Hurley v Taylor (HM Inspector Of Taxes)

On an appeal by case stated, the High Court may interfere with Commissioners’ factual conclusions only for an error of law, including a conclusion that no reasonable tribunal could reach. A statutory burden on the Revenue does not prevent the evidential burden shifting. Capital statements may establish a prima facie case of understated profits where the taxpayer’s explanation is not accepted. The distinction between an explanation being rejected and not accepted is artificial: both leave the tribunal without evidence establishing that the alleged events occurred. A party who fails to adduce important evidence will normally not receive a second opportunity on remission. The order in which parties open a tax appeal cannot alter the statutory burden of proof.

The Revenue raised income tax and National Insurance assessments against Anthony Cornelius Hurley for 1983/84 to 1992/93. The General Commissioners allowed some aspects of his appeal but upheld other assessments, including extended-time assessments under section 36 of the Taxes Management Act 1970. Park J held that the Commissioners had erred in law in their approach to the burden on the Revenue and remitted the matter.

The Revenue appealed. Mr Hurley cross-appealed, principally concerning the admission of a father’s statement which had not been placed before the Commissioners, the order of opening, and the Commissioners’ reliance on capital statements and related calculations.

1. Appeal allowed; cross-appeal dismissed. The Commissioners’ findings were not open to challenge merely because the High Court might have evaluated the evidence differently.
2. Under section 36(1) of the Taxes Management Act 1970, the Revenue bears the statutory burden of proving loss of tax attributable to fraudulent or negligent conduct. Once a prima facie case is established, the evidential burden may shift. Section 50(6) then applies in the ordinary way to the taxpayer’s challenge to the assessment.
3. The distinction drawn by Park J between a taxpayer’s explanation being rejected and merely not accepted was artificial. If the Commissioners did not accept that the alleged loans occurred, the explanation had not displaced the capital statements. The statements, together with the surrounding evidence, could discharge the Revenue’s section 36 burden.
4. The Commissioners were entitled to accept the capital statements, reject parts of the taxpayer’s evidence, and conclude that the alleged large loans from his father had not been established. Their conclusions were findings of fact and were not Wednesbury unreasonable. The High Court had impermissibly re-evaluated the evidence and substituted its own view.
5. A party who fails to adduce important evidence before the Commissioners will normally not be permitted to introduce it on appeal or obtain a remission for that purpose. The circumstances did not amount to the type of misunderstanding capable of justifying a second opportunity.
6. The order in which the Revenue or taxpayer opens the hearing cannot alter the statutory burden. The Commissioners had discretion to regulate their procedure, subject to ensuring a fair opportunity to present the case. The complaints concerning expenditure estimates and calculations likewise did not establish Wednesbury unreasonableness.

• General Commissioners: allowed part of the taxpayer’s appeal but upheld other assessments, including extended-time assessments.
• High Court: Park J, by order dated 20 January 1998, held that the Commissioners had erred in law and remitted the matter.
• Court of Appeal: allowed the Revenue’s appeal with costs here and below, dismissed the taxpayer’s cross-appeal, and refused leave to appeal.