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Englefield and evidence

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The tax cases that hit the headlines are often about large sums of money or important points of principle. You might be forgiven for assuming that all cases are like this, but in fact they are the minority. Most of the time tax tribunals deal with bread and butter issues, for example those relating to appeals against penalties for late or incorrect returns. If we look at the 20 most recent decisions of the First-tier Tribunal, we find that no fewer than 17 are penalty cases. 
The decisions in these cases, although important to the particular taxpayers involved, are not normally of wider interest. However, cases where the taxpayer succeeds are rare and are therefore of interest; and a recent decision (J Englefield t/a Englefield Carpenters v HMRC [2017] UKFTT 247 (TC)) brought out a key issue which we have commented on many times: where is the evidence to support HMRC’s case? 
What happened here is that a partnership filed paper returns for a 31 October deadline. The partnership said that their accountant hand delivered the return to HMRC on 26 October. HMRC said that it never received the return and that penalties were due. But who was right? 
In the end, it came down to a matter of evidence. The accountant produced a copy of the return dated 26 October to the tribunal and gave a verified statement to the tribunal that it had been hand delivered to HMRC that day. HMRC could not provide any evidence. Of course, it is difficult to prove a negative, and HMRC was never going to be able to positively say that the return was not delivered. However, had HMRC been able to explain its normal post handling processes and give the tribunal some assurance that if the return had been received it would have been logged, then the decision might have been different. But, in the words of the judgment, ‘the tribunal was not satisfied that HMRC had demonstrated that its procedures for recording receipt of a return were sufficiently robust to prevent an administrative failure in processing the return for the year end 5 April 2011.’  
Once upon a time, HMRC did offer a service where it would give a dated receipt for hand delivered returns: that was withdrawn some time ago and now the onus is on the taxpayer to prove that a return was submitted on time. To be fair, HMRC usually does accept evidence from accountants about delivery dates and it is not clear why this was not done in this case.  
In a digital age, of course, the problem of date-stamping paper returns will eventually disappear – but there will still be the critical problem of evidence in disputed cases. As we have said before, it is absolutely essential that, in the design of any new systems, robust mechanisms are built in so that disputes such as this are a thing of the past.
Andrew Hubbard, RSM (RSM's Weekly Tax Brief)
Issue: 1351
Categories: In brief