Upper Tribunal confirms the FTT's decision to strike out HMRC's evidence
In HMRC v Infinity Distribution Limited (in Administration), the Upper Tribunal has dismissed HMRC's appeal against that part of the decision of the First-tier Tribunal ("FTT") striking out evidence which HMRC was seeking to introduce.
Paragraph 39 of HMRC's Statement of Case stated that Infinity had not acted in good faith and/or it did not take reasonable measures to ensure its supply did not lead to its participation in MTIC fraud. However, HMRC contended that it was not alleging fraud on the part of Infinity. As the UT observed, this was “an impossible stance”. It was established in Medforth v Blake, that an allegation of lack of good faith amounted to an allegation in fraud. As this was a case concerning MTIC fraud, HMRC was required to plead fraud if it wished to rely on lack of good faith on the part of Infinity. The UT referred to Armitage v Nurse,in which it was confirmed that“fraud must be distinctly alleged and distinctly proved”. Unless particulars of fraud were provided, Infinity would be unable to know the case against it.
Before the FTT, HMRC sought to rely upon a witness statement provided by an HMRC officer in which details of a criminal investigation and prosecution of individuals connected to one of Infinity's suppliers was provided. As such, the statement suggested that Infinity had not acted in good faith and could not have taken reasonable measures when dealing with that supplier. HMRC did not, however, allege that Infinity was fraudulent and the FTT struck out the witness statement as it was "highly prejudicial" to Infinity's case. The FTT also struck out several paragraphs of a witness statement provided by a second HMRC officer.
HMRC appealed this aspect of the FTT's decision to the UT.
Having reviewed the relevant case law, the UT drew the following conclusions from the authorities:
1) If it is going to be alleged that there was wrongdoing or failure to take reasonable care, the burden is on the party which alleges it, namely, HMRC. It is not for the trader to prove that he was not fraudulent nor that he had taken reasonable precautions to avoid being involved in a fraud.
2) Allegations of wrong doing have to be made against the person in question and they must be put fairly and squarely.
The judge commented that it is a fundamental tenet that allegations of wrongdoing must be put. It was not for Infinity to prove that it was bona fide and did not know of the fraud. The legal burden was on HMRC.
In the view of the judge, assertions by HMRC officers does not constitute evidence, and nor does a conviction effecting other parties to which Infinity and/or its officers was not a party.
It was not clear to the UT on what basis HMRC sought to adduce the material in question. It provided no particulars and it failed to address the relevance of the material it sought to be included in relation to the case against Infinity. Accordingly, the FTT had been justified in striking out the material and HMRC's appeal was dismissed.
The UT has confirmed that HMRC must plead in sufficient detail its case against the taxpayer. The burden of proof is on it as the party alleging lack of good faith on the part of the taxpayer (which is tantamount to an allegation of fraud).
In litigation before the FTT, HMRC often suggest wrong doing on the part of the taxpayer and this decision makes it clear that any suggestion must be put fairly and squarely to the taxpayer.
Please click here to read the judgment.
  UKUT 0219 (TCC).
  3 WLR 922.
  Ch 241.