘abuse’ could be seen as an allegation of misbehaviour, albeit that the CJEU stressed in Halifax that it was to be assessed objectively. So while I do have my doubts about the reasoning, I think that the FTT should follow the dicta in Hilden Park 1 because it was the dicta of a superior court made after full reasoning and is not obviously wrong.” (Hilden Park LLP v. HMRC [2017] UKFTT 217 (TC), §75, Judge Mosedale).
Taxpayer is taking advantage of treaty relief (burden on HMRC)
"[151] We also agree with [the taxpayer] that it is for the Respondents to show that the condition in Article 12(5) applies and not for BLM to show that it is not. We say that because:
(1) Henderson J in Household noted that the principal justification for holding that the burden of proof in displacing an assessment falls on the taxpayer is the language used in Section 50(6) of the TMA to the effect that the assessment must stand good if the tribunal decides not to reduce it. That language is missing from paragraph 9(3) of Schedule 1A. Whilst Henderson J acknowledged that the language used in Section 50(6) of the TMA was of no assistance in a dispute over the validity of an assessment (as opposed to a dispute over the quantum of an assessment) (see Household at paragraph [49]), the present case does not relate to the validity of the closure notice but simply relates to whether or not the amendment made by the closure notice was correct. As such, applying the reasoning of Henderson J in Household, the omission from paragraph 9(3) of Schedule 1A of the language to the effect that the assessment must stand good if the tribunal decides not to reduce it is, in our view, significant;
(2) that omission is all the more conspicuous by the appearance of that language in paragraph 9(5) of Schedule 1A, although the fact that paragraph 9(5) of Schedule 1A was introduced at a later time than paragraph 9(3) of Schedule 1A means that we would not wish to make too much of this distinction;
(3) in Household, where the language in question was also missing from the provision of the legislation which was in issue in that case but the case related to the validity of the assessment, Henderson J based his conclusion on:
(a) the structure and wording of the relevant provision and the general principle that the burden of proof “lies upon the party who substantially asserts the affirmative of the issue” (see Household at paragraph [46]); and
(b) the fact that the matters referred to in the provision were either within the exclusive knowledge of the taxpayers or depended largely on the evidence of the taxpayers and their professional advisers (see Household at paragraph [47]);
(4) applying the reasoning set out in paragraph 151(3)(a) above, the structure and wording of Article 12(5) very strongly points to the conclusion that it is the Respondents who have the burden of proof in this matter. On the language of the article, it is they who are asserting that a person concerned with the assignment had the requisite bad main purpose or, as Henderson J put it, who are “substantially asserting the affirmative of the issue”. The article could have been phrased in such a way that it was for the person claiming the benefit of Article 12(1) to “substantially assert the affirmative of the issue”. In other words, relief under Article 12(1) could have been expressed to be subject to the absence of the requisite bad main purpose in each person concerned with the assignment. Had that been the case, then, notwithstanding the absence from paragraph 9(3) of Schedule 1A of the language which appears in Section 50(6) of the TMA, the position might have been more finely-balanced. However, as it stands, both the omission from paragraph 9(3) of Schedule 1A of the language which appears in Section 50(6) of the TMA and the manner in which Article 12(5) is worded point in the same direction, which is that the burden of proof in this case is on the Respondents;
(5) the above is sufficient to dispose of this question in favour of BLM but we should note that the arguments in relation to how policy should affect the answer are quite finely-balanced. We see some force in Mr Grodzinski’s submission that the person who is the claimant under Article 12(1) has no ability to access the subjective purposes of other persons who are concerned with the assignment whereas the Respondents, as a tax authority, are able to use their information-gathering powers to do that. On the other hand, we think that, so far as the subjective purposes of the claimant itself are concerned, it is the claimant who has the more direct knowledge of its purposes than do the Respondents. We therefore think that the policy arguments go both ways and we decline to decide the question on that basis; and
(6) we are also unwilling to place any reliance in deciding the question on Mr Grodzinski’s argument that, as the Treaty represents an agreement between two contracting states in relation to the allocation of taxing rights over a particular source of income, the burden of proving that Article 12(5) applies should fall on the relevant contracting state. We agree with Mr Brinsmead-Stockham that, on the basis of that reasoning, in a case where Article 12(5) does not apply, it would be up to the Respondents to show that a claimant was not entitled to the benefit of Article 12(1) and that is patently not the case. We therefore consider that this argument does not advance the position either way." (Burlington Loan Management DAC v. HMRC [2022] UKFTT 290 (TC), Judge Beare)
Distortion of competition (burden on HMRC)
"[23]It was common ground before the FTT that the burden was on HMRC to establish that non-taxation would cause a distortion of competition." (Isle of Wight v. HMRC [2015] EWCA Civ 1303, Sir Terence Etherton)
"[20]...However, the requirement that a public body be treated as a non-taxable person under article 4.5 is overridden by the proviso in the second paragraph if such treatment would cause a significant distortion of competition. How that proviso is to be properly applied, and the location of the burden of proof (which is on HMRC), were established only after long and complex litigation culminating, in judicial hierarchy terms, in Revenue and Customs Commissioners v Isle of Wight Council (Case C-288/07)..." (Leeds City Council v. HMRC [2013] UKUT 596 (TCC), Judge Bishopp and Judge Aleksander)
"[20] Moreover the decision in Carpaneto l supports the case of the Four Local Authorities since at paragraph 31 the Court states that:
“Bodies governed by public law, which in this context must be assimilated to individuals, are therefore entitled to rely on that rule in respect of activities engaged in as public authorities but not listed in Annex D to the Directive”.
That makes it clear that the local authorities are entitled to be treated as outside the scope of VAT if the activity in question is one which is engaged in as a public authority and it is not listed in Annex D. Paragraph 32 then indicates that the conclusion that public bodies are entitled to rely on Article 4.5 where they fulfil the criteria in paragraph 31 (being engaged in activities “as” a public authority and the activity not being one listed in Annex D) is not “invalidated by the fact that Article 4.5.2 … requires activities to be treated as taxable” by the competent authorities, and possibly the Court, and may require the latter to make an assessment of economic circumstances if there is a genuine concern that significant distortions of competition would flow from giving effect to the right in Article 4.5.1.
[21] A further reason why the burden of proof must rest with the Commissioners was advanced by the Four Local Authorities. It is this. Article 4.5 has not been implemented into UK national law. The Customs may not therefore rely, to the detriment of a public body, on their failure to adopt provisions intended to facilitate application of the derogation, by requiring the public body to appeal in order to give effect to its rights under Article 4.5. This impermissible fetter on the exercise of directly effective rights is made all the more onerous if the public body is then required to prove a negative, abstract, proposition on that appeal. Such a requirement would infringe the well-established EC law principle that neither procedural rules nor rules as to the burden of proof may render the exercise of rights flowing from Community law excessively difficult. Requiring a proof of a negative in its present context would certainly infringe that principle." (Isle of Wight Council v. HMRC VAT Decision 19427, Judge Stephen Oliver QC)
Sham
“As [the taxpayer] observed, HMRC have the onus of proving an allegation that a transaction is a sham: see Hitch and others v Stone (Inspector of Taxes) [2001] EWCA Civ 63, [2001] STC 214 per Arden LJ at [32].” (Massey and Massey t/a Hilden Park Partnership v. HMRC [2015] UKUT 405 (TC), §59, Rose J and Judge Sinfield)
“If HMRC do allege fraud or dishonesty, it is clear that the burden of making good that allegation falls on them. This will ordinarily encompass an allegation of Snook sham, given its usual association with dishonesty or deceit. In the absence of such an allegation, however, or of an allegation of some other similarly reprehensible conduct (for which the taxpayer is to be presumed innocent), I do not think it correct that HMRC should be taken to have raised a separate issue in respect of which they have the burden of proof.” (Hull City AFC (Tigers Ltd) v. HMRC [2017] UKFTT 629 (TC), §156, Judge Gammie QC).
Mislabelling (no burden)
“The burden in that sense of ‘mislabelling’ (calling a lease a licence) is on neither party because it relates to the characterisation as a matter of law of the parties’ rights and obligations and not to the facts that determine first what those rights and obligations are (see e.g. Agnew v Commissioner of Inland Revenue [2001] 2 AC 710, [2001] UKPC 28 per Lord Millett at [32]).” (Hull City AFC (Tigers Ltd) v. HMRC [2017] UKFTT 629 (TC), §140, Judge Gammie QC).
Difference between sham and mislabelling
“Mr Davey however said that the fact that HMRC accepted that the documents were not shams did not mean that the legal rights and obligations arising from the documents were the same as the actual rights and obligations that the parties expressed them to create. He drew a distinction between the doctrine of sham and the doctrine of mislabelling. Thus for example a document which purports to grant a licence to a person to occupy land may be a sham if the parties intended the document to be a pretence, concealing the true transaction between the parties. However, even if a document is not a sham in that sense, it is commonplace that the labels which the parties use in their contract are not determinative of the true legal effect of what they have done: see the well known example given by Lord Templeman in Street v Mountford [1985] AC 809 of the five-pronged implement for digging, which is a fork even if the manufacturer insists that he intended to make and has made a spade; or the less well known but equally vivid example given by Bingham LJ in Antoniades v Villiers [1990] 1 AC 417 at 444B: “a cat does not become a dog because the parties have agreed to call it a dog.” I accept that the two doctrines, of sham and mislabelling, are different doctrines; and I also accept that in this case HMRC’s acceptance that the contractual documents entered into by the parties were not shams or pretences does not preclude them from contending that a statement in a contract that £x is paid in consideration of Y is not reflective of what the consideration truly was for which £x was paid.” (Acornwood LLP and Others v HMRC [2016] UKUT 361 (TCC), §59, Nugee J)
Knowledge and states of mind (burden on person alleging a particular state of mind)
“Moses LJ did not expressly qualify what he said [in Mobilx: “It is plain that if HMRC wishes to assert that a trader’s state of knowledge was such that his purchase is outwith the scope of the right to deduct it must prove that assertion.”]; and if the normal rule that the appellant (defending himself on a tax assessment) has to bear the burden of proof is justified because he has the facts and figures, it suggests in any case which depends on knowledge or other state of mind of the appellant there is no need for the person who is in effect a defendant to bear the burden of proof. Their state of mind must be proved by the person who makes the allegations in respect of it, in line with the normal rule in non-tax cases that a person making an assertion must prove it.” (Hutchings v. HMRC [2015] UKFTT 9 (TC), §114, emphasis original).
“…here HMRC are alleging a particular subjective state of mind as the test is whether ‘T’ deliberately withheld information. Our conclusion here is that where a subjective state of mind is in issue the burden of proof is on the person who alleged that state of mind, as the allegation should not be made unless the person making it holds evidence to support it: that is especially true where, as here, if not necessarily an accusation of dishonesty, it is very close to being an accusation of dishonesty.” (Hutchings v. HMRC [2015] UKFTT 9 (TC), §116, emphasis original).
Unallowable purpose: burden on taxpayer to show no unallowable purpose
"(3) Whether the company has such a main purpose is a question of fact to be determined by reference to the subjective purpose of the company. [Oxford Instruments at [61(3)].
(4) The purpose of a company must be divined from the purpose of the directors of that company. It is their intentions which inform the intentions of the company. [Oxford Instruments at [99]]. I would add, however, that if it is concluded from the evidence that the authority of the directors has been usurped by another person, and so those directors do not exercise central management and control, or effective control over a company, then it is the subjective purpose of the person who has usurped such authority which must be determined as a question of fact.
(5) In a case where the parties to a loan relationship which might have an unallowable purpose are members of the same group, then the subjective purpose of both members of that group are relevant when considering whether a company has an unallowable purpose. [Oxford Instruments at [103] and [104].
(6) As regards the burden of proof, the general rule applies namely that where an appeal has been made against a closure notice it is for the taxpayer to show that the notice and the consequential amendments to a tax return are incorrect, so the burden of proof in an unallowable purpose case is on the appellant. [Oxford Instruments at [96]]. In the circumstances of this appeal, this means that the appellant must prove a negative, namely that it did not have an unallowable purpose (as opposed to HMRC needing to establish, on the balance of probabilities, that a company did have an unallowable purpose) and will need to lead evidence accordingly." (Syngenta Holdings Limited v. HMRC [2021] UKFTT 236 (TC) Judge Popplewell)
Allegations amounting to criminality (burden on HMRC)
“it is well established that where HMRC’s assessment involves an allegation of what would be a criminal matter were the tribunal a criminal court, the burden of proof is on HMRC.” (Hutchings v. HMRC [2015] UKFTT 9 (TC), §113).
Fraud (HMRC only take on the burden if it is a necessary element of their case)
"[40] In the present case, the Upper Tribunal clearly had these principles well in mind. In a section of the UT Decision, headed "Proof, pleadings and dishonesty", they referred extensively to Brady and Ingenious Games at [30] to [35], before concluding:
"36. Two principles emerge from Ingenious and Brady:
(1) The burden of showing an assessment is incorrect remains on the taxpayer throughout the appeal. This is so even if the circumstances of the case are such that there either must, or may, have been some fraudulent conduct on the part of the taxpayer which is relevant to the tax liability.
(2) The allegation that a witness is dishonest must be put fairly and squarely to the witness in cross-examination before the tribunal can find the witness is dishonest, but does not need to have been pleaded in advance in cases where the burden is on the taxpayer.
37. The fact that no authority was cited in Ingenious for that latter proposition reflects that it is a long-held and established principle: Browne v Dunn (1893) 6 R 67 explains that the principle is grounded in fairness. That principle was approved by the Court of Appeal in Markem Corporation v Zipher Ltd [2005] EWCA Civ 267."
With these principles in mind, I now turn to examine how HMRC pleaded their case before the FTT." (Award Drinks Limited (in liquidation) v. HMRC [2021] EWCA Civ 1235)
“The contention that, by traversing the taxpayer companies’ version, the Revenue are implicitly setting out to prove a loss by fraud, overlooks the fact that, in order to make good their case, the Revenue need only produce a situation where the commissioners are left in doubt. In the world of fact there may be only two possibilities: innocence or fraud. In the world of proof there are three: proof of one or other possibility, and a verdict of not proven. The latter will suffice, so far as the Revenue are concerned.” (Brady v. Group Lotus [1987] STC 635 at 644);
"[41] We agree with HMRC that Award’s suggested analysis impermissibly reverses the burden of proof. It rests on the assumption that HMRC had to plead fraud against Award, in order to come to a conclusion that the assessment, based on Award’s possession and control of the goods, should be upheld. The point falls squarely within Brady, which confirms the burden remains on the appellant to show the assessment was incorrect even if that conclusion may, or indeed must, involve fraud."(Award Drinks Ltd (in liquidation) v. HMRC [2020] UKUT 201 (TCC), Judge Raghavan and Judge Thomas Scott)
“This exception also makes sense as fraud or other misbehaviour should not be alleged without grounds for alleging it: so unless HMRC is aware of the evidence which apparently justifies such an allegation, the allegation should not be made. So HMRC has the burden of proof and must raise a prima facie case where they allege fraud or sham.” (Hilden Park LLP v. HMRC [2017] UKFTT 217 (TC), §66, Judge Mosedale).
Bad faith/lack of good faith (burden on person asserting bad faith)
“Nothing in the above decisions as far as I can see alters that fundamental tenet and requires in effect Infinity to prove that it is bona fide and to prove that it did not know of the fraud.” (HMRC v. Infinity Distribution Ltd [2015] UKUT 219 (TCC), §26, Peter Smith J).
Penalties (burden usually on HMRC)
“On an appeal against the determination of a penalty under s.100 above, s.50(6) to (8) of this Act shall not apply but…” (TMA 1970, s.100B(2)).
"[101] By contrast, an appeal under paragraph 47 against the imposition or amount of a penalty comes at a much later stage, and engages different considerations because the proceedings are of a penal character and involve the exaction of money by the State from the taxpayer. For those reasons, it is well established (and is common ground) that the burden of proof in penalty proceedings lies on HMRC, not on the taxpayer..." (R (oao PML Accounting Limited) v. HMRC [2018] EWCA Civ 2231)
“It has also long been accepted that HMRC bear the burden of proving that a person is liable to a penalty for late submission of a return or late payment of tax whereas the taxpayer bears the burden of establishing that he or she has a reasonable excuse.” (Massey and Massey t/a Hilden Park Partnership v. HMRC [2015] UKUT 405 (TC), §59, Rose J and Judge Sinfield)
“It is for HMRC to prove that a penalty is due” (Rushworths Furniture Ltd v. HMRC [2011] UKFTT 480 (TC), §11);
“The Respondents…accepted that they had the burden of proving fraud or negligence on the part of the Appellants in respect of the penalty Appeals.” (Coll v. HMRC [2009] UKFTT 61 (TC), §15).
“s.100B(2) specifically excludes the statutory onus of proof so the onus reverts to the person making the assertion” (HMRC Manual AH1775);
Reason (ordinary rule not displaced)
“It seems to me that the reason for the rule is that, because penalties are penalties, and not (alleged) liability to tax, the normal common law on burden of proof that the person who makes the allegation must prove it, is not displaced…So this is not really an exception: it is just that penalties do not involve tax liability and so the rule explained in Grunwick does not apply. The rule in Grunwick was established, in my view, for the practical reason that the taxpayer exclusively controls the evidence of his own tax liability: but that is not really true where penalties are concerned, where HMRC ought to have the information necessary to know whether there has been, for example, a late payment of tax. Therefore, there was no need so far as penalties are concerned for the Grunwick exception to the normal rule that he who makes the allegation must prove it.” (Hilden Park LLP v. HMRC [2017] UKFTT 217 (TC), §§61…62, Judge Mosedale).
Express statutory provision placing burden on taxpayer human rights compatible
“In this case, HMRC must prove the grounds giving rise to its opinion that there has been a breach of the section 7A(1) duty. BAT is given the opportunity to rebut HMRC’s case…Looking at the whole scheme of the legislation and its application to BAT, I consider that the penalty provisions in sections 7A-7C TPDA are proportionate and go no further than is necessary for the protection of excise duty revenue. I therefore conclude that the reverse burden of proof in section 16(6) requiring BAT to prove its grounds of appeal does not go beyond reasonable limits and therefore does not infringe Article 6(2).” (British-American Tobacco v. HMRC [2017] UKFTT 190 (TC), §§536…538, Judge Brannan)
Defence to penalty (burden on taxpayer)
"And as with the ‘normal’ rule, the appellant has the burden to prove any potentially applicable defence, such as a reasonable excuse for the default.” (Hilden Park LLP v. HMRC [2017] UKFTT 217 (TC), §63, Judge Mosedale).
Personal liability notice (burden on HMRC except to the extent that assessment challenged)
"[21] HMRC have always maintained that they bore the burden of proof in relation to the validity of issuing the PLN." (HMRC v. Zaman [2022] UKUT 252 (TCC), Judge Andrew Scott and Judge Jennifer Dean)
Burden in relation to challenge to assessment on taxpayer
"[34] However, in our judgment, HMRC are plainly right that, as per their submissions that we have set out above, if the challenge to the PLN was brought on the basis that the assessment to VAT on Zamco was wrong, the legal rules relating to the way in which the assessment could have been challenged by Zamco if it had appealed the assessment remain in play in any appeal against the PLN. As we set out above, it is well-established law that it is for the taxpayer to prove, by evidence, that an assessment to VAT issued by HMRC is incorrect. HMRC do not have that evidential burden and that cannot sensibly be affected by the fact that the challenge to the assessment occurs in satellite litigation where, as in this case, a penalty charged on Mr Zaman is sought to be defended on the basis that the assessment to VAT on Zamco was wrong. In our judgment, it is clear that the FTT lost sight of the fact that after establishing whether the PLN was validly issued, the evidential burden in relation to the assessment to VAT on Zamco shifted to Mr Zaman when he sought to positively challenge the assessment as the sole basis on which the PLN was invalidly issued." (HMRC v. Zaman [2022] UKUT 252 (TCC), Judge Andrew Scott and Judge Jennifer Dean)