Sheep on bridge

Fact stranger than fiction - taxpayer succeeds in challenging finding of fact before the Upper Tribunal

09 January 2013. Published by Adam Craggs, Partner

The Upper Tribunal (Arnold J) has allowed the taxpayer's appeal in Joseph Okolo v HMRC [2012] UKUT 416 (TCC).

This was an unusual case, as the taxpayer claimed that self-assessment returns which he had submitted to HMRC were fictitious.

The facts

On 5 January 2005, Mr Okolo submitted self-assessment returns for the four tax years 2000/01 to 2003/04, declaring self-employment income from a business of 'property development'.  For each of these tax years, Mr Okolo declared a substantial amount of turnover against which he claimed deductible expenditure also of a substantial amount, leaving him with a small taxable profit.

HMRC commenced an enquiry into the returns and formed the view that Mr Okolo could provide no credible evidence to substantiate the figures for either turnover or expenditure contained in the returns.

On 1 August 2007, HMRC issued a closure notice for the 2003/04 tax year disallowing the majority of the expenditure but leaving the figure for turnover as stated in the return, thereby assessing Mr Okolo on taxable profits of £80,967. On 25 June 2008, HMRC issued discovery assessments disallowing the same proportion of expenditure for the years 2000/01 to 2002/03 as for the year 2003/04. HMRC later withdrew the assessments for 2000/01 and 2001/02, as they were out of time. In due course, Mr Okolo appealed to the First-tier Tribunal ('FTT') against the outstanding discovery assessment relating to 2002/03 and the closure notice relating to 2003/04.

The FTT's decision

Mr Okolo represented himself before the FTT. He also gave evidence before the FTT and made it clear that all of the figures in his tax returns were fictitious. He admitted that he had intended to use the fictitious figures to deceive others and, in particular, obtain a bank loan.

Although Mr Okolo was cross-examined by HMRC's representative, it was not put to him that the account he had given (that the figures in his returns were fictitious) was false. Notwithstanding the lack of challenge to this account by HMRC, the FTT rejected Mr Okolo's evidence that he had submitted fictitious returns simply to boost his credit rating and dismissed his appeal.

The UTT's decision

The UT allowed Mr Okolo's appeal. Arnold J set aside the FTT's decision and remade the decision so as to reduce the assessments for the tax years concerned to nil.

Although section 11(1) of the Tribunal's, Courts and Enforcement Act 2007 provides for a right of appeal from the FTT to the UT on a 'point of law' only, a finding of fact can, in certain circumstances, be set aside by the UT. The UT referred to Edwards v Bairstow [1956] AC 14, where Viscount Simonds said at 29:

"… though it is a pure finding of fact, it may be set aside on grounds which have been stated in various ways but are, I think, fairly summarised by saying that the court should take that course if it appears that the commissioners have acted without any evidence or upon a view of the facts which could not reasonably be entertained."

Lord Radcliffe said at 36:

"If the case contains anything ex facie which is bad law and which bears upon the determination, it is, obviously, erroneous in point of law. But, without any such misconception appearing ex facie, it may be that the facts found are such that no person acting judicially and properly instructed as to the relevant law could have come to the determination under appeal. In those circumstances, too, the court must intervene."

In the view of the UT, there was no credible evidence that Mr Okolo carried on any business or trade as either a property developer or a builder during the years in question. In the absence of any challenge to Mr Okolo's evidence to the FTT that he had not developed, refurbished or redecorated any properties other than his own, it was not open the FTT to disbelieve that evidence. The UT relied upon Phipson on Evidence (17th edition)1, in support of its conclusion. Counsel for HMRC submitted that this rule of evidence did not apply to hearings before the FTT. Arnold J rejected this submission stating that this rule of evidence "is simply an application of the principles of natural justice which apply in all courts and tribunals".2


This decision is a timely reminder that the UT can intervene where the facts found by the FTT are such that no person acting judicially, and properly instructed as to the relevant law, could have come to the determination under appeal.

This decision also demonstrates the importance of evidence before the FTT. Although it is true to say that litigation before the FTT tends to be less formal than litigation before the higher courts, Arnold J has confirmed that rules of evidence cannot be simply ignored. If HMRC had challenged Mr Okolo's evidence before the FTT, it would have been open to the FTT to disbelieve that evidence and the outcome of Mr Okolo's appeal to the UT may have been different.

1 At 12-12 and the authorities cited in footnote 32, in particular, Markem Corp v Zipher Ltd[2005] EWCA Civ 267.

2 At para 34.

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