Admissibility of evidence in Tax Appeals

The FTT is not bound by the traditional mantra of statutory and common law principles of admissibility. As a general rule, all evidence is admissible, whether or not it would ordinarily be admissible in a civil court. However, overriding common law principles, e.g. protection of legal professional privilege are not curtailed by FTT r.15(2)(a) because the FT must act within the framework of the Human Rights Act. The same applies in the UT.

A Tax Appeal will often involve questions of evidence, e.g.
(i)         whether a taxpayer was carrying on a trade;
(ii)        the nature of a transaction;
(iii)       valuation of goods and services;
(iv)       whether a non-incorporated UK company was centrally managed and controlled in the UK by its directors and/or shareholders; and
(v)        whether the accounting treatment for an item of expenditure is correct.
FTT Rule 15(2) states:
‘(2) The Tribunal may— (a) admit evidence whether or not the evidence would be admissible in a civil trial in the United Kingdom; or (b) exclude evidence that would otherwise be admissible where— (i) the evidence was not provided within the time allowed by a direction or a practice direction; (ii) the evidence was otherwise provided in a manner that did not comply with a direction or a practice direction; or (iii) it would otherwise be unfair to admit the evidence.’
The legal test of admissibility is ‘relevance’, and there is a presumption that all relevant evidence should be admitted unless there are compelling reasons to the contrary, Mobile Export 365 Ltd v. Revenue and Customs Commissioners [2007] and Atlantic Electronic v. Revenue and Customs Comrs [2013].
Application of r.15(2) is the subject of guidance in HMRC v. IAC Associates [2013]. Nugee J observed, ‘… one starts with asking the question whether the evidence is admissible. It is admissible if it is relevant. It is relevant if it is potentially probative of one of the issues in the case. One then asks, notwithstanding that it is admissible evidence, whether [there] are good reasons why the court (or tribunal in this case) should nevertheless direct that it be excluded.’
In Revenue and Customs Comrs v. Atlantic Electronics Ltd [2013], one of the issues before the Court of Appeal was whether the admission of the material by the Upper Tribunal was just, fair and proportionate. Ryder LJ (with whom Arden LJ agreed) stated that:
‘HMRC wish to have [a certificate of conviction and the indictment and a note of the prosecution opening] admitted so that they can explain to the FTT the detailed background rather than merely the technical relevance of the convictions to their case. … The UT adopted the correct approach to the admission of the materials in question. It assessed whether the evidence is relevant and applied the presumption that all relevant evidence should be admitted unless there is a compelling reason to the contrary. … The prejudice to the Revenue in not being able to rely on the note of the prosecution opening is clear once the purpose of the admission of the material is analysed i.e. the dishonest and knowing participation of [X] as a contra trader.’ The UT was therefore entitled to decide to admit the disputed evidence.