Halifax abuse: burden of proof

The First Tier Tribunal has followed dicta from the Upper Tribunal and held that the burden of proof for alleging Halifax abuse of law lies with HMRC.

The First Tier Tribunal (FTT) has, somewhat reluctantly, followed the dicta of the Upper Tribunal in holding that the burden of proof for alleging Halifax abuse of law falls initially on HMRC: Hilden Park v HMRC [2017] UKFTT 217. The FTT considered that, despite cogent arguments that the burden should be on the taxpayer, it would be wrong not to follow the dicta of the Upper Tribunal made after full reasoning and which was not obviously wrong.


The case concerns a VAT avoidance scheme operated in relation to membership fees paid to a golf club. These were the subject of an appeal by the club in Hilden Park v HMRC [2015] UKUT 405 (Hilden Park 1 case), when the Upper Tribunal held that the schemes failed. When the original scheme was challenged by HMRC, the appellants had liquidated the original companies and put in place a second iteration of the scheme involving different operating companies. HMRC also challenged these arrangements, which were the subject of the current appeal (Hilden Park 2).

As part of the case management hearings concerning Hilden Park 2, the issue of the burden of proof for alleging Halifax abuse arose. It was argued, and the tribunal agreed, that the question which party had the burden was a significant issue for evidential purposes. For example, if the burden was on HMRC then they would potentially need to lead evidence as to that abuse and call witnesses. However, if the burden were on the taxpayer, then the taxpayer would need prima facie show there was no abuse and would be prevented for, for example, putting in a claim of no case to answer. Therefore, it was necessary to determine this issue as a preliminary matter before the appeal could progress.

Who has the burden of proof?

The tribunal noted that the issue of the burden of proof in relation to the Halifax abuse principle appeared to have been addressed twice in the Upper Tribunal already. Firstly, in the previous incarnation of this case, Hilden Park 1, the Upper Tribunal had stated that the burden of proof was on HMRC. Secondly, the Upper Tribunal in an earlier case, Lower Mill Estate Ltd [2010] UKUT 463 stated that “the onus is on HMRC to establish that there is an abuse”. Was the issue already determined, therefore?

The tribunal accepted that neither decision on this issue was binding on the tribunal. First, as regards Hilden Park 1, it was accepted by the parties that that statement had not been strictly part of the decision and was only obiter dicta. Secondly, the tribunal accepted that the statement in Lower Mill Estate was not unqualified and that the statement was not, technically, directed at the burden of proof. Accordingly, the tribunal accepted that it was not bound by any existing decision on the issue.

The tribunal noted that the ordinary rule in tax cases is that the burden of proof initially lies on the taxpayer to disprove an assessment for the good reason that the taxpayer has control of the evidence. There are, however, a number of exceptions to that rule including in relation to penalties and where there are allegations of fraud or sham involved. However, the tribunal noted both exceptions are easily explained. In the first exception (penalties) the question of tax liability is not in issue and in the second exception (fraud/sham) a person should not allege fraud without grounds for alleging it.

Did the Halifax abuse principle justify a similar exception? HMRC argued that an allegation of abuse involves a question of the liability to tax and does not involve any fraud. The taxpayer controls the relevant evidence. As such, it should be treated as a normal tax avoidance case. On this basis, the tribunal chairperson (Judge Barbara Mosedale) expressed concern over the dicta in Hilden Park 1. However, on balance, the judge accepted that the Upper Tribunal’s decision could be justified on the basis that an allegation of abuse (arguably a form of misbehaviour) should be treated in the same way as an allegation of fraud in the sense that HMRC should not make them without some evidence amounting to a prima facie case. Accordingly, whilst having doubts over the reasoning of the Upper Tribunal, the judge considered that the tribunal should follow the dicta of the superior court made after full reasoning and which was not obviously wrong.

The Atrium point

A second point raised by the taxpayer in this case concerned part of the decision in Hilden Park 1. In that case, the Upper Tribunal held, following the earlier Upper Tribunal decision in Atrium Club, that “arrangements could be re-defined under the doctrine in Halifax even if they had not worked as intended” - there can still be a tax advantage. The taxpayer wished to pre-empt this point in Hilden Park 2 by referring the point to the ECJ. However, the tribunal rejected this application on the basis that the issue had not yet been raised in Hilden Park 2 and, in addition, it could not be said it was necessary to deal with the Hilden Park 2 case. Indeed, the tribunal was in essence bound by the earlier decision of the Court of Appeal to refuse leave to appeal in Hilden Park 1.


It may seem surprising that the question who bears the burden of proof in relation to an allegation of Halifax abuse should remain an open question. However, the tribunal noted that the FTT has wide powers to deal with tribunal procedure in any event such that in many cases it may be somewhat academic. However, the tribunal was also concerned with the issue as to which party must first lead evidence of abuse since not only does this affect the preparation of a case by the taxpayer and HMRC, it also bears on the question whether a taxpayer could bring an application for HMRC to be barred on the grounds its case does not have a reasonable prospect of success.

Given the clear uncertainty of the tribunal judge in this case, and the fact that the judge considered that there was no binding authority on the issue, this is a matter that may well make its way to the higher courts.

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