Harold Wiesenfeld & Anor v The Commissioners for HMRC

An appellate tribunal need not set aside a decision merely because the lower tribunal made an error of law. It may leave the decision standing where the error had no material effect on the issue under appeal.

First-hand oral evidence of an observed declaration is not hearsay merely because the declarant does not give evidence. A tribunal must recognise its discretion to admit hearsay or late evidence. It may nevertheless exclude evidence that would circumvent case-management directions and unfairly ambush the opposing party.

For a penalty under Finance Act 2007, HMRC bears the burden of proving a failure to take reasonable care. Once HMRC advances an evidenced case of inadequate care, a taxpayer who gives no evidence of the checks or advice relied upon may properly be found careless.

The appellants claimed income-tax loss relief for a Polish property-development business. HMRC denied the relief on the basis that the losses belonged to a Polish company controlled by the appellants, rather than to them personally. HMRC also imposed penalties for careless inaccuracies in their returns under Finance Act 2007.

The First-tier Tribunal dismissed the appeals against the closure notices, upheld liability to penalties and reduced their amount. The appellants obtained permission to appeal only the penalty decision. They contended that the First-tier Tribunal wrongly refused their accountant permission to give oral evidence about an alleged declaration of trust and that HMRC had not proved carelessness.

The central issues were whether the evidential ruling involved material legal error and whether the First-tier Tribunal was entitled to uphold the penalties on the evidence before it.

1. Appeal dismissed. The First-tier Tribunal erred in treating the accountant’s proposed evidence as hearsay. He proposed to give first-hand evidence that he had heard an oral declaration of trust. The First-tier Tribunal also failed to recognise that it retained a discretion to admit the evidence, whether hearsay or not.

2. Those errors did not justify setting aside the penalty decision. The proposed evidence concerned whether the company held its assets on trust. That issue belonged to the closure-notice appeal, for which the appellants had no permission to appeal. The Upper Tribunal therefore had to proceed on the basis that the returns contained inaccuracies because the company, not a partnership of the appellants, conducted the business.

3. In any event, the Upper Tribunal would have excluded the proposed oral evidence. It was absent from the witness statements despite directions requiring written witness evidence and attendance for cross-examination. Introducing it for the first time at the hearing would have circumvented those directions and risked unfairly ambushing HMRC. That conclusion accorded with the overriding objective in the Tribunal Procedure (First-tier Tribunal)(Tax Chamber) Rules 2009.

4. HMRC’s pleaded and unchallenged case was that experienced businesspeople claiming losses incurred by a foreign company had not taken adequate advice or other reasonable steps to verify their entitlement. The appellants supplied no witness evidence identifying any checks or advice, and did not challenge HMRC’s witness evidence. The First-tier Tribunal was therefore entitled to find a failure to take reasonable care and to uphold the penalties under Finance Act 2007.

• Upper Tribunal (Tax and Chancery Chamber): dismissed the appeal against the penalty decision, while identifying immaterial errors of law in the First-tier Tribunal’s evidential ruling.
• First-tier Tribunal (Tax Chamber): dismissed the appellants’ appeals against HMRC’s closure notices, found them liable to penalties for careless inaccuracies, and reduced the penalties.