Key Issue in Tax Dispute: Admissibility of Evidence from Server, Continuity Presumption, and Deliberate vs. Careless Behavior in New Claire Wine Ltd v HMRC

Citation: [2024] UKFTT 14 (TC)
Judgment on

Introduction

The case of New Claire Wine Ltd v The Commissioners for HMRC is a pivotal case addressing the principles surrounding the admissibility of documents derived from a server as evidence, the presumption of continuity in tax assessments, and the delineation of deliberate versus careless behavior in tax discrepancies. It explores the nuances of HMRC’s discovery assessments, VAT calculation to ‘best judgment,’ penalties for deliberate inaccuracies, and loan charges under section 455 of the Corporation Tax Act 2010.

Key Facts

New Claire Wine Ltd (the appellant), a UK-based company with a history of problematic record-keeping, was the subject of consolidated appeals concerning VAT and Corporation Tax assessments and penalties. HMRC alleged that the company was involved in off-record sales and purchases; particularly, transactions with The Italian Wine Company (TIWC) which were not reflected accurately in their tax returns. HMRC Officers conducted extensive analyses, including a stock flow exercise, and utilized evidence obtained from the TIWC server seized in Italy following criminal convictions of TIWC directors. The appellant contested the accuracy of HMRC’s assessments and penalties, arguing that insufficient evidence existed to prove deliberate misconduct or fraudulent behavior.

The Tribunal’s analysis revolved around several legal principles:

  1. Best Judgment in VAT Assessments: The Tribunal reiterated the established principle that VAT assessments under section 73(1) of the VATA 1994 must be to the best of HMRC’s judgment based on available information. Citing ‘Van Boeckel v C & E Commissioners’ and ‘Rahman (t/a Khayam Restaurant) v Commissioners of Customs and Excise’, the Tribunal affirmed that a margin of estimation is inherent in the process, and assessments need not be set aside unless no reasonable officer could have arrived at the figures.

  2. Discovery Assessments under Schedule 18: The principle that HMRC has the authority to make discovery assessments if a loss of tax is detected was pertinent, alongside the subjective and objective discovery tests as articulated in ‘Jerome Anderson v HMRC’. The Tribunal found that the Officer acted within discretionary powers, with a discovery based on reasonable grounds, upheld by the presumption of continuity.

  3. Presumption of Continuity: Originating from ‘Jonas v Bamford’, the presumption implies that once an HMRC officer establishes additional income for one year, the presumption is that this discrepancy continues until evidence suggests a change. The Tribunal agreed with the view from ‘Dr I Syed v HMRC’ that this is a common-sense approach, subject to being rebutted by the taxpayer.

  4. Deliberate vs. Careless Behaviour: In determining whether inaccuracies in returned figures were deliberate, the Tribunal lent weight to the framework set out in ‘Auxilium Project Management Ltd v HMRC’ where the taxpayer’s knowledge and intention at the time of submitting documents to HMRC were pivotal. The Tribunal concluded that behaviour was deliberate and not merely careless.

  5. European Convention on Human Rights (ECHR): The Tribunal rebuffed the appellant’s reference to ECHR Articles 6 and 8 by citing ‘R (oao ToTel Limited)v the FTT and another’ and ‘Walapu v HMRC’, confirming that tax disputes generally fall outside the civil head of Article 6 and the appellant’s right under the ECHR was not breached.

Outcomes

The Tribunal reached several conclusions based on the principles above:

  • The HMRC assessments and the implementation of section 455 charges were justified, as the appellant’s conduct was deemed deliberate, causing a loss of tax.
  • The Tribunal dismissed the appellant’s claim that their behaviour was not fraudulent or dishonest, while acknowledging deliberate mishandling of resources.
  • Due to admitted mistakes in the assessments by HMRC, the Tribunal remitted the exact quantum of adjustments to the parties for agreement or failing which would revert to the Tribunal.

Conclusion

In ‘New Claire Wine Ltd v The Commissioners for HMRC’, the Tribunal carefully applied the principles underlying tax law within the UK jurisdiction. It supported HMRC’s discretion in assessing taxes and penalizing deliberate inaccuracies in tax records, while also reinforcing the taxpayer’s burden to prove the correct amount of tax owed. The overarching focus was on achieving a just, reasonable, and proportionate outcome in the face of complex factual backgrounds, ultimately favoring the structured and well-supported assessments completed by HMRC.

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