Andrew Hubbard

Written by: Andrew Hubbard

Andrew Hubbard


Proof must be at the heart of penalty cases

Its déjà vu all over again as we’ve commented many times in this briefing on HMRC’s seeming inability to produce documents to back up their case in a tax tribunal. We saw another example this week where the judge threw out a penalty for late filing of a return because HMRC could not actually prove that the taxpayer had been sent a notice to file. HMRC was only able to produce a computer printout which showed the taxpayer’s name and a date of issue. The judge said that there was simply no evidence that the computer printout meant that a return was actually issued to the taxpayer at his last known address.

The burden of proof in a penalty case is on HMRC, and here HMRC had not produced the evidence to support their case. As the judge said ‘adequate proof is a necessity; not a luxury’. He was not impressed by HMRC’s argument that it was a large organisation dealing with very many taxpayers and couldn’t be expected to be able to keep detailed evidence.

We are seeing more and more tax appeals where the burden of proof plays a key part in the decision. It may sound an academic or abstruse concept but it is vitally important. Citizens’ rights against the state need to be vigilantly protected.

How will HMRC react to this latest criticism?

I hope that they don’t simply put their head in the sand this time. It seems to us that there are only two possible ways forward. The first is to radically change the way documents and correspondence are created and stored within HMRC’s systems so that the information is available for future appeals. This would not be easy and will require a full system overhaul. The second, and I shudder to mention it here in case HMRC take up the idea, would be to reverse the burden of proof by law and required a taxpayer to prove that they didn’t receive a notice to file or other documents which HMRC relies on to show a penalty is due. That would be a fundamental shift in the balance of power and would be something we would very strongly resist. HMRC needs to get its house in order and not throw the problem in the direction of the taxpayer.

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