Upper Tribunal guidance on burden of proof in tax appeals

The Upper Tribunal (Judge Swami Raghavan and Judge Andrew Scott) has provided helpful guidance on the burden of proof in tax appeals in Golamreza Qolaminejite (aka Anthony Cooper) v HMRC [2021] UKUT 118 (TCC).

The taxpayer had appealed various income tax and VAT assessments, and associated penalties, to the FTT. One of the issues before the FTT had been whether the taxpayer could show that the amounts assessed did not represent trading income. He alleged the deposits represented bank loans, interest-free loans or transfers from other accounts. The FTT were not satisfied with the explanation and upheld many of the assessments and penalties.

The taxpayer subsequently appealed to the Upper Tribunal (“UT”) on a number of grounds, one which concerned whether the FTT had “balanced the probabilities” of the taxpayer’s case that the deposits were not trading income, against HMRC’s case that the deposits were trading income. The UT confirmed that it is open to HMRC not to advance any case, yet for the FTT to still reach the conclusion that the taxpayer had not met the burden of proof. They agreed with HMRC that the taxpayer’s argument that the FTT ought to have balanced the probability of the taxpayer’s position against that of HMRC effectively undermined the principle that the burden of proof to displace a tax assessment rests on a taxpayer. Deciding a case on the balance of probabilities does not mean the FTT ought to have decided which case is the more likely. 

However, the UT concluded that the FTT had erred in law by not addressing the probability of HMRC’s case in order to deal with the totality of the taxpayer’s case, which also extended to arguing that the deposits could not have been trading income as there was no such evidence of trading activities. The FTT’s error may better be understood as a failure to consider all of the taxpayer’s case, rather than a failure to consider the probabilities of HMRC’s case. To that extent, the case has been remitted to the same FTT. 

The UT dismissed the remaining grounds of appeal by the taxpayer, regarding a contract for sale and the recoverability of VAT input tax.

Marianne Tutin represented HMRC. Click here to read the full decision.

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