Gardiner & Ors v Revenue & Customs

Factual and Procedural Background

These appeals arise from penalty determinations issued pursuant to section 95 of the Taxes Management Act 1970 for negligently delivering incorrect tax returns. The penalties were imposed on three appellants, who are family members, in respect of their 2005-06 tax returns. In 2005, the appellants entered into a marketed tax avoidance scheme aimed at sheltering chargeable gains from the disposal of shares in Company A. The scheme involved generating capital losses through transactions with capital redemption policies, disclosed in tax returns submitted in January 2007.

Following a notice of enquiry in June 2007, the respondents challenged the scheme, which was subsequently held ineffective by the Court of Appeal in 2009. The appellants accepted the resulting tax liability and paid the tax due. However, the respondents alleged negligence in the delivery of the returns, contending that certain loans totaling £1,788,000, integral to the scheme, were never made or were made after the relevant transactions, thus rendering the returns incorrect.

The respondents relied on documentary evidence but chose not to call witness testimony. The appellants argued that the respondents had failed to establish a prima facie case of negligence due to the absence of evidence showing what was known or available to the appellants at the time of filing the returns. The Tribunal was asked to determine as a preliminary issue whether the respondents had adduced sufficient evidence to establish negligence.

Legal Issues Presented

1. Whether the respondents had adduced evidence sufficient to establish a prima facie case that the appellants negligently delivered incorrect tax returns for the year 2005-06.

Arguments of the Parties

Appellants' Arguments

• The respondents failed to produce any witness evidence or formal proof of what was known or available to the appellants at the time the returns were filed in January 2007.
• Without such evidence, the Tribunal could not determine what the appellants ought to have done differently or whether they were negligent.
• Any documents relied upon by the respondents were unilateral and not proven to have been available or known to the appellants when the returns were made.

Respondents' Arguments

• Documentary evidence showed that the appellants signed documents that were either inauthentic, misrepresented reality, or related to transactions that did not occur as described.
• The appellants should have been aware from the documents that the scheme was not properly implemented and thus should have questioned its validity.
• Failure to seek verifying documents or question the scheme's implementation could be prima facie evidence of negligence.

Table of Precedents Cited

Court's Reasoning and Analysis

The Tribunal acknowledged that the burden of proof lay with the respondents to establish negligence on the part of the appellants. The respondents’ Statement of Case was deficient, failing to particularise the alleged negligence and incorrectly placing some burden on the appellants to prove certain facts.

The respondents relied solely on documentary evidence without calling any witnesses to authenticate or explain the documents. The Tribunal noted the legal requirement that documents relied upon as evidence must be produced by a qualified witness to establish their truth. The absence of witness evidence meant the Tribunal could not be satisfied as to what was available or known to the appellants at the time of filing their returns.

The Tribunal considered that the respondents’ case was that a reasonable person examining the documents would have realised the scheme was not properly implemented. However, without evidence showing the appellants had access to or knowledge of these documents, the Tribunal could not find negligence.

Consequently, the respondents failed to establish a prima facie case of negligence, and the appellants were entitled to have the appeals allowed at this preliminary stage.

Holding and Implications

The Tribunal allowed the appeals, concluding that the respondents did not adduce sufficient evidence to establish a prima facie case of negligence against the appellants for the 2005-06 tax returns.

This decision means that the penalty determinations under section 95 TMA 1970 were set aside. The ruling does not establish new precedent but affirms the necessity for the party alleging negligence to produce sufficient evidence, including witness testimony when relying on documents, to meet the burden of proof in penalty appeals.