A penalty for deliberate conduct is in substance an allegation of fraud, so surely HMRC must prove it beyond reasonable doubt? No. The standard is the balance of probabilities and it does not rise with the seriousness of the allegation, but the case also supplies an argument most advisers never run.
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Full name: Revenue and Customs Commissioners v Khawaja
Citation: [2013] UKUT 27 (TCC); [2014] STC 150
Court: Upper Tribunal (Tax and Chancery Chamber)
Subject: The standard of proof in tax penalty appeals; Article 6 ECHR; delay
Result: The civil standard applies. The appeal succeeded in part on the tribunal’s power to reflect unreasonable delay.
Why This Case Matters
A penalty for a deliberate inaccuracy is, in substance, an allegation that the taxpayer behaved fraudulently. Taxpayers and their advisers regularly argue that so serious an allegation should have to be proved to the criminal standard, beyond reasonable doubt. It is an intuitive argument and it is wrong.
Khawaja settles it: the standard is the ordinary civil standard, the balance of probabilities, and it does not become heightened because the allegation is a serious one.
Burden, who has to prove it. On a penalty, that is HMRC.
Standard: how convincingly. That is the balance of probabilities, always.
The correct submission is that HMRC bears the burden and has not discharged it. The incorrect one is that HMRC must prove its case beyond reasonable doubt.
The Facts
Mr Khawaja operated a restaurant business. HMRC concluded that the returns submitted were inaccurate and imposed penalties on the footing that the inaccuracies were attributable to his conduct.
He appealed. Among the grounds advanced were that the criminal standard of proof should apply because the penalty was punitive in character, that Article 6 of the European Convention on Human Rights was engaged, and that the proceedings had been subject to unreasonable delay.
The proceedings had indeed taken a very long time, which is what gave the delay point its force.
The Ratio Decidendi
(1) The civil standard applies. In tax penalty proceedings the standard of proof is the balance of probabilities, not the criminal standard. The seriousness of an allegation does not raise the standard.
(2) Delay can be reflected in the penalty. The Upper Tribunal allowed the appeal to the extent of holding that the tribunal has power to adjust a penalty to reflect unreasonable delay in the proceedings.
The standard of proof
The argument for a heightened standard draws on the fact that a tax penalty for deliberate conduct can be characterised as a criminal charge for the purposes of Article 6 ECHR. The Upper Tribunal accepted the Article 6 analysis in principle but held that it does not import the domestic criminal standard of proof into the tribunal’s determination.
The reasoning aligns with the general position in English law that there is a single civil standard. Seriousness affects the quality of evidence a tribunal will require before being satisfied, an inherently improbable allegation needs cogent evidence, but it does not change the standard itself.
Delay
The second holding is the one advisers under-use. Article 6 confers a right to a hearing within a reasonable time. Where proceedings have been subject to unreasonable delay, the tribunal has power to reflect that in the penalty. This is not a reasonable excuse argument and it is not a special reduction argument; it is a distinct route, grounded in the right to a fair and timely hearing.
Obiter and Related Points
- The Article 6 characterisation. The broader discussion of when a tax penalty amounts to a criminal charge for Convention purposes, drawing on the Strasbourg jurisprudence, is largely explanatory. It matters because it underpins the delay argument and certain procedural protections, but it does not convert tribunal proceedings into criminal ones.
- What “unreasonable” delay means. The Upper Tribunal did not lay down a period. It is fact-sensitive, and depends on the complexity of the case, the conduct of both parties, and what was at stake for the taxpayer.
- The quantum of any adjustment is not prescribed, which leaves room for argument but also means the point needs to be made with evidence of the actual prejudice suffered.
- The distinction from the FTT’s general jurisdiction. The tribunal has no general power to strike out for delay, and the case should not be read as creating one.
Where It Sits in the Burden and Standard Map
| Issue | Burden | Standard |
|---|---|---|
| Amount of an assessment is wrong | Taxpayer | Balance of probabilities |
| Penalty properly imposed, including behaviour | HMRC | Balance of probabilities: Khawaja |
| Reasonable excuse | Taxpayer | Balance of probabilities: Perrin |
| Underlying liability raised as a defence to a penalty | Taxpayer | Sintra Global, under appeal |
| Knew or should have known of VAT fraud | HMRC | Kittel, Mobilx |
| Validity of a discovery assessment | HMRC | Tooth |
Practitioner Application
- Do not argue for the criminal standard. It is settled and the submission costs credibility. Argue instead that HMRC has not discharged its burden on the balance of probabilities.
- Use the cogency point instead. While the standard does not change, a tribunal will require convincing evidence before finding that a taxpayer acted deliberately. Where HMRC’s case rests on inference from the size of an understatement, say that the evidence is not cogent enough to establish a serious allegation.
- Run the delay argument where the facts support it. It is distinct from reasonable excuse and from special reduction, and it is frequently overlooked. Build a chronology showing the periods of inactivity, who was responsible, and what prejudice the taxpayer suffered: lost records, unavailable witnesses, accrued interest, prolonged uncertainty.
- Keep the three arguments separate in the grounds of appeal: validity of the penalty, behaviour category and burden, and then reasonable excuse, special circumstances and delay in the alternative.
- Remember Article 6 does more than the standard of proof. Where a penalty is a criminal charge for Convention purposes, procedural protections follow, and delay is the most practically useful of them.
Frequently Asked Questions
Does HMRC have to prove a penalty beyond reasonable doubt?
No. HMRC v Khawaja [2013] UKUT 27 (TCC) confirms that the standard in tax penalty proceedings is the ordinary civil standard, the balance of probabilities. The seriousness of the allegation does not raise the standard, even where the penalty is characterised as a criminal charge for Article 6 ECHR purposes.
What is the difference between burden and standard?
Burden is who has to prove something; standard is how convincingly. On a penalty, HMRC bears the burden and the standard is the balance of probabilities. The correct submission is that HMRC has not discharged its burden. The incorrect one, frequently made, is that HMRC must prove its case beyond reasonable doubt.
Does the seriousness of the allegation make any difference at all?
To the evidence, yes; to the standard, no. A tribunal will require cogent evidence before finding that a taxpayer acted deliberately, because such conduct is inherently less probable than carelessness. That is a point about the quality of evidence needed to satisfy the civil standard, not about a different standard, and it is the productive way to make the argument.
Can I do anything about HMRC taking years over an investigation?
Possibly. Khawaja holds that the tribunal has power to adjust a penalty to reflect unreasonable delay in the proceedings, grounded in the Article 6 right to a hearing within a reasonable time. It is distinct from reasonable excuse and from special reduction, and it is frequently overlooked. Build a chronology showing the periods of inactivity and the prejudice suffered.
Is a tax penalty a criminal charge?
For Article 6 ECHR purposes it can be, and the Upper Tribunal accepted that analysis. But that does not import the domestic criminal standard of proof or convert tribunal proceedings into criminal ones. What it does bring is a set of procedural protections, of which the right to a hearing within a reasonable time is the most practically useful.