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N6: Standard of proof
Approach to proof
"[21] We take it from the dicta above that, on reconsideration of this case with the correct allocation of the burden of proof (as per the UT decision), our essential task is:
(1) to decide whether
(a) on all the evidence before the FTT,
(b) applying the civil standard of proof (balance of probabilities), and
(c) drawing appropriate inferences
we can, rationally and in accordance with our conscientious duty, make a finding on the essential issue of fact as regards the correctness of the assessment (being whether the goods were removed to the UK (by Zamco or under its directions) as part of Zamco’s sales - and, if they were not, their physical location at the time they were made available to the buyer: see [FTT80], based on the law as set out [FTT72-74]); and
(2) if the answer to the above question is “no”, by reason of the evidence being so inadequate, or so finely balanced, that we cannot make a finding on the essential issue, then we must correctly apply the “burden of proof” (which, in the context of this case, would result in finding that Mr Zaman has not discharged the burden of proof in showing that the assessment was incorrect, and so dismissing the appeal)." (Zaman v. HMRC [2023] UKFTT 404 (TC), Judge Citron)
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Only one standard of civil proof
“I think that the time has come to say, once and for all, that there is only one civil standard of proof and that is proof that the fact in issue more probably occurred than not.” (Re B [2008] UKHL 35, §13, Lord Hoffmann).
Balance of probabilities even in penalty cases based on dishonesty/fraud
“In our judgment, the FTT was correct to find that the applicable standard of proof (the FTT referred to “burden” at [19] but this can be taken to mean “standard”) was that of the balance of probabilities.” (Khawaja v. HMRC [2013] UKUT 353 (TCC), §46, Judges Berner and Herrington).
“The position of penalty appeals in the tribunal was considered by the Upper Tribunal in Khawaja v Revenue and Customs Commissioners [2014] STC 150. The Tribunal (Judge Herrington and myself) reviewed the authorities, both domestic and those of the European Court of Human Rights, and found, in the context of an appeal against a penalty under s 95(1)(a) of the Taxes Management Act 1970 ("TMA"), that the standard of proof was the civil standard of the balance of probabilities. That did not contravene the presumption of innocence in Article 6(2) of the Convention, as it did not deprive the presumption of innocence of its substance.” (Hackett v. HMRC [2016] UKFTT 781 (TC), Judge Berner).
Do not need to anticipate every conceivable challenge
"[148] In Rogers, the Upper Tribunal provided some guidance to the FTT for dealing with cases in which it is asserted by a taxpayer that HMRC had not given notice to file a return under section 8 TMA. In summary, the Upper Tribunal advised as follows:
(1) If HMRC fail to provide any evidence at all that a notice under section 8 TMA was served, the penalties must be set aside (Rogers [50]).
(2) If HMRC have provided some evidence that a notice under section 8 TMA was served, it is a matter for the FTT to determine whether or not that evidence satisfied HMRC's burden of proof (Rogers [51]).
(3) The Upper Tribunal then set out the following guidance that should be applied in cases where some evidence is available to the FTT (at Rogers [51]-[52]):
51. Where HMRC have given some evidence that a s8 notice was served, it will then be a matter for the FTT to determine whether that evidence is sufficiently strong to discharge HMRC's burden of proof. The FTT's assessment of the evidence should take into account the extent to which the taxpayer is disputing receiving a s8 notice. Evidence to the effect that HMRC's systems record a s8 notice as having been sent is, on its own, relatively weak evidence (since it does not itself demonstrate that a s8 notice was actually sent, and may not itself demonstrate the address to which it was sent). However, the FTT may nevertheless regard such evidence as sufficient if the taxpayer is not disputing having received a notice to file. By contrast, as the Upper Tribunal (Nugee J and Judge Herrington) identified at [56] of Barry Edwards v HMRC [2019] UKUT 131 (TCC) if the taxpayer is disputing having received a notice 2, the Tribunal is unlikely to accept weak evidence consisting only of a record that HMRC's systems record a s8 notice as having been sent to an unspecified address. In such a case, the Tribunal may look for further corroborating evidence: for example evidence that a s8 notice was actually sent to the taxpayer at the correct address or evidence that the taxpayer set about trying to submit a tax return before the deadline, from which it might be inferred that the taxpayer had received a notice requiring him or her to do so.
52. Where HMRC have adduced some evidence that a s8 notice was served, they do not need to anticipate every conceivable challenge that a taxpayer might make to the validity of such a notice and produce evidence to rebut all such potential arguments in advance. Such a requirement would be unworkable and disproportionate. Rather, where HMRC have given some evidence that a s8 notice was served, and there is no suggestion from the taxpayer that such notices are invalid, HMRC are entitled to proceed on the basis that no challenge is being made to the validity of those notices. If the FTT identifies its own concerns on the validity of a s8 notice, the proper course is for the FTT to write to the parties, before releasing its decision, to explain the nature of those concerns and to invite the parties to make submissions on the point and, if they wish, to apply for permission to adduce further evidence as necessary." (Niasse v. HMRC [2024] UKFTT 179 (TC), Judge Greenbank)
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Tribunal not directly considering likelihood of positive case of party without the burden
"[24] The tribunal will decide the question whether the assessment overcharged the taxpayer on “the balance of probabilities”. [The taxpayer] says that term means what it says. But deciding something on the balance of probabilities does not, we consider, equate to balancing which, as between the appellant’s case and HMRC’s case, is the more likely. In showing the assessment overcharges the taxpayer, the taxpayer might advance positive propositions (e.g. the deposit had a particular explanation, it was received by someone else) or a negative one (it was not the sort of income that would give rise to the charge under assessment, or no deposit was in fact received). Whether the proposition is positive or negative, all that balancing probabilities means is that the FTT need not be sure X was definitely the case – it is enough that X is more likely to be the case than “not X”.
[25] Thus, the tribunal must weigh up which is the more probable as between the proposition advanced and the negative of that proposition. So, the probability the deposit was a loan versus the probability it was not a loan. As discussed, even if HMRC put forward no arguments or evidence for some of those counterfactual propositions (“the not X”), it is still open to the tribunal to consider that the taxpayer has not shown X is more likely that “not X”. Because the burden is on the taxpayer it is entirely for the taxpayer to do the running on showing X is more likely than “not X”. That is not to say that HMRC might not still have to “exert” themselves, as the extract from Brady above suggests, if HMRC fear the taxpayer’s case was strong enough to get across the threshold of proof."(Qolaminejite v. HMRC [2021] UKUT 118 (TCC), Judge Raghavan and Judge Andrew Scott)
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But may be a necessary part of considering the likelihood of the positive case of the party with the burden
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"[27]...while there was no error of legal approach in the FTT omitting to balance the probability of Mr Cooper’s case that the deposits were loans against the probability of HMRC’s case that the deposits were trading income, there was an error in omitting to deal with an important component of Mr Cooper’s case. That was that, irrespective of whether the deposits were loans or account transfers, they could not have been trading income due to the lack of activity that could be said to amount to activity of a trading nature. Mr Cooper’s case on that needed to be balanced against the countervailing proposition that the income was trading income, even if HMRC had not advanced any case on that countervailing proposition. (For the reasons explained that did not mean HMRC had to advance a positive case to show the income was trading income but they might have done so if they feared Mr Cooper had done enough to meet the burden on him)." (Qolaminejite v. HMRC [2021] UKUT 118 (TCC), Judge Raghavan and Judge Andrew Scott)
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Criminal standard where consequences sufficiently serious
"[80] In our view the authorities which we have reviewed above demonstrate that the normal civil standard of proof of the balance of probabilities should apply to the proceedings in this case unless Mr Hackett satisfies us that this case is one that falls within the first category of cases identified by Lord Hoffmann in Re B, that is because of the serious consequences of the proceedings, the criminal standard of proof or something like it should be applied.
...
[86] Neither is there any suggestion in the authorities that there may be a heightened standard simply because the matter involves a serious fraud with a large penalty. That is apparent from the reasoning of the Upper Tribunal in Hannam. We think that this case is a paradigm example of a case which is analogous to a civil fraud and on that basis, it would fall within the second category of cases identified by Lord Hoffmann, where clearly the civil standard of proof applies. Neither is there any suggestion that the case involves any restriction on Mr Hackett’s liberty or freedom which might otherwise bring it within scope of the first category of cases identified by Lord Hoffmann. In the absence of any such factor in this case, as Mr Kinnear submitted, there is no rational justification to be derived from the authorities for the claim that the gravity of the consequences merits the application of the criminal standard of proof." (Hackett v. HMRC [2020] UKUT 212 (TCC), Trower J and Judge Herrington)
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HMRC confusing the evidence they would like taxpayers to keep with the evidence required to prove a point
“This confuses the evidence that HMRC would like employers to keep with the evidence that the five conditions are met. It also confuses the question of whether the evidence provided to HMRC is sufficient to dissuade them from raising assessments or concluding an enquiry against the taxpayer with the evidence that would persuade the Tribunal that the conditions were met.” (Dugan v. HMRC [2016] UKFTT 618 (TC), §74).
Absence of direct evidence may prevent burden being discharged
“In the absence of direct evidence of additional shares having been issued to him, the appellant argues that the Tribunal should infer, from the shareholders agreement and from his oral evidence, that this occurred…We are unable, on the balance of probabilities, to make such inference. Essentially this is because we do not accept the proposition, advanced by the appellant, that the fact that solicitors based in the City of London produced a draft agreement for certain things to be done means that, on the balance of probabilities, those things were done. There were significant steps to be taken to get from the draft agreement produced, to the issuance of shares – finalisation of the draft, agreement to the draft by all parties including Mr Patel and Vagards, execution of the agreement, and finally the corporate formalities for increasing authorised share capital and issuance of new shares. No evidence was produced of such steps having been taken. We are not persuaded, on the evidence produced, that such steps were mere formalities. The draft shareholders agreement contained outstanding points on which the solicitors sought the appellant’s instructions. No evidence was produced as to whether and how the solicitors’ questions were answered by the appellant, and whether and how the document as a whole was agreed with Mr Patel and Vagards.” (Alberg v. HMRC [2016] UKFTT 621 (TC), §§52…53).
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Non-disclosure of material facts may prevent discharge of burden
“It is a feature of tax litigation…that, in the first instance, the facts are likely to be known only to the taxpayer and his advisers…[In this case] There was no reason to think that the material facts had not been disclosed; and the commissioners did not hold that it was for that reason that they were unable to decide the question of residence.” (Wood v. Holden [2006] EWCA Civ 26, §33);
“If the taxpayer does not produce information, or provides insufficient weighty evidence the tribunal will be unable to conclude that, on balance, his account is correct” (Denny v. HMRC [2013] UKFTT 309 (TC), §9);
Failure to call a key witness may prevent discharge of burden
“In the present case there was no evidence given as to the father’s purpose…The taxpayer should have called [the father’s advisers] at the original hearing…In the absence of any evidence I am quite clear that the Commissioners were right to hold that the taxpayer had not discharged the burden” (Philippi v. CIR 47 TC 75 at 112);
“As Mrs Green did not give evidence at the hearing, I have not included as facts any points which were simply asserted in correspondence from her representatives to HMRC, unless supported by other documents, such as the Booking Forms or the Brochures.” (Green v. HMRC [2015] UKFTT 236 (TC), §28).
See also adverse inferences in Witness evidence
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Applies to each essential factual issue but not every factual assertion made in support
"[96] It is of course true that, as Lord Hoffmann observed in In re B, if a legal rule requires a fact to be proved, the law operates a binary system. So where it is necessary to prove a fact for the purpose of a rule governing the admissibility of evidence, there are only two possibilities: either the evidence is admissible or it is not, which depends on whether the fact has been proved or not. There is no room for a finding that the fact might have happened. But not all legal rules do require relevant facts to be proved in this binary way. In particular, the rule governing the assessment of the weight to be given to hearsay evidence in civil proceedings does not. It requires the court to have regard to “any circumstances from which any inference can reasonably be drawn as to the reliability or otherwise of the evidence”: see section 4(1) of the Civil Evidence Act 1995. Such circumstances are not limited to facts which have been proved to the civil standard of proof.
[97] HNA’s argument depends on an assertion that, if failure to prove a fact to the requisite standard of proof requires a value of zero to be returned for the purpose of a particular legal rule, then that fact must be treated as not having happened for the purpose of other legal rules as well. But there is no logical reason why that should be so. Nor is there anything in In re B (or any other authority cited in these proceedings) which lends that notion any support. What was decided in In re B was that section 31(2)(a) of the Children Act 1989 requires any facts used as the basis of a prediction that a child is “likely to suffer significant harm” to be proved on the balance of probabilities, and that the assessment of the child’s welfare required in care proceedings once the threshold in section 31(2) has been crossed must be conducted on the same factual basis as the determination of whether that threshold has been crossed. Hence, if a particular fact (in that case an allegation of sexual abuse) has not been proved, it must be treated as not having happened for the purposes of both section 31(2) and the assessment of the child’s welfare. That is a decision about the meaning and effect of particular provisions of the Children Act. It does not establish any general principle that failure to prove that a fact happened for the purpose of a particular legal rule has the legal consequence that the fact must be treated as not having happened for all other purposes in the litigation. In particular, it provides no support for the proposition that failure to prove that a fact happened for the purpose of determining whether evidence is admissible has the legal consequence that the fact must be treated as not having happened for the purpose of assessing the weight to be given to the evidence, if it is admissible.
[...]
The requirement to discharge the legal burden of proof, which operates in a binary way, applies to facts in issue at a trial, but it does not apply to facts which make a fact in issue more or less probable. Lord Hoffmann was alert to this point in In re B as, immediately after the passage quoted above, he contrasted facts in issue with “facts which merely form part of the material from which a fact in issue may be inferred, which need not each be proved to have happened” (para 3). So, for example, in the present case (as already discussed) it was not necessary to prove that the prospect of leniency in fact caused the confessions to be made. That it may have done is sufficient to make it relevant to take into account in deciding whether a bribe had been paid. Judges need to take account, as best they can, of uncertainties and degrees of probability and improbability in estimating what weight to give to evidence in reaching their conclusions on whether facts in issue have been proved. It would be a mistake to treat assessments of relevance and weight as operating in a binary, all or nothing way." (Shagang Shipping Company Ltd v. HNA Group Company Ltd [2020] UKSC 34)
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"…the prosecution bears the burden of proving all the elements of the crime beyond reasonable doubt. That means that the essential ingredients of each element must be so proved. It does not mean that every fact – every piece of evidence – relied upon to prove an element by inference must itself be proved beyond reasonable doubt. Intent, for example, is, save for statutory exceptions, an element of every crime. It is something which, apart from admissions, must be proved by inference. But the jury may quite properly draw the necessary inference having regard to the whole of the evidence, whether or not each individual piece of evidence relied upon is proved beyond reasonable doubt, provided they reach their conclusion upon the criminal standard of proof. Indeed, the probative force of a mass of evidence may be cumulative, making it pointless to consider the degree of probability of each item of evidence separately." (Sheperd v. The Queen (1990) 170 CLR 573 (HCA) at 579, cited with approval in JSC BTA Bank v. Ablyazov [2012] EWCA Civ 1411, §52. Whist this concerned the criminal standard, how the standard of proof operates is the same in both civil and criminal contexts).
Essential factual issues are those which as a matter of law it is necessary to prove
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"[98] Some confusion seems to have arisen in the arguments in this case from the use by Lord Hoffmann in the passage quoted above of the expression “fact[s] in issue”. This phrase commonly - and in our view most usefully - refers to those facts which as a matter of law it is necessary to prove in order to establish a claim or a defence: see eg Phipson on Evidence, 19th ed (2018), para 7-02; Cross and Tapper on Evidence, 13th ed (2018), p 30. That is how we shall use the expression in this judgment. Thus, for example, in the present case the facts that the charterparty and the guarantee were entered into and that Grand China failed to pay hire in accordance with the terms of the charterparty were all facts in issue which Shagang had to prove in order to establish its claim (until those facts were formally admitted by HNA). The fact that a bribe was paid by an employee of Shagang to an individual connected with HNA was also, and remained throughout the trial, a fact in issue which it was necessary for HNA to prove in order to establish a defence that the charterparty (and therefore its guarantee) was unenforceable by reason of bribery. Indeed, this was the key fact in issue in the case. On the other hand, the fact that torture was used to procure the confessions of Mr Xu, Mr Jia T and Mr Shen was not a fact in issue as we are using the term. There was no claim for relief made by Shagang for which it was legally necessary, in order for the claim to succeed, to prove that torture had been used by the PSB. It was therefore unnecessary for the judge to make any finding as to whether on the balance of probabilities torture had taken place in order to decide the facts in issue in the case." (Shagang Shipping Company Ltd v. HNA Group Company Ltd [2020] UKSC 34)
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Must prove inferences of fact as well as primary facts
“In relation to issue (a), the burden before the Tribunal was clearly on Kalron to establish the primary facts on which it relied to show that the Product is not a beverage; but, even after having proved those facts, it remained a question of fact, and not law, for the Tribunal whether the Product is a beverage. It being a question of fact, the onus remained on Kalron throughout to satisfy the Tribunal that the Product is not a beverage and thus to persuade it that the primary facts proved lead to the conclusion that the Product was not a beverage.” (Kalron Food Ltd v HMRC [2007] EWHC 695 (Ch), §35, Warren J).
“The burden that is placed on the taxpayer is not just to establish by evidence the primary facts needed to determine the tax liability (so far as in issue and unagreed) but extends to the inferences or conclusions of fact that should be drawn from the primary facts, which may then only be challenged on appeal on Edwards v Bairstow grounds…” (Hull City AFC (Tigers) Ltd v. HMRC [2017] UKFTT 629 (TC), §90, Judge Gammie QC).
Must be probably the only inference that can be drawn
“…. a Court or Tribunal may only draw proper inferences and an inference will only be properly drawn in a civil action if it is more probable than not that the inference contended for is probably the only available inference that can be properly drawn.” (Qureshi v. HMRC [2018] UKFTT 115 (TC), §18, approved in Edwards v. HMRC [2019] UKUT 131 (TCC), §53, Nugee J and Judge Herrington).
“In the absence of cogent and/or reliable evidence of system we do not consider it right or proper to draw the inference for which Miss Donovan, inferentially, contended. The simple fact of the matter is that the respondents have adduced no more than equivocal documentary evidence to the effect that it might have sent notices to file to the appellant. In circumstances where the respondents were on notice that the appellant denied receipt of any such notices to file (being evidence capable of indicating that same were not sent) it should have been obvious to the respondents that they needed to adduce cogent and persuasive evidence to prove the fact of such sending, if such evidence was/is available.” (Qureshi v. HMRC [2018] UKFTT 115 (TC), §19, Judge Geraint Jones - different conclusion reached in Edwards v. HMRC due to taxpayer’s own oral evidence).
Applies to each essential factual issue separately
“Again I remind myself that the standard of proof is the balance of probabilities. I should start by saying that I reject [the taxpayer’s] argument that HMRC's case "piles probability on probability" with the effect that the standard of proof in relation to the Sample Chains becomes a very high one indeed. The court has to decide a number of issues of fact, deciding each issue on the balance of probabilities. What the court does not do is say that if there are three issues to be decided and each is decided as to a 51% probability, the probability that they have all been surmounted is very small indeed, half of a half of a half.” (HMRC v. Sunico A/S [2013] EWHC 941 (Ch), §147 per Proudman J).
Essential facts not limited to ultimate test
“The burden of proof of knowledge to the no other reasonable explanation standard is on HMRC. Did HMRC discharge its burden of proof that the transactions were not in the ordinary course of business of the respondents by the evidence as to the terms of credit given by Bristol?” (Davis & Dann Limited v. HMRC [2016] EWCA Civ 142, §86, Arden LJ).
Inherently unlikely allegations may require more evidence
“the court will have in mind as a factor, to whatever extent is appropriate in the particular case, that the more serious the allegation the less likely it is that the event occurred and, hence, the stronger should be the evidence before the court concludes that the allegation is established on the balance of probability. Fraud is usually less likely than negligence.” (re H (Minors) [1996] AC 563, §73, Lord Nicholls);
“The more serious the allegation the more cogent is the evidence required to overcome the unlikelihood of what is alleged and thus to prove it” (re Dellow’s Will Trusts [1964] 1 WLR 451 at 455);
“Common sense, not law, requires that in deciding [whether the burden of proof has been satisfied], regard should be had, to whatever extent appropriate, to inherent probabilities…[However] it would be absurd to suggest that the tribunal must in all cases assume that serious conduct is unlikely to have occurred. In many cases, the other evidence will show that it was all too likely.” (re B [2008] UKHL 35, §15);
“[T]he fact that the possibility of fraud is on one side of the case will of course require the Tribunal to take particular care when weighing the evidence, given the seriousness of any finding which puts in question the honesty of a party to a civil suit….” (Brady v. Group Lotus [1987] STC 635 at 644).
“In essence there is no need for any higher standard of proof where more serious allegations are made in civil cases because the civil standard has the inbuilt flexibility to take the seriousness of an allegation into account. Accordingly the more serious an allegation the more substantial will need to be the evidence to prove it on a balance of probabilities.” (Barlow Clowes International Ltd v. Henwood [2008] EWCA Civ 577, §88).
“The appropriate test is the inherent probability or improbability of the event or action in question.” (Munford v. HMRC [2017] UKFTT 19 (TC), §108).
Fraud
“That is especially so since “a tribunal of fact will look closely into the facts grounding an allegation of fraud before accepting that it has been established” (see In re D (Secretary of State for Northern Ireland intervening) [2008] UKHL 33, [2008] 1 WLR 1499, at paragraph 28, per Lord Carswell). As Lord Nicholls explained in In Re H and Others (Minors) [1996] AC 563 (at 586), “[f]raud is usually less likely than negligence” and “the more serious the allegation the less likely it is that the event occurred and, hence, the stronger should be the evidence before the court concludes that the allegation is established on the balance of probability”.” (Brookes v. HMRC [2016] UKUT 214 (TCC), §20, Newey J).
“although the standard of proof is the same in all civil cases, namely the balance of probabilities, the court must be particularly assiduous in assessing the evidence where allegations of fraud are made.” (GSM Export (UK) Ltd v. HMRC [2014] UKUT 0529 (TCC), §23, Proudman J);
Direct evidence rare:
“Since knowledge is the essence of fraud, he is entitled to particulars of knowledge. It is however a rare case where direct evidence of knowledge of fraud can be adduced. It would be a stroke of the most extreme luck for a claimant to find, for instance, a letter passing between conspirators setting out the detail of their plot. Usually the knowledge of a defendant is to be inferred from all of the facts. Accordingly, a plea of fraud is certainly not to be struck out on a pleading point if, first of all, fraud or dishonesty and, secondly, the primary factor relied on at the time of the inference and, thirdly, the extent of the knowledge of the fraud could be said to be inferred or alleged.” (HMRC v. Sunico A/S [2012] EWHC 4156 (Ch), §8).
“We reject Mr Cakebread's categorisation of the trial judge's finding that Helga knew that Jack had falsely represented that he was only an intermediary as mere supposition, conjecture and unjustified assumption. Mr Cakebread appeared to be equating proper inferences with conjecture and assumption. At times he came close to suggesting that fraud can only be established where there is direct evidence. If that were the case, few allegations of fraud would ever come to trial. Fraudsters rarely sit down and reduce their dishonest agreement to writing. Frauds are commonly proved on the basis of inviting the fact-finder to draw proper inferences from the primary facts. That is exactly what the judge did here.” (Dadourian Group International Limited v. Simms [2009] EWCA Civ 169, §89 adopted by FTT in Aircall International Ltd v. HMRC [2016] UKFTT 406 (TC), §80, in respect of an MTIC appeal).
Not to be confused with the standard of proof
“there are cases in which judges are simply confused about whether they are talking about the standard of proof or about the role of inherent probabilities in deciding whether the burden of proving a fact to a given standard has been discharged.” (Re B [2008] UKHL 35, §5).
No necessary connection between seriousness of an allegation and probability
“We agree with Lady Hale at paragraph 34 in S-B Children that the simple civil standard is on the balance of probabilities: “This issue shows quite clearly that there is no necessary connection between the seriousness of an allegation and the improbability that it has taken place. The test is the balance of probabilities, nothing more and nothing less.”” (Aircall International Ltd v. HMRC [2016] UKFTT 406 (TC), §72).