HMRC told adequate evidence is a necessity

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Andy Keates examines a string of FTT cases where HMRC failed to produce adequate evidence to convince the tax tribunal that a penalty was validly issued.                 

When it comes to tax penalties, the first responsibility is upon HMRC: it must prove (to the usual civil standard – the balance of probabilities) that the penalty was validly issued.

The taxpayer does not have to have raised this point specifically in his appeal: the tribunal must consider the validity of the penalty before proceeding further (see Halfaoui TC06292 at para 27).

If – and only if – this is done, the burden shifts to the taxpayer, who needs to show that he or she has either a “reasonable excuse” or “special circumstances” which would enable the penalty to be overturned.

In four recent cases, tribunal judges have pointed out that – if the penalties had been valid – the taxpayers would have had no reasonable excuse not to pay them. However, HMRC failed to prove to the satisfaction of the judges that those penalties were validly issued, and so the taxpayers won their appeals.

Prove what?

Penalties do not exist in isolation: for one to be due, certain things need to have happened in a set order. For example, for “daily” penalties (FA 2009, Sch 55 para 4) to arise in respect of a late self assessment tax return, all of the following five steps must be taken:

  1. HMRC issued a valid notice under TMA 1970, s 8 to file a return;
  2. the taxpayer failed to file the return by the due date;
  3. the taxpayer’s delay must have extended for at least three months;
  4. HMRC decided to charge a penalty (ie this is not automatic); and
  5. HMRC gave the taxpayer a written notice specifying the day from which the penalties will run.

If the taxpayer (or the tax tribunal) accepts that all of these steps happened, the penalty is valid and enforceable. Otherwise, HMRC needs to produce evidence to show that each step actually happened.

Unforced errors by HMRC

1. Copy of notice not retained

In Halfaoui (TC06292), HMRC failed to show that a notice specifying the date from which penalties would run had been sent to the taxpayer.

HMRC was able to produce a number of templates or stock letters which they said “would have been” sent to the taxpayer. Unfortunately, the judge was in no mood to accept “would haves”. The examples provided related to a different tax year, and counsel for HMRC could not say for certain that the wording would have been the same for the correct tax year.

2. Notice was incorrect

In Patel (TC06315), the taxpayer was charged daily penalties in respect of a late partnership return. HMRC had assigned two different UTRs to the him and, despite much correspondence, had failed to deactivate the incorrect one. The only notice of daily penalties issued to him was sent to the wrong UTR and failed to identify correctly which tax return was late (it merely said “your return”).

Overall, HMRC did not do enough in either case to convince the judge that they had issued a notice which specified the date from which daily penalties would run.

In both the Halfaoui and Patel cases, HMRC produced a generic “witness statement” by Martin Delnon, manager of the SA Live Services Team, which purported to supply evidence of the system which was followed. Both judges refused to admit this for several reasons, including:

  • The evidence was self-contradictory in parts and contained at least one blatant error of fact;
  • It referred to attachments and appendices which were not produced in support;
  • It had not been disclosed to the taxpayer prior to the hearing, despite a clear direction from the tribunal requiring this.

3. No supporting documents

In Hinchliffe (TC06427), the judge was astonished that HMRC’s Statement of Case was not accompanied by any documents to substantiate their position on what had or had not happened.

“HMRC have got nowhere near satisfying their evidential burden that firstly a valid notice to file has been served... pursuant to Section 8 TMA 1970, nor that valid notification has been given... under paragraph 4 of Schedule 55 Finance Act 2009. The unsubstantiated assertions to that effect in the Statement of Case are not evidence. No evidence has been adduced by HMRC to establish service of notices to file or service of penalty notices.”

4. Case notes too sparse

In Loial (TC06391), HMRC attempted to persuade the judge that notices to file had been sent to the taxpayer’s last known address by drawing inferences from the sparse and ambiguous notes in the “Return Summary”. The judge was wholly unsympathetic: “it is not for us to have to speculate about these matters. It is for [HMRC] to prove their case if they can”.


While HMRC has great powers with which to pursue its public duty to collect tax, it also has a responsibility to exercise those powers with proper care and attention. HMRC is quick to criticise taxpayers who fall short of their obligations through carelessness, but it should be reminded that an obligation to take due care applies to both sides.

In the words of Judge Geraint Jones QC (in Loial): “whatever form the admissible evidence takes, adequate evidence is a necessity; not a luxury”.

About Andy Keates


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30th May 2018 09:45

The problem is that certain other (less learned) tribunal judges also overlook these basic pre-conditions (and thereby erroneously decide in favour of HMRC) as has been reported in Tax Journal I think recently (and possibly that's what has encouraged HMRC to be lazy here, or at least overly optimistic in their approach).

Thanks (1)
30th May 2018 09:59

It is perhaps too early to say whether the long run of Judges bending over backwards to support HMRC has come to an end but these cases at least show some independence.
Let's all hope that when the sums involved are more substantial, the same approach will be taken.
HMRC has for far too long gone unchecked and has started to believe that what they say is law and cannot be challenged. A reminder like this is good for everybody.

Thanks (2)
to G Webber CTA
30th May 2018 10:53

The bending over backwards these days goes all the way up to the SC unfortunately. Just look at all the scathing criticism in the tax trade press about the Rangers SC case, which was a complete joke of a decision.

The Project Blue SC decision is expected soon and I'd be surprised if they don't also find a novel way to do that one down.

Thanks (2)
to Justin Bryant
30th May 2018 11:04

I'm not sure I would put the Rangers decision into the "joke" category. The damage there was done when HMRC was permitted to advance at a late stage an argument that was not used in FTT/UTT.
In general however it is unfortunate that intelligent Judges allow HMRC to bend and twist, facts and law without rebuke. Hopefully that is changing.

Thanks (1)
to G Webber CTA
30th May 2018 14:41

All the major tax magazines have comments from experts like that in the link below and one can only assume that the word joke is not used out of politeness:

Thanks (2)
By gordo
31st May 2018 09:25

Can someone kindly remind me, was there a recent case where HMRC had issued a penalty notice in relation to a tax return where actually the proper procedure should have been for HMRC to issue a P800 assessment if they thought that there was under-collected tax, as opposed to an untaxed source. If at all possible, a link to an article or case would be very handy, thanks.

Thanks (0)
to gordo
31st May 2018 10:01

I know the case and could give you the link but a better answer (that will help on other occasions) is for you to go to the link below, search "P800", then order by date and hey presto, you will find it with relative ease:

Thanks (1)
By gordo
to Justin Bryant
21st Jun 2018 21:53

Thanks Justin and sorry it took so long to say so, I’ve only just spotted your reply.

Thanks (0)
By Moo
31st May 2018 11:00

Thank you Andy for the useful list of required steps which I will be keeping in a safe place for future reference.
I am particularly concerned that HMRC falls down at the first step as the firm I work for repeatedly receives self assessment notices to file (SA316) addressed to the taxpayer at our office address as if they live here. These are not agent copies, in many cases we are not the agent and have had no dealings with the taxpayer for several years. My standard practice is to email a scan of the notice to the taxpayer if we have their contact details and return the original to the address on the top of the notice.
Several years back we had a particularly bad year when many hundreds of notices to file came here and it was only after assistance from the CIOT working together team that we were put in contact with someone at HMRC who took responsibility for correcting what they conceded were faulty records at their end.
On the basis of the list above I assume that these SA316 notices had not been validly served unless they were reissued to the taxpayer's address with a knock on effect for any late filing penalties, enquiry windows etc.

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