Burden of proof and discovery assessments: where does it lie?

The recent case of Burgess and Brimheath Developments Ltd v HMRC [2015] UKUT 578 (TCC) highlighted that the burden of proof lies with HMRC in relation to whether the conditions for a valid discovery assessment have been met.


In November 2011 HMRC raised assessments in relation to alleged under declaration of profits for both Mr Burgess and his company, covering a number of years from 1996 to 2008. An appeal was lodged with the FTT on the basis that that the assessments were not valid as the relevant discovery conditions had not been met.

The FTT decision

The FTT made no findings on the ‘competence issue’, including whether the conduct of the taxpayer could be considered careless or deliberate. Equally, the ‘time limit issue’ was overlooked and no consideration given as to whether HMRC had the statutory powers to assess as far as back at 1996 onwards.  Rather, the FTT focussed solely on the ‘substantive issue’ as to whether there had been an under declaration of trading income.  On the basis that the evidence put forward by the taxpayer was deemed insufficient to displace the figures produced by HMRC, the FTT found that tax had indeed been underpaid and upheld all assessments for both Mr Burgess and the company.

A subsequent appeal was made to the Upper Tribunal. It was argued that the FTT had failed to deal with the competence and time limit issues, or if it had, that the conclusions reached were based on the burden of proof being applied incorrectly.

The UT decision

The UT found that the FTT had erred in law in failing to consider the competence and time limit issues in this case. Establishing that there had been an omission of profits did not in itself grant HMRC the power to raise assessments.  HMRC had failed also, in putting forward to the FTT any evidence to substantiate that a ‘discovery’ had been made and that the taxpayer had acted deliberately in submitting incorrect returns, thus opening up the 20 year time limit.

The FTT placed the burden of proof on the taxpayer to demonstrate that the assessments were incorrect. The UT sided with Mr Burgess in agreeing that this approach was wrong and that in discovery cases, the burden of proof must lie with HMRC, firstly to demonstrate that a ‘discovery’ was in fact made and secondly, the relevant behaviour of the taxpayer.  It was not for Mr Burgess or the company to prove anything in this case.

Having reached a decision on the appeal itself, the UT then had to decide whether to remit the case back to the FTT. Ultimately, it was considered that this would allow HMRC a second bite of the cherry and therefore the assessments were reduced to nil.

Why is this case important?

The discovery legislation provides a constant flow of Tribunal cases, many of which have recently been settled in HMRC’s favour. This case provides an important reminder that establishing omitted profits in previous years does not give HMRC carte blanche to raise assessments.  The competence and time limit hurdles must first be crossed and the burden of proof in this respect lies squarely with HMRC.

If you have a query regarding assessments for earlier years or issues relating to the burden of proof, please call TaxDesk on 0845 4900509 and ask for Isobel Clift.