The Commissioners for HMRC v Mohammed Zaman

Where a person challenges a personal liability notice on the ground that the company’s underlying VAT assessment was wrong, the ordinary rules governing a challenge to that assessment remain applicable. HMRC must establish that the notice was validly issued. However, once that is established, the person advancing a positive challenge to the VAT assessment bears the evidential burden of showing that the assessment is incorrect.

A tribunal errs in law if it instead requires HMRC to disprove that challenge. If the error is material, the decision must be set aside and the appeal reconsidered on the correct basis.

HMRC appealed against a First-tier Tribunal decision, released on 24 June 2021, allowing Mohammed Zaman’s appeal against a personal liability notice. The notice followed an unappealed VAT assessment and an unappealed penalty imposed on Zamco Ltd, of which Mr Zaman was sole director.

The First-tier Tribunal found that HMRC had not proved that Zamco’s alcohol supplies were made in the United Kingdom. It therefore held that the VAT returns had not been shown to contain inaccuracies and allowed the appeal. HMRC contended that the tribunal had applied the wrong burden of proof and, alternatively, had made an irrational evaluation of the evidence.

1. Appeal allowed. The First-tier Tribunal’s decision was set aside and the matter was remitted to the same panel for reconsideration.

2. Although HMRC bore the burden of establishing that the personal liability notice was validly issued, that did not alter the rules applicable to the underlying VAT assessment. A challenge to that assessment could be advanced in the appeal against the notice, but the person positively asserting that the assessment was wrong bore the evidential burden of proving it.

3. The First-tier Tribunal had lost sight of that distinction. Its conclusion at [96] showed that it asked whether HMRC had proved that the goods were removed to the United Kingdom, rather than whether Mr Zaman had shown that the assessment was incorrect. That was an error of law and was material, particularly given the tribunal’s reservations about the reliability of Mr Zaman’s evidence.

4. It was unnecessary to determine HMRC’s alternative challenge to the First-tier Tribunal’s evaluation of the facts. The Upper Tribunal did not remake the decision because it had not heard the substantial evidence considered below. On reconsideration, the First-tier Tribunal was not to disturb or make new primary findings of fact, which neither party had challenged.

• Upper Tribunal (Tax and Chancery Chamber): HMRC’s appeal was allowed. The First-tier Tribunal decision was set aside and remitted to the same panel.

• First-tier Tribunal (Tax Chamber): On 24 June 2021, it allowed Mr Zaman’s appeal against the personal liability notice.