ICAS ICAS logo

Quicklinks

  1. About Us

    Find out about who we are and what we do here at ICAS.

  2. Find a CA

    Search our directory of individual CAs and Member organisations by name, location and professional criteria.

  3. CA Magazine

    View the latest issues of the dedicated magazine for ICAS Chartered Accountants.

  4. Contact Us

    Get in touch with ICAS by phone, email or post, with dedicated contacts for Members, Students and firms.

Login
  • Annual renewal
  • About us
  • Contact us
  • Find a CA
  1. About us
    1. Governance
  2. Members
    1. Become a member
    2. Newly qualified
    3. Manage my membership
    4. Benefits of membership
    5. Careers support
    6. Mentoring
    7. CA Wellbeing
    8. More for Members
    9. Area networks
    10. International communities
    11. Get involved
    12. Top Young CAs
    13. Career breaks
    14. ICAS podcast
    15. Newly admitted members 2022
    16. Newly admitted members 2023
  3. CA Students
    1. Student information
    2. Student resources
    3. Learning requirements
    4. Learning updates
    5. Learning blog
    6. Totum Pro | Student discount card
    7. CA Student wellbeing
  4. Become a CA
    1. How to become a CA
    2. Routes to becoming a CA
    3. CA Stories
    4. Find a training agreement
    5. Why become a CA
    6. Qualification information
    7. University exemptions
  5. Employers
    1. Become an Authorised Training Office
    2. Resources for Authorised Training Offices
    3. Professional entry
    4. Apprenticeships
  6. Find a CA
  7. ICAS events
    1. CA Summit
  8. CA magazine
  9. Insight
    1. Finance + Trust
    2. Finance + Technology
    3. Finance + EDI
    4. Finance + Mental Fitness
    5. Finance + Leadership
    6. Finance + Sustainability
  10. Professional resources
    1. Anti-money laundering
    2. Audit and assurance
    3. Brexit
    4. Charities
    5. Coronavirus
    6. Corporate and financial reporting
    7. Business and governance
    8. Ethics
    9. Insolvency
    10. ICAS Research
    11. Pensions
    12. Practice
    13. Public sector
    14. Sustainability
    15. Tax
  11. CPD - professional development
    1. CPD courses and qualifications
    2. CPD news and updates
    3. CPD support and advice
  12. Regulation
    1. Complaints and sanctions
    2. Regulatory authorisations
    3. Guidance and help sheets
    4. Regulatory monitoring
  13. CA jobs
    1. CA jobs partner: Rutherford Cross
    2. Resources for your job search
    3. Advertise with CA jobs
    4. Hays | A Trusted ICAS CA Jobs Partner
    5. Azets | What's your ambition?
  14. Work at ICAS
    1. Business centres
    2. Meet our team
    3. Benefits
    4. Vacancies
    5. Imagine your career at ICAS
  15. Contact us
    1. Technical and regulation queries
    2. ICAS logo request

Dispute on where burden of proof lies

  • LinkedIn (opens new window)
  • Twitter (opens new window)
By Jan Garioch CA

25 August 2021

Main points:

  • HMRC assessed for over £6million of output VAT, contending that large cash deposits made around the UK were from sales in the UK.
  • Award Drinks had failed to convince the FTT and UT with its assertion that it sold drinks to wholesale customers in France for cash which it couriered to the UK for deposit.
  • The Court of Appeal had to consider whether it is consistent for HMRC to run a case which entails fraud by the taxpayer without pleading or facing the burden of establishing the fraud.

Jan Garioch CA discusses the case of Awards Drinks Ltd (in liquidation) v HMRC, where the appellant attempts to force the burden of proof for best estimate assessments onto HMRC.

Background

Prior to the Court of Appeal’s recent judgement in Awards Drinks Ltd (in liquidation) v HMRC, this case had been considered by both the FTT and UT. Awards Drinks Ltd (ADL) had been issued with ‘best judgement’ assessments for output VAT, totalling more than £6 million because HMRC believed that smuggled drinks were sold in the UK as a result of inward diversion fraud. That fraud involves goods held in duty suspension being supposedly released into a country where they face a low rate of duty, but in fact being smuggled into the UK where they are sold immediately for cash. A complex paper trail for supposed transactions in the low duty country distracts from following the true transactions.

The FTT’s position

At the FTT, HMRC explained their assessments were based on 1,311 large cash deposits paid into ADL’s bank account through various branches spread geographically around the UK. These deposits could not be reconciled to the version of events put forward by ADL, namely that it sold drinks to wholesale customers in France, around the Calais area, for cash and couriered the money to the UK for deposit.

The FTT found ADL’s witness unreliable and was unimpressed that there were no declarations to French Customs that cash had been moved across border to the UK by ADL or those acting on its behalf. Its concerns about ADL’s version of events were further exacerbated because French authorities reported no visible activity at the headquarters of supposed customers shown on the documents meant to support the transactions in France, and had failed to reach any contacts for the companies. The FTT upheld the assessments because the facts found did not support ADL’s submissions.

ADL’s appeal to the Upper Tribunal

ADL contended that the French transaction documents which it produced at FTT had gone unchallenged. Any challenge from HMRC would necessarily have implied dishonesty and the requirements to establish dishonesty would have had to be met. Effectively, the burden of proof would reverse and if HMRC wished to uphold the assessments which were based on ADL having control of the goods in the UK, then it had to plead fraud against ADL.

However, the UT agreed with HMRC that it was a non sequitur for ADL to say that because HMRC did not assert that ADL had committed a fraud, that HMRC had thus conceded that ADL had lost possession and control of the goods and could not have supplied them in the UK. Instead, the burden lay on ADL’s shoulders to show that loss of possession had happened in France. Various deficiencies had been found in the French transaction documents before the FTT and the UT found no requirement for HMRC to show the documents were fraudulently produced. It had been completely reasonable for the FTT to be convinced that HMRC had undermined the picture that ADL tried to draw of genuine sale of goods to genuine customers in France.

The Court of Appeal’s judgement

Appealing for the third time, ADL alleged the UT’s judgement was undermined by a misunderstanding. ADL argued it was incorrect for the UT to accept HMRC's pleaded case that the customers were mere buffers or conduits whose purpose was to give the appearance of an in-bond transaction and thus to facilitate the movement of the goods to the UK to be sold by ADL.  ADL contended that HMRC had made a submission earlier in the dispute which said “HMRC makes no allegation of fraud against ADL”. Therefore, there was an error of law and/or a clear procedural irregularity, which generated material unfairness and affected the UT’s decision.

The Court of Appeal turned to past cases including Brady v Group Lotus Car Companies PLC for guidance, and those cases established the principle that the burden of showing an assessment is incorrect remains on the taxpayer throughout the appeal. This is so even if the circumstances of the case are such that there either must, or may, have been some fraudulent conduct on the part of the taxpayer which is relevant to the tax liability.

Applying that to this case, they found that ADL wrongly tried to turn the tables on HMRC by making vexatious requests for detail on the sales of goods which HMRC alleged took place in the UK. Instead, the duty had to fall on ADL to provided an honest and credible explanation if they wished to displace HMRC’s assessments. The Court of Appeal agreed with the UT that just because HMRC had not alleged fraud did not mean that it accepted that ADL had lost possession and control of the goods (thus preventing ADL from supplying them in the UK). In the Court of Appeal’s view, ADL had failed to reverse the burden of proof and produced no credible explanation for the very substantial payments into its bank account. Its appeal failed.

shutterstock_36494

Missing trader fraud

By Jan Garioch CA

20 July 2021

ICAS contributes to HM Treasury’s review of the Office of Tax Simplification

By Susan Cattell, Head of Tax Technical Policy

16 July 2021

2022-01-xero 2022-01-xero
ICAS logo

Footer links

  • Contact us
  • Terms and conditions
  • Modern slavery statement
  • Privacy notice
  • CA magazine

Connect with ICAS

  • Facebook (opens new window) Facebook Icon
  • Twitter (opens new window) Twitter Icon
  • LinkedIn (opens new window) LinkedIn Icon
  • Instagram (opens new window) Instagram Icon

ICAS is a member of the following bodies

  • Consultative Committee of Accountancy Bodies (opens new window) Consultative Committee of Accountancy Bodies logo
  • Chartered Accountants Worldwide (opens new window) Chartered Accountants Worldwide logo
  • Global Accounting Alliance (opens new window) Global Accounting Alliance
  • International Federation of Accountants (opens new window) IFAC
  • Access Accountancy (opens new window) Access Acountancy

Charities

  • ICAS Foundation (opens new window) ICAS Foundation
  • SCABA (opens new window) scaba

Accreditations

  • ISO 9001 - RGB (opens new window)
© ICAS 2022

The mark and designation “CA” is a registered trade mark of The Institute of Chartered Accountants of Scotland (ICAS), and is available for use in the UK and EU only to members of ICAS. If you are not a member of ICAS, you should not use the “CA” mark and designation in the UK or EU in relation to accountancy, tax or insolvency services. The mark and designation “Chartered Accountant” is a registered trade mark of ICAS, the Institute of Chartered Accountants of England and Wales and Chartered Accountants Ireland. If you are not a member of one of these organisations, you should not use the “Chartered Accountant” mark and designation in the UK or EU in relation to these services. Further restrictions on the use of these marks also apply where you are a member.

ICAS logo

Our cookie policy

ICAS.com uses cookies which are essential for our website to work. We would also like to use analytical cookies to help us improve our website and your user experience. Any data collected is anonymised. Please have a look at the further information in our cookie policy and confirm if you are happy for us to use analytical cookies: