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Upper Tribunal confirms that HMRC has the burden of proof in personal liability notice cases

30 November 2022. Published by Keziah Mastin, Associate

In HMRC v Mohammed Zaman [2022] UKUT 252 (TCC), the Upper Tribunal (UT) set aside the decision of the First-tier Tribunal (FTT) and confirmed that HMRC has the burden of proving that a personal liability notice (PLN) was correctly issued but once it has met that burden the onus of showing that the assessment on which it was based was excessive, falls on the taxpayer.

Background

In May 2018, HMRC issued a VAT assessment to Zamco Ltd (Zamco) in the sum of £1,929,592. The assessment was for under-declared VAT on the basis that Zamco's supplies of alcoholic goods in the relevant period took place in the UK and were therefore subject to standard rated VAT. HMRC also issued a penalty in the sum of £1,736,632.80, under paragraph 1, Schedule 24, Finance Act 2007, for inaccuracies in Zamco's VAT returns for the relevant period. Zamco did not appeal the assessment or the penalty. 

In October 2018, HMRC issued Zamco's sole director, Mr Mohammed Zaman, with a PLN. Mr Zaman appealed the PLN to the FTT. 

FTT decision

The appeal was allowed.

The FTT found that whilst it was likely that there was illicit activity in Zamco's supply chain, Zamco itself did not initiate or drive that illicit activity. The FTT found that it had not been proven, on the balance of probabilities, that the relevant alcoholic goods "were removed to the UK by Zamco or under its directions". Therefore, it was not proved that the place of supply of all Zamco's relevant supplies was the UK and that the relevant VAT returns contained inaccuracies. 

The FTT concluded that HMRC had not established that the place of supply was in the UK. As HMRC had not met the burden of proof, the FTT discharged the PLNs.

HMRC appealed to the UT on the grounds that the FTT erred in its approach to the burden of proof, incorrectly holding that the burden lies only with HMRC; alternatively, that the FTT erred in its evaluation of the evidence because it failed to draw the correct inference from its findings of fact.

UT decision

The appeal was allowed.

The UT agreed with the FTT that it is for HMRC to prove that a PLN has been validly issued. Once it has satisfied that burden, the onus of demonstrating that the underlying assessments, on which it was based, were excessive, falls on the taxpayer. The FTT had therefore made an error of law in relation to the burden of proof because the question it should have been concerned with, once HMRC had proven the validity of the PLN, was whether Mr Zaman had discharged the evidential burden of proof in relation to the underling assessment. 

The UT set aside the FTT's decision and referred the matter back to the FTT to reconsider.

Comment

The decision of the UT confirms that HMRC has the burden of proving that a PLN has been correctly issued. However, once it has discharged that burden, the onus of demonstrating that the underlying assessment, on which the PLN is based, is excessive, falls on the taxpayer.

The decision can be viewed here.