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Penalties and the standard of proof

Taxpayers (and their agents) are often perplexed by the difference between criminal and civil procedures, so too it seems, are some General Commissioners.

In the case of HMRC v Khawaja (2008) EWHC 1687 the taxpayer claimed that HMRC should apply the criminal standard of 'proof beyond reasonable doubt' when issuing penalties on the basis of an estimated understatement of income. This is in contrast to the civil standard where proof is decided 'on the balance of probabilities' and despite the fact that tax penalties in the case were being settled under the civil code, as happens in the majority of cases.*

HMRC had issued assessments to cover an understatement of Mr Khawaja's income from his restaurant business, and it later served a notice claiming penalties under s 95(1), TMA 1970 for negligently submitting incorrect tax returns.

The taxpayer appealed to the General Commissioners who applied the criminal standard and decided it had not been proved beyond reasonable doubt that the taxpayer had been negligent in his returns of earned income. HMRC appealed on the basis that it should have been the civil one, and the High Court decided in HMRC's favour. The case was therefore sent back to the General Commissioners for rehearing using the appropriate standard of proof.

*
Criminal investigations
Criminal investigation powers are available to the specialist teams in HMRC. The majority of investigations follow civil procedures, and HMRC will only make a criminal prosecution in extreme cases of deliberate fraud and concealment.


Number of comments: 3

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Andrew Gotch, 02 September 2008 @ 14:14 PM

standard of proof
And of course the new penalty legislation is based on the concept of 'inaccuracy'. That suggests an absence of accuracy - a very dangerous and slippery concept in tax matters generally, where so much is a question of fact, degree and interpretation. Of course it should mean accuracy by reference to a balance of probabilities - reasonable accuracy, in other words. However, most people and I imagine all Inspectors would see accuracy as requiring an unequivocal black and white standard where judgement plays no part - it's either accurate or it isn't - no room for debate. This is really no more than a thinly veiled attempt to do away with the civil standard of proof in penalty case - practitioners should beware. There is also of course the risk that the Courts, looking at the new legislation purposively, might opine that Parliament's intention was to do just that - so any deviation from a final agreed position is axiomatically inaccurate. This needs watching and while there needs to be focus on whether behaviour is careless there should also be focus on whether there's an 'inaccuracy' in the first place if figures on a return are subsequently changed.

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Simon Sweetman, 28 August 2008 @ 17:44 PM

standards of proof
More often I have found that the Commisisoners expect the taxpayer to prove his/her case beyond reasonable doubt, something which is of course virtually impossible !

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Ian Grant, 28 August 2008 @ 08:35 AM

Penalties and the standard of proof
In discussing the case HMRC v Khawaja (2008) EWHC 1687, the writer comments that some General Commissioners are "perplexed" by the difference between criminal and civil procedures.
As a General Commissioner of 25 years standing (although soon to be abolished!), I feel obliged to defend our reputation.
The General Commissioners are not expected to be legally qualified, hence the office of Clerk to the General Commissioners. It is the Clerk who will provide a legal opinion to the Commissioners who will then act accordingly. The Divisions I sit in have heard many appeals similar to Mr Khawaja's and we would expect our Clerk to warn us regarding the standard of proof required by either party.
In the full report of the case, the Clerk comes in for some critical comment from the Judge and one suspects that the fault did not lie with the General Commissioners.
It is worth mentioning that while in this the appeal in front of the General Commissioners was made by the taxpayer, I would have expected the representative of HMRC to have been competent enough to have dealt with this point.
However recently I have noticed that HMRC have put officers in front of the General Commissioners who usually answer technical questions with the mantra "Well, my technical colleagues say....." rather than "Well, the law says....". I fear this reflects a belief within HMRC of their own infallibility.