Tribunal – Where does the ‘burden of proof’ lie?
A recent tribunal case examined an appeal by a taxpayer against amendments to his 2005/6 self-assessment return and subsequent discovery assessments re the 2003/4 and 2004/5 tax years. The taxpayer in this case owned a fish and chip shop which he purchased in 2001 and sold five years later. He is now a mini cab driver apparently working all hours to make ends meet.
HMRC had initiated an enquiry into the 2005/6 tax return and sent the taxpayer’s agent a letter requesting relevant information and documentation to support their enquiry. Despite further requests no response was received and a penalty of £50 was imposed on the taxpayer. Subsequently, the taxpayer’s agent wrote to HMRC to inform them that his client had ceased operating the fish and chip shop and that ‘records have since been lost’. It was later claimed that they had been destroyed by the new owner.
In the absence of any real information, HMRC accepted the purchase figures claimed by the taxpayer and used estimates based on available information about similar local businesses to calculate takings based on a gross profit of 60%. The tribunal accepted that HMRC had used their best judgement in determining the correct amount of tax due.
The taxpayer put forward a number of key reasons as to why HMRC’s calculations were based on unreasonable assumptions. However he did not produce any alternative figures or proposals beyond the original entries on his tax return.
The tribunal ultimately dismissed the taxpayer’s appeal on the grounds that the burden of proof was on the taxpayer to establish the correct amount of tax due. The tribunal also confirmed the discovery assessments issued by HMRC re understatements of profits in earlier years.