Tax - Negligence and the Burden of Proof

When HM Revenue and Customs (HMRC) believe that a taxpayer has understated their income, an assessment is raised to collect the tax which they calculate has been underpaid. Once the tax position is finalised, it is usual for a penalty to be imposed.

A restaurateur, who was assessed for tax on under-declared income for six years, recently faced a penalty for negligent submission of tax returns. The returns themselves were appealed in court without success. The taxpayer then appealed to the General Commissioners of Taxes on the grounds that it had not been shown beyond a reasonable doubt that he had negligently understated his income.

The question at issue was whether the Commissioners should apply the civil (‘balance of probabilities’) or criminal (‘beyond a reasonable doubt’) standard of proof in such cases, the taxpayer arguing that the criminal standard of proof was required and HMRC that the civil standard of proof applied.

The High Court considered that there was no doubt that the proceedings themselves were civil, not criminal, and had nothing of the character of criminal proceedings. The standard of proof required was therefore the civil standard.

The Court also considered whether article 6 of the Human Rights Act 1998 (HRA) applied in that the proceedings for penalties in cases such as this would be considered to be criminal proceedings under the Act. However, the HRA does not deal with the burden of proof and the Court was therefore content to rule that the fact that proceedings were criminal in character, for the purposes of article 6, did not mean that they were criminal under domestic law.

On both counts, therefore, the argument that the criminal burden of proof should apply with regard to the penalties failed.