Who has to prove what and to what standard, is frequently the decisive question in a tax penalty appeal, particularly in best judgment and fraud cases where the underlying facts are contested. The Court of Appeal’s December 2025 decision in HMRC v Sintra Global Inc [2025] EWCA Civ 1661 provides the most authoritative modern statement of how the burden of proof is allocated where a taxpayer defends a penalty by attacking the underlying tax liability. This guide analyses the decision and its practical consequences for advisers.
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Why the Burden of Proof Is Decisive
In any contested appeal, the allocation of the burden of proof matters most where the evidence is finely balanced: the party who bears the burden on a given issue loses if the tribunal cannot decide the point on the evidence. In tax penalty appeals, especially those arising from best judgment assessments, alleged fraud or failure-to-notify cases, the underlying facts are frequently obscure, the records incomplete and the events historic. Whether HMRC must prove the taxpayer’s liability, or the taxpayer must disprove it, can therefore determine the outcome.
The issue is sharpened where a penalty is calculated by reference to an underlying tax liability that the taxpayer has not separately appealed, for example, a failure-to-notify penalty under Schedule 41 FA 2008 keyed to a VAT registration liability or a personal liability notice (PLN) imposing a company’s penalty on a director. Can the taxpayer force HMRC to prove the underlying liability simply by raising it as a defence to the penalty? That is the question Sintra Global answers.
The General Rule on Penalties
It is well established that, because tax penalties engage the criminal limb of Article 6 of the European Convention on Human Rights and the presumption of innocence, HMRC bears the burden of establishing the conditions for a penalty. HMRC must prove the primary facts that justify the penalty, for example, that an inaccuracy was careless or deliberate (see our guide on the meaning of deliberate behaviour) or that a person failed to notify a liability to register. The standard is the civil balance of probabilities.
By contrast, on a direct appeal against an assessment, the burden generally rests on the taxpayer to displace the assessment, to show that it is wrong and by how much. This is the long-standing rule reflected in authorities such as Brady v Group Lotus Car Companies plc [1987] STC 635. The tension between these two rules is what generates the problem in cases where a penalty and an underlying liability are intertwined.
Sintra Global: The Facts
The case concerned alleged “inward diversion fraud” in the alcohol trade. HMRC contended that companies controlled by a Mr M (a Belize-incorporated company and later a Panama-incorporated company, “Global”) had evaded UK VAT and excise duty between 2004 and 2014 by falsely declaring that goods were destined for other EU countries or held in duty suspension. Neither company had registered for VAT or accounted for VAT or excise duty.
HMRC made “best of judgment” assessments to VAT (around £8.9m) and excise duty and issued a series of penalties: a registration penalty under paragraph 1 of Schedule 41 FA 2008 for failure to notify the liability to register, an inaccuracy penalty under Schedule 24 FA 2007 and an excise duty penalty under paragraph 4 of Schedule 41. Mr M was made personally liable through three PLNs and a director’s liability notice. The companies could not pursue appeals against the underlying VAT assessments (because of the requirement to deposit the tax or establish hardship), but Global and Mr M pursued the penalty and registration appeals.
The First-tier Tribunal and Upper Tribunal both found for the taxpayers, the UT holding that the burden of proof fell on HMRC with respect to “all relevant aspects of the penalty appeals,” and effectively subsuming the underlying liability question within the penalty appeal. HMRC appealed to the Court of Appeal.
Article 6 ECHR and Ferrazzini
Central to the analysis is the European Court of Human Rights decision in Ferrazzini v Italy (App no 44759/98) [2001] STC 1314. Ferrazzini established that ordinary tax disputes between the state and a taxpayer do not attract the protection of Article 6, because they involve neither the determination of “civil rights and obligations” nor “any criminal charge” within the autonomous Convention meanings. By contrast, tax penalties , even modest ones and even where classified domestically as civil or administrative, are likely to fall within the criminal limb of Article 6 and attract the presumption of innocence.
This produces a structural problem: a penalty (within Article 6) may be linked to an underlying tax liability (outside Article 6). The Court of Appeal had to decide whether the Article 6 protection attaching to the penalty drags the underlying liability question into Article 6 and shifts the burden to HMRC.
The Ratio: a Split Burden
The Court of Appeal (Newey and Singh LJJ and Sir Launcelot Henderson) allowed HMRC’s appeal. It held that the underlying best of judgment assessments to VAT and excise duty fell outside Article 6 under the principle in Ferrazzini. The fact that a taxpayer wished to raise the underlying liability as a defence to penalty proceedings did not shift the burden of that liability question to HMRC. The Court identified the “right solution in principle”:
“In penalty proceedings the burden should normally lie on HMRC to establish the primary facts which needed to be proved to justify the imposition of the penalty, but if the taxpayer wished to contend in his defence that an underlying liability to tax which underpinned or was reflected in the penalty was wrong, a separate legal burden rested on him to prove it, in the same way as it would on an appeal to the FTT against the relevant assessment or decision.”
The Court gave several reasons. Shifting the burden to HMRC merely because the taxpayer raised liability as a penalty defence would be inconsistent with the principles justifying the normal rule, chief among them that the taxpayer normally has access to all the information needed to resolve their own tax affairs. It would risk inconsistent decisions if the same liability question were decided differently depending on the stage at which it arose. And it would create a perverse incentive: a taxpayer might decline to appeal the underlying assessment (where the burden would be on them) and instead raise the liability as a penalty defence (hoping the burden would be on HMRC), a risk especially acute where the assessment is on a company with no assets and a near-identical penalty is then imposed on the controlling individual via a PLN or DLN.
Registration Penalties and Personal Liability Notices
The Court applied this to the registration penalty under paragraph 1 of Schedule 41. The “underlying tax component” of that penalty was simply that the trader had failed to register for VAT. That component could be isolated, it mirrored the liability issue in the underlying tax dispute, and it was not intertwined with the other penalty conditions. The Upper Tribunal had erred in assimilating Global’s appeal against the registration decision with its appeal against the registration penalty: these were separate appeals against separate decisions under the elaborate penalty regime enacted in the Finance Acts 2007 and 2008.
Because Global was unable to pursue its appeal against the VAT assessment, the burden on it in the penalty proceedings was in practice the same as it would have been on the assessment appeal, on the taxpayer. The decision is therefore of particular importance in PLN and DLN cases, where HMRC commonly imposes on a director a penalty mirroring a company liability the company itself cannot or does not contest. The director cannot, by attacking the underlying liability through the PLN, force HMRC to prove that liability; the legal burden on the liability component remains with the taxpayer.
The Standard of Proof
The standard of proof throughout is the civil standard, the balance of probabilities, even where the penalty rests on an allegation of dishonesty or deliberate conduct. There is no criminal standard in FTT penalty appeals. However, consistent with general principle, the inherent improbability of serious wrongdoing is part of the overall assessment of whether the balance of probabilities is met: the more serious the allegation, the more cogent the evidence needed to satisfy the tribunal that it is more likely than not to be true. This does not raise the standard; it informs its application.
Practical Implications for Advisers
Appeal the Underlying Assessment, Don’t Just Defend the Penalty
The clearest lesson is tactical. A taxpayer cannot improve their position on the underlying liability by leaving the assessment unappealed and raising liability only as a penalty defence. Where there is a genuine challenge to the underlying tax, the assessment should be appealed directly. Failing to do so does not transfer the burden to HMRC and may forfeit the opportunity to contest the liability at all.
Separate the Penalty Conditions From the Liability Component
Identify which parts of HMRC’s case are “primary facts” that HMRC must prove (e.g. deliberateness, concealment, failure to notify) and which parts are the “underlying liability component” on which the taxpayer bears the burden. Direct evidence and submissions accordingly: hold HMRC to proof on the conditions it must establish, while marshalling the taxpayer’s own positive case on quantum and liability.
Best Judgment Cases
In best judgment assessment cases, the taxpayer bears the burden of displacing the assessment quantum, while HMRC bears the burden of any conduct-based penalty conditions. Our companion guide on VAT best judgment assessments analyses how to challenge HMRC’s methodology and figures under Van Boeckel and Pegasus Birds.
PLN and DLN Defence
Directors facing PLNs or DLNs should not assume that contesting the company’s underlying liability through the notice places the burden on HMRC. The burden on the liability component remains on the taxpayer. The director’s strongest ground is frequently to attack the conditions for the notice, for example, whether the company’s inaccuracy was attributable to them or whether the deliberate-behaviour condition is met, where HMRC bears the burden.
Practitioner Checklist
- Map the burden issue by issue. Separate the “primary facts” HMRC must prove (penalty conditions) from the “underlying liability component” the taxpayer must disprove.
- Appeal the underlying assessment directly where liability is genuinely in dispute, do not rely on raising it as a penalty defence to shift the burden.
- Hold HMRC to proof on conduct-based conditions (careless, deliberate, concealed, failure to notify) where the burden rests on HMRC.
- Build the taxpayer’s positive case on the liability component (quantum, methodology, entitlement) where the burden rests on the taxpayer.
- In PLN/DLN cases, target the statutory conditions for the notice (attribution, deliberateness) rather than assuming HMRC must prove the company’s underlying liability.
- Apply the civil standard correctly , balance of probabilities, while recognising that more serious allegations require more cogent evidence.
- Consider the hardship/deposit rules for VAT assessment appeals, which may affect whether the underlying assessment can be pursued at all.
- Watch for the Article 6 boundary: penalties are within the criminal limb; ordinary liability disputes are not (Ferrazzini).
Frequently Asked Questions
Who bears the burden of proof in an HMRC penalty appeal?
Following HMRC v Sintra Global [2025] EWCA Civ 1661, the burden in penalty proceedings normally lies on HMRC to establish the primary facts needed to justify the penalty. However, where the taxpayer defends the penalty by contending that an underlying tax liability that underpins it is wrong, a separate legal burden rests on the taxpayer to prove that, just as it would on an appeal against the underlying assessment itself.
Does Article 6 of the ECHR shift the burden to HMRC?
Tax penalties generally attract the criminal limb of Article 6 and the presumption of innocence, so HMRC must prove the conditions for the penalty. But in Sintra Global the Court of Appeal held that this does not shift to HMRC the burden of disproving an underlying tax liability raised as a defence. Ordinary disputes about tax liability fall outside Article 6 under Ferrazzini v Italy and the legal burden on the liability component remains on the taxpayer.
Why does the burden of proof matter so much in penalty appeals?
Where the evidence is finely balanced, the party bearing the burden loses. In best judgment and fraud cases the underlying facts are often unclear, so whether HMRC must prove the liability or the taxpayer must disprove it can be decisive. Sintra Global prevents taxpayers from gaining a tactical advantage simply by raising liability as a penalty defence rather than appealing the assessment, the burden on the liability component stays with the taxpayer either way.
What standard of proof applies to HMRC penalties?
The civil standard, the balance of probabilities, applies even where the penalty is based on dishonesty or deliberate behaviour. There is no criminal standard in tax penalty appeals before the First-tier Tribunal, although the inherent improbability of serious wrongdoing forms part of the overall assessment of whether the balance of probabilities is met.