HMRC v Khawaja

Ch D [2008] STC 2880; [2008] EWHC 1687 (Ch)

In this case, a company had under-declared its takings.  Also, the director of the company had failed to declare income from property on his self assessment tax return and had received substantial amounts of under-declared remuneration. HMRC imposed penalties on the director in respect of the under-declared income under TMA 1970, s95 and the director appealed to the General Commissioners.  

The Commissioners upheld the penalties in principle and found that, although HMRC had shown that the director had under-declared his remuneration, they had not proved that he had been negligent and that the criminal level of proof, i.e. “beyond reasonable doubt” should be applied.  HMRC appealed to the High Court, Chancery Division that the level of proof to be applied should be the civil level of proof, i.e. “balance of probabilities”.

It was held by the Chancery Division that it is the civil level of proof that should be applied, i.e. balance of probabilities.

It was observed that the Keith Report of 1983 had assumed that a civil penalty system would require proof only to a civil standard and that this reasoning had been applied in subsequent VAT cases and therefore the same standard of proof should apply across the taxes.