Hargreaves v HM Revenue and Customs

A taxpayer challenging a discovery assessment under section 29 of the Taxes Management Act 1970 has no right to insist that the conduct/officer condition be determined at a separate preliminary hearing. Whether to order a separate trial is a case-management decision for the First-tier Tribunal under Rule 15 of the Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009. A single hearing may accommodate different burdens of proof and overlapping evidence. HMRC may be required to establish the competence issue first, after which the taxpayer may call evidence on the substantive grounds. The statutory scheme creates no automatic right to require HMRC to begin and no wider right to silence. The appeal was dismissed.

Mr Hargreaves appealed against the Upper Tribunal’s dismissal of his challenge to a discovery assessment for 2000/01. He also faced an in-time assessment for 2001/02. He sought a separate preliminary hearing requiring HMRC to prove the conduct or officer condition under section 29 before he had to disclose or rely on evidence concerning the substantive defence in section 29(2) of the Taxes Management Act 1970.

The First-tier Tribunal rejected the application and declined to order a separate trial. The Upper Tribunal, on 8 September 2014, upheld that decision, holding that there was no entitlement to a separate hearing and that the issues and evidence overlapped. The central issue before the Court of Appeal was whether the statutory scheme conferred such a right.

1. Appeal dismissed. Under section 29 of the Taxes Management Act 1970, the taxpayer had no right to require a separate preliminary hearing on the conduct/officer condition. Section 29(8) required an objection on that ground to be made by appeal, while section 50(6) enabled the First-tier Tribunal to reduce the assessment, including to nil. The scheme was not a two-stage process. The condition was not required to be satisfied before HMRC issued the assessment, consistently with Hankinson v HMRC [2011] EWCA Civ 1566.
2. The hearing structure was a matter for the First-tier Tribunal’s case-management discretion. Rules 2, 5 and 15 of the Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009 permitted directions concerning preliminary issues, evidence and the fair and just conduct of proceedings. The tribunal could require HMRC to open on the competence issue and permit the taxpayer to make a submission of no case to answer. If HMRC succeeded, the taxpayer could then call evidence on the substantive issues. Pleading, disclosure and compliance with directions remained necessary.
3. Different burdens of proof did not require separate hearings. HMRC bore the burden of establishing the competence issue, while the taxpayer bore the burden under section 29(2). The evidence relevant to the substantive defence could also be relevant to the competence issue, and the tribunal was entitled to manage that overlap.
4. Where HMRC established some fraudulent or negligent conduct and some attributable loss of tax, it had discharged the threshold burden under the conduct condition. Section 50(6) then applied, leaving the taxpayer to establish that the assessment was excessive. The court rejected the suggested penal and criminal analogies. Section 29 was a taxing provision, not a criminal provision, and the taxpayer had no wider right to silence in the tax appeal, although the privilege against self-incrimination remained.
5. The court did not decide whether Article 6 of the Convention applied to possible penalty proceedings under section 95. The appeal was dismissed for the reasons given by Arden LJ; Underhill LJ and Sales LJ agreed.

• Court of Appeal (Civil Division): in [2016] EWCA Civ 174, dismissed the appeal and held that a separate preliminary hearing was not a taxpayer’s right.
• Upper Tribunal (Tax and Chancery Chamber): Nugee J dismissed the appeal from the First-tier Tribunal on 8 September 2014, holding that the issue was governed by case-management discretion.
• First-tier Tribunal (Tax Chamber): Judge Gort rejected the application for a separate trial and declined to exercise its discretion to order one.