King v HM Inspector Of Taxes

An appellate court should distinguish between the legal burden of proving wilful default or neglect and the evidential burden. Where the evidence prima facie establishes undeclared profits and inadequate returns, the evidential burden may shift to the taxpayer to answer that case; this does not reverse the legal burden of proof.

Findings of the Special Commissioners are binding under section 46(2) of the Taxes Management Act 1970 only within the statutory scope identified in Caffoor v Commissioner of Income Tax. An appeal against a penalty determination may involve fact and law, whereas an appeal against further assessments lies only on an error of law. Permission was refused because none of the proposed grounds had a real prospect of success.

The claimant appealed tax assessments, an interest determination, penalty determinations and further assessments relating to profits from guest houses and the later discovery of Roundwood Lodge.

The Special Commissioners substantially upheld the Revenue’s case. The claimant appealed to the Chancery Division. Jacob J held that the Commissioners had misdirected themselves on the effect of section 46(2), but dismissed the appeals because the evidence independently established wilful default, neglect and the validity of the further assessments. He also rejected a complaint of unreasonable delay under Article 6(1) of the European Convention on Human Rights.

The Court of Appeal considered whether permission should be granted to appeal each issue.

1. Application refused. Permission to appeal was refused in relation to the interest determination, the penalty determination and the further assessments. The application was dismissed, with no order for costs.
2. As to section 46(2) of the Taxes Management Act 1970, Jacob J had correctly identified the principle stated by Viscount Radcliffe in Caffoor v Commissioner of Income Tax: a Special Commissioners’ decision is final and binding only in relation to the amount of assessable income for the year to which the challenged assessment relates. The Commissioners’ contrary approach did not justify permission, since the judge had independently assessed the evidence.
3. The Commissioners’ statement that establishing undeclared profits would almost automatically establish wilful default did not reverse the burden of proof. Read in context, it identified evidence which prima facie indicated wilful default or neglect and shifted the evidential burden to the claimant to answer it. The claimant’s proposed arguments concerning the family partnership, the ownership of Roundwood Lodge, witness reliability and the loan book disclosed no realistic basis for disturbing the factual conclusions.
4. An appeal against the penalty determination lay on fact and law, but the proposed challenges to negligence, the penalty level and delay had no real prospect of success. Even if the delay had been unreasonable, there was little evidence of prejudice and no sufficient basis for setting aside the penalty determination.
5. The appeal concerning the further assessments could proceed only on an error of law. The challenge that the Commissioners’ conclusion was perverse on the evidence was untenable.

• Court of Appeal (Civil Division): Permission to appeal refused and application dismissed.
• Chancery Division: Jacob J dismissed the claimant’s appeals against the Special Commissioners’ decisions.
• Special Commissioners: Decisions dated 23 March 2000 substantially upheld the interest and penalty determinations and the further assessments.