Penalty for Unpaid Tax: Taxpayer must prove they’re not liable for underlying tax
The taxpayer who challenges a tax assessment and civil penalties imposed for non-payment is responsible for proving they are not liable for the underlying tax, the Court of Appeal has decided.
The decision in HMRC v Sintra Global & Malde [2025] EWCA Civ 1661 is particularly important as it goes against previous authorities (unsurprisingly, an appeal has been lodged).
What’s the background?
Panama-based company ‘Sintra’ traded alcohol between the UK and the EU. HMRC alleged it was a front to evade VAT and UK excise duties on the alcohol by mislabelling consignments as for European consumption (with lower alcohol duties) - then smuggling them to the UK.
HMRC assessed the tax liability between 2004 and 2015 on companies controlled by Sintra’s principal, Parul Malde, at £8.9m for non-registration and non-payment of VAT. He was served with a personal liability notice for that amount; and also served with a separate director’s liability notice for a £11,162,180 civil evasion penalty imposed on another company of his, which was based in Belize.
Sintra and Malde appealed on the basis that the companies were not liable for VAT. At issue was whether the burden of proof is on the taxpayer to show they are not liable to pay the underlying tax when appealing an HMRC penalty on the basis they do not owe the tax.
The Court of Appeal disagreed with both the Upper Tribunal and the First Tier Tribunal. It concluded that the legal burden of proof is on the taxpayer, not HMRC to prove they are not liable for the underlying tax assessment, if this raised in defence. This was reasonable and proportionate.
Sir Henderson, giving judgment, said it could not be right that “the burden should shift to HMRC merely because the taxpayer wishes to raise the issue of an underlying liability to tax as a defence to penalty proceedings”. It would lead to inconsistencies; and would also “risk creating a perverse incentive for the taxpayer to avoid appealing an underlying assessment”.
The underlying VAT assessment also clearly fell outside the ambit of Article 6, therefore HMRC was not required to bear the legal burden of proof to establish the correctness of the underlying tax liability.
However, the CA clarified that in penalty proceedings, the burden of proof is normally on HMRC “to establish the primary facts which need to be proved to justify the imposition of the penalty”.
What does this mean?
The decision brings the issue in line with VAT and excise duty disputes involving alleged fraud. As mentioned, an appeal has been lodged and we will be keeping watch for the Supreme Court decision in due course.
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