James Hall v The Commissioners for HMRC

The Appellant contends that the JSLN constitutes a criminal charge, thereby engaging Article 6 of the European Convention on Human Rights (ECHR), including the presumption of innocence.

Relying on Jussila v Finland (Application 73053/01) [2009] STC 29 (Jussila), which sets out the criteria for determining whether a measure is penal for the purposes of Article 6 ECHR, the Appellant submits that the JSLN is punitive and deterrent in nature, imposed by general legal provisions, and involves a significant sum. The Appellant argues that the presumption of innocence requires the burden of proof to remain with the authority bringing the proceedings, and that any doubt should benefit the accused. Shifting the burden to the Appellant would infringe this presumption.

In this regard, the Appellant points to the clear messaging as to the purpose of the JSLNs to correct behaviour, act as a deterrent and to penalise individuals associated with insolvent companies that have engaged in or facilitating tax abuse or evasion, and the repeated use of corporate entities to engage in the same continued trade of the previous insolvent entity (Phoenixism). The Appellant notes that the statutory infrastructure for JSLNs treats all three gateways for issue of JSLNs the same and it is right that they should be considered in that way. Each requires an element of culpability of the individual to whom the JSLN is issued to then impose the burden of another legal entity’s failure to pay tax and, as such, can only be considered in substance to represent a penalty for the individual’s connection to the loss of tax. That is said to be supported by paragraph 9 Sch 13 which provides for the amount payable under the JSLN to be reduced by any amount paid as a penalty.

Particularly focussing on the consequences for the recipient of a repeated insolvency JSLN, the Appellant notes that not only does the individual become liable for historic tax losses but the JSLN also provides for an up to 5-year prospective liability for any tax loss arising in the new entity. The Appellant contends that in such circumstances, the amount due under the JSLN, whilst calculated by reference to the loss or potential loss of tax, is not purely compensatory. It is a penalty.

The Appellant also submits that, irrespective of the ECHR, the principle that “he who asserts must prove” applies; particularly as the proceedings concern the transfer of liability to a third party rather than the determination of a tax liability. Consequently, the burden of proof rests with HMRC.

In submissions following the release of the Court of Appeal decision in HMRC v Sintra Global, Inc [2025] EWCA Civ 1661 (Sintra) the day after the hearing, the Appellant contends that as the question of tax liability is separated by statute from the specific conditions for imposing a JSLN it is entirely consistent with the judgement of the Court that HMRC bears the burden of providing that each of the conditions was met and that there is a continuing need to protect the revenue.

Applying the approach adopted in HMRC v Household Estate Agents Ltd [2007] EWCA Civ 164 (Household)(at [46]) the Appellant maintains it is apparent that if HMRC led no evidence substantiating the statutory conditions the Appellant’s appeal must succeed and, as such there is a good indicium that the burden rests with HMRC.

On the basis that the burden of proof rests with HMRC the directions should provide for HMRC to serve both its evidence and skeleton argument first.

HMRC’s submissions begin by framing the key questions for the Tribunal: whether the JSLN is a penalty, and if so, whether the burden of proof should rest with HMRC or the Appellant. HMRC contends that the JSLN is not a penalty, but a compensatory mechanism designed to recover existing tax liabilities from individuals who would otherwise benefit from limited liability protection. The statutory framework, as set out in the Finance Act 2020 in Sch 13, refers to “liability notices” and not penalties, and Parliament’s intention is clear from the language used. If Parliament had intended these notices to be penalties, it would have said so explicitly.

The purpose of the legislation is to prevent loss of revenue, not to punish culpable conduct. The conditions for issuing a JSLN do not require any assessment of the Appellant’s conduct or culpability; rather, they focus on objective criteria such as the existence of old and new companies, relevant connections, and outstanding tax liabilities. The amount specified in the notice is determined by reference to outstanding liabilities, not by any assessment of blame.

HMRC further argue that the statutory scheme separates the determination of underlying liabilities (which may include penalties) from the issuance of a JSLN. Appeals against the underlying liabilities are dealt with in separate proceedings, and the Tribunal is expressly precluded from considering the existence or amount of those liabilities in an appeal against the JSLN. The only ground for varying the amount in the notice is if the amount specified is incorrect.

HMRC submits that, under the statutory scheme, the burden of proof lies on the Appellant to establish that the statutory conditions for setting aside or varying the notice are met. If the Appellant fails to do so, the Tribunal must uphold the notice. This is contrasted with penalty proceedings, where the burden typically falls on HMRC. The structure of the legislation, particularly paragraph 14(1)(c) of Sch 13, supports this allocation of the burden. Paragraph 14(1)(a) requires that the Tribunal be satisfied that the conditions required for the JSLN “were not met” or “not necessary” for the protection of the revenue, and (b) that the amount was “incorrect” if the Tribunal is to set aside or vary. This demonstrates that it is for the Appellant to show the negative rather than HMRC to evidence the positive because “otherwise” the notice must be upheld.

Addressing Article 6(2) ECHR, HMRC contends that the JSLN is not “criminal” in nature, either in domestic law or under the ECHR. The notice is about recovering payment, not imposing a penalty for culpable conduct. Even if Article 6(2) were engaged, the statutory regime provides sufficient safeguards, including full appeal rights for the relevant companies and, where necessary, for individuals. Parliament has provided a considered and proportionate response to any concerns under Article 6(2), and there is no need for the Tribunal to shift the burden of proof to HMRC.

HMRC notes that each of the Old Companies had the opportunity to exercise appeal rights but chose not to do so. The statutory scheme, in HMRC’s view, is clear and comprehensive, and the burden of proof should remain with the Appellant throughout.

Further, and relying on the judgment of the Court of Appeal in Mohammed Siddiq Khan v HMRC [2006] EWCA Civ 89 HMRC (Khan), as also now confirmed in Sintra, HMRCcontend that JSLNs are enforcement decisions in respect of which the Appellant bears the burden of proof.

The Appellant submits that the Tribunal has jurisdiction to consider Grounds 3, 4, and 5 of the appeal, which challenge the JSLN on grounds of proportionality, irrationality, and failure to follow HMRC guidance. The Appellant argues that Article 6 of the ECHR requires the Tribunal to have “full jurisdiction” to review HMRC’s decision, including the power to quash on both fact and law, where Convention rights are engaged. As the Administrative Court has only a supervisory jurisdiction it is said that it cannot be the appropriate forum for determination of Grounds 3 – 5.

Ground 3 asserts that the legislative scheme breaches the principle of proportionality under Article 1 of Protocol 1 (A1P1) to the ECHR, or that the effect in the Appellant’s case is disproportionate. The Appellant contends that the Tribunal must be able to consider proportionality, as the FTT is bound not to act incompatibly with ECHR rights (section 3 Human Rights Act 1998). The Appellant rejects any suggestion that the statutory wording ousts this jurisdiction, arguing that any such exclusion would have to be explicit and that the legislation must be interpreted compatibly with ECHR rights, applying the principle of doubtful penalisation.

Grounds 4 and 5 concern the Tribunal’s jurisdiction to consider public law arguments in enforcement proceedings. The Appellant relies on Beadle v HMRC [2020] EWCA Civ 562 (Beadle)and SM Henryk Zeman SP Z.o.o. v Revenue and Customs [2021] UKUT 182 (TCC) (Zeman), which establish that, in the absence of clear statutory exclusion, a person subject to enforcement action may defend themselves by challenging the validity of the enforcement decision on public law grounds. The Appellant submits that not only does the statutory scheme for JSLNs not exclude such challenges but a sensible interpretation of paragraph 14(1)(a)(ii) Sch 13 provides for consideration, in the round, including from a public law perspective, whether the JSLN is required for the protection of the revenue. As such, the Tribunal’s jurisdiction encompasses these grounds.

HMRC contends that the Tribunal lacks jurisdiction to consider Grounds 3–5 of the Appellant’s appeal, which raise public law arguments and claims of unlawfulness or irrationality regarding the issuance of the JSLN. HMRC emphasises that the FTT is a creature of statute, with its jurisdiction strictly defined by the relevant legislative provisions. The Tribunal does not possess general judicial review or supervisory powers; its authority is limited to the grounds expressly set out in the statute.

Paragraph 14 of Schedule 13 to the Finance Act 2020 prescribes the only bases on which the Tribunal may set aside, vary, or uphold a JSLN. These are: whether the statutory conditions were met at the time of issue, whether the notice continues to be necessary for the protection of the revenue, and whether the specified amounts are incorrect. HMRC contends that public law challenges, such as claims of irrationality, breach of guidance, or incompatibility with human rights, do not fall within these prescribed grounds and are therefore excluded from the Tribunal’s jurisdiction.

HMRC further submits that any challenge to the exercise of discretion in issuing a JSLN must be brought by way of judicial review, not statutory appeal. The statutory scheme does not permit the Tribunal to consider proportionality or lawfulness arguments as grounds for setting aside a notice. Attempts to import a proportionality test or broader public law considerations into the statutory appeal process would amount to impermissible redrafting of the legislation.

In summary, HMRC maintains that Parliament has deliberately and unambiguously excluded public law arguments from the scope of statutory appeals against JSLNs. The Tribunal’s jurisdiction is confined to the grounds specified in the legislation, and Grounds 3–5 should therefore be struck out as falling outside that jurisdiction.

The Appellant submits that Grounds 4 and 5 of the appeal possess a realistic prospect of success and should not be struck out. The Appellant refers to the principles governing summary judgment applications, as articulated in The First De Sales Limited Partnership v HMRC [2018] UKUT 396 (TCC) (First de Sales). These principles are said to require the Tribunal to assess whether the claim is “realistic” rather than “fanciful”, and to avoid conducting a “mini trial” at the summary stage. The Appellant emphasises that striking out is a draconian measure, reserved for cases that are clearly not fit for trial.

Grounds 4 and 5 challenge the rationality and lawfulness of HMRC’s decision to issue the JSLN, arguing that HMRC failed to consider relevant factors such as whether the Appellant misused insolvency to avoid tax responsibilities, engaged in deliberate Phoenixism, acted in bad faith, or the reasons for the companies’ insolvency. These requirements being implicit in the scheme of the legislation and explicit in HMRC’s published guidance.

The Appellant contends that Grounds 4 and 5 are not dependent on reading into HMRC’s guidance a requirement for “bad faith” or “deliberate” conduct, which is not present. Rather, the grounds encompass broader issues that have not been shown to lack a reasonable prospect of success. It is asserted that even if the Respondents’ narrow interpretation of the guidance were correct, issues such as misuse of insolvency and the reasons for insolvency would still require consideration.

Accordingly, the Appellant submits that it is not possible to conclude that Grounds 4 and 5 have no reasonable prospect of success. The alternative application to strike out these grounds should therefore be dismissed as hopeless.

HMRC argues that Grounds 4 and 5, which challenge the issuance of the JSLN on the basis of irrationality and alleged breach of HMRC guidance, are without merit and should be struck out. HMRC explains that its guidance does not require proof of “bad faith” or “deliberate conduct” before issuing a JSLN. The guidance states that notices will not be issued to those who have both acted in good faith and had no material influence over the company’s affairs, but it does not impose a requirement for HMRC to demonstrate bad faith. They emphasise that an individual may demonstrably have acted in good faith but unless they have no material influence over the company a paragraph 3(2) JSLN may be issued. In this case, there is no suggestion that the Appellant lacked material influence and that means that whether he acted in good or bad faith is immaterial; the terms of the guidance would not excuse him from a JSLN. Similarly in the context of Phoenixism, there is no requirement in the guidance that there be deliberate conduct in establishing repeated businesses which fail simply that there are repeated business failures by companies with whom the Appellant is connected.

Jussila concerned a tax surcharge imposed following the identification of errors and deficiencies in the taxpayer’s bookkeeping. The surcharge was calculated as 10% of the value of the errors identified and was levied in addition to the underdeclared tax. In Jussila’s case the penalty was €300. The taxpayer considered that the surcharge was a criminal charge in respect of which its Article 6 rights were invoked. Reliance was placed, in particular, on the presumption of innocence which, it was said, drove a requirement that the authorities bore the burden of proving that the conditions for its imposition were met. The Finnish authorities resisted that contention. The Court reiterated the three criteria to be considered in the assessment of the applicability of the criminal aspect of Article 6 known as the “Engel criteria”: the classification of the offence for domestic law purposes, the nature of the offence and the severity of the penalty.

The Court also reflected the position taken in Bendenoun v France (Application 12547/86) (Bendenoun) that the fact that the surcharge under consideration was a tax penalty did not exclude the possibility that its imposition was a criminal charge for Article 6 purposes. Rather, the relevant considerations were that: (1) the penalty applied to all citizens in their capacity as taxpayers; (2) the surcharge was not intended as pecuniary compensation for damage but as a punishment to deter reoffending; (3) it was imposed under a general rule whose purpose was both deterrent and punitive; and (4) the surcharge was substantial. None of these factors being determinative on their own but were required to be considered cumulatively.

Applying those criteria to the €300 surcharge the Court determined that as the surcharge applied to all citizens who opted to be registered for VAT it was of sufficiently general application to meet the first Bendenoun criteria. The Finnish government had accepted that the surcharge regime was not intended for pecuniary compensation for damage and was intended as a punishment to deter reoffending such that it was a regime whose purpose was deterrent and punitive. On the basis of these factors taken cumulatively the Court concluded that the regime was criminal for Article 6 purposes even though the penalty amount in Jussila’s case was small.

The Court of Human Rights had also previously considered the question of whether tax surcharges amounted to criminal charges and the effect of such a conclusion in Janosevic v Sweden (Application 34619/97) (Janosevic). The principal focus of that case was the delay experienced by the taxpayer in accessing the court to challenge the surcharge as the authorities had taken over three years to review the imposition of the surcharge. The Court applied the previous judgment in Ferrazzini v Italy [2001] ECHR 44759/98 confirming that in general terms disputes concerning tax assessments are outside the scope of Article 6 altogether as they do not concern civil rights and obligations. However, the Court went on to hold that tax surcharges which acted as a deterrent and were punitive in nature amounted to criminal charges thereby giving rise to Article 6 rights. As such, the taxpayer was required to have access to a judicial body which had “full jurisdiction, including the power to quash, in all respects, on both issues of fact and law, the challenged decision”. This requirement was explained, at paragraph [82], as requiring that the adjudicating court not be limited to questions of law and must have jurisdiction to hear evidence and determine questions of fact enabling them to quash decisions appealed against.

The Court confirmed that the presumption of innocence enshrined in Article 6(2) was relevantly described as requiring “that when carrying out their duties, the members of a court should not start with the preconceived idea that the accused has committed the offence charged; the burden of proof is on the prosecution, and any doubt should benefit the accused. It follows that it is for the prosecution to inform the accused of the case that will be made against him, so that he may prepare and present his defence accordingly, and to adduce evidence sufficient to convict him.”

The Court noted that the tax surcharges in question in Janosevic were imposed on objective grounds but there were defences similar to the UK reasonable excuse and/or special circumstances. The Court considered that a starting point which effectively assumed that the inaccuracies found in the tax assessment were due to an inexcusable act attributable to the taxpayer operated as a presumption against the taxpayer. However, such a presumption was not impermissible as the state was required to strike a balance between the importance of what was at stake. Where the taxpayer had a forum to provide evidence justifying remission of the surcharge as part of a regime ensuring the correct and complete provision of information for tax purposes taxpayers’ Article 6(2) rights were appropriately protected.

In Customs and Excise Commissioners v. Han & Yau [2001] EWCA Civ 1040 (H&Y) the Court of Appeal considered whether dishonest evasion penalties issued pursuant to section 60 VATA 1994 were criminal charges for Article 6 ECHR purposes. It determined that as civil evasion penalties and prosecution represented parallel alternatives to be applied to the same behaviours the penalties were criminal charges. The Court considered the Engel criteria deciding that the first criteria (classification of proceedings for domestic law) carried less weight than the criteria as to the nature of the offence and the degree of severity of the penalty the offence carries.

British American Tobacco v HMRC [2017] UKFTT 190 (BAT)concerned the imposition of penalties pursuant to the Tobacco Products Duty Act 1979. HMRC had concluded that the circumstances in which the taxpayer had supplied hand-rolling tobacco made it likely that the tobacco would be resupplied to persons who were likely to smuggle it into the UK. BAT appealed the imposition of the penalty pursuant to its rights under section 16(5) Finance Act 1994 which provided for full appeal rights including a power to quash the decision to penalise.

BAT argued that the penalty was a criminal charge for ECHR purposes. The Tribunal noted that pursuant to its section 3 HRA obligations it was obliged to interpret the penalty provisions, so far as possible, in a manner consistent with BAT’s convention rights. At paragraphs [464] to [485] the Tribunal reviewed the case law on criminal charges in the context of tax penalties. The Tribunal noted the observation set out above regarding the Engel criteria in H&Y. It also noted that in Wood v HMRC [2016] UKUT 346 (TCC) the UT formed the view that the key determining factor when considering whether a penalty is a criminal charge is its penal nature imposing punishment to deter offending.

As the relevant penalty was civil in nature the Tribunal considered whether criteria two and three justified a conclusion that the penalties were properly to be treated as criminal charges for Article 6 purposes. As to the nature of the penalties, the Tribunal identified that as the legislative structure by which they were imposed provided for an initial notice followed by a penalty notice, the penalties were intended to punish breaches which the giving of the initial notice had not prevented. The Tribunal rejected HMRC’s submission that because the regime applied to a narrow group of subjects (i.e. to tobacco manufacturers) and not generally it could not be a criminal charge. It also considered that as the maximum penalty which could be imposed was £5m the a priori liability could only be considered to be substantial and should not be judged by reference to the capacity of the recipient to pay it.

The Tribunal went on to consider the jurisprudence on the requirement that a criminal charge must be subject to a trial by a judicial body with “full jurisdiction”. HMRC had referenced a range of cases arising in a civil context. They submitted that what represented full jurisdiction was dependent on the nature of the dispute. The Tribunal rejected this submission concluding that where a penalty represented a criminal charge the civil jurisprudence was inapt. The Tribunal determined that for a court to be considered to have a “full jurisdiction” in respect of a criminal charge the relevant court seized of a challenge to it needed to have the jurisdiction to “determine the relevant facts and law”.

In this context the Tribunal also considered the judgment of the FTT in Linda Jarvis [2012] UKFTT 483 which had reviewed the more recent judgments of the ECHR on the meaning of full jurisdiction in a criminal charge context. These judgments indicate that a full jurisdiction court must have the authority to correct or reverse a decision on all questions of fact and law: “‘jurisdiction to examine the merits of the case, to establish the facts and to assess the evidence’ … as well as to ensure that the decision was correct in law.”

Applying this view, the Tribunal concluded that a supervisory jurisdiction assessing the reasonableness of HMRC’s decision was insufficient to protect the taxpayer’s Article 6 rights. However, the Tribunal went on to determine that the jurisdiction conferred by section 16(5) Finance Act 1994 was wide enough to permit the Tribunal to fully review the merits on fact and law and to quash or replace the decision to penalise and was thus a full jurisdiction judicial body.

Khan concerned the following decisions made by HMRC: (1) the compulsory registration of Mr Khan, (2) a VAT assessment and (3) a penalty imposed under section 60 Value Added Tax Act 1994 on the basis that in failing to register for VAT the taxpayer had sought to dishonestly evade VAT.

By the time the matter came on for hearing it had been established by the Court of Appeal in H&Y that the section 60 penalties were criminal proceedings for Article 6 purposes. Before the VAT and Duties Tribunal and for the purposes of the appeal to the High Court HMRC had conceded that the burden was on them to show that the Appellant had exceeded the VAT registration threshold and establish the quantum of VAT exceeded. The dispute between the parties therefore lay in determining whether the evidence led by HMRC was sufficient to discharge that burden.

Carnwarth LJ expressed some disquiet with the concession and between paragraphs [68] and [76] set out his view on burden of proof. At [69] he stated that as regards the best judgment assessment the burden lies with the taxpayer and there is no shift in the burden by virtue of allegations of fraud. As regards the “other rights of appeal under section 83 VATA” he expressed the view that the burden lies with the taxpayer in respect of “enforcement action” taken by HMRC. This view is said to be derived from other “well established” statutory contexts, “particularly where the relevant facts are peculiarly within the knowledge of the person appealing.” That ordinary presumption was considered to be the starting point for all categories of appeals under section 83 VATA unless there was express or implied provision to the contrary. Such contrary intention being established where the liability decision requires that dishonest conduct or evasion be proven. However, where HMRC are required to prove such conduct, the burden remains with the taxpayer on questions of quantum. This analysis is justified by reference to the points identified in paragraph [74] which, in Carnwarth LJ’s view linked appeals as to the quantum of an assessment and quantum of a penalty, necessitating that the same party bear the burden in respect of both. On the basis of this analysis Carnwarth LJ considered that HMRC had amply proven evasion of tax and that Mr Khan had failed both to rebut that evidence or establish an alternative quantum calculation.

BAT also considered the question of burden of proof. Section 16(6) Finance Act 1994 provided that it was for the taxpayer to establish the grounds on which any appeal was brought. The Tribunal’s consideration of the effect of section 16(6) led it to review the judgment of the UT in Euro Wines (C&C) Ltd v HMRC [2016] UKUT 359 (TCC) (Euro Wines). In that case the Upper Tribunal concluded that a penalty regime which required the taxpayer to demonstrate that when trading in excise goods it had taken steps to satisfy itself that the relevant duty had been paid was not in breach of Article 6. This was on the basis that the penalty was not chargeable if reasonable steps were demonstrated and the party bearing the burden was the party best positioned to do so; particularly when balanced against a need to protect the revenue. The Tribunal in BAT reached a similar conclusion to that in Euro Wines. The Tribunal did not consider that the provisions of section 16(6) Finance Act 1994 breached the presumption of innocence as HMRC accepted that it bore the burden of demonstrating the core requirements of the penalty. The Tribunal considered that section 16(6) Finance Act 1994 imposed a burden on the taxpayer only to make good any defence it had.

Most recently the Court of Appeal has considered the position on burden of proof in its judgment in Sintra. The Court of Appeal has unanimously, but not without some difficulty, determined that where the recipient of a personal liability notice or director’s liability notice seeks to challenge the underlying tax giving rise to such notices (in circumstances in which such tax has not already been judicially determined) the burden of proof lies with the taxpayer to demonstrate that the tax assessment is invalid/overstated. This was so on the basis that the ECHR jurisprudence has consistently provided that the parts of the proceedings to which Article 6 rights apply should be separated from the parts to which they do not. Where separation is difficult the court determining the dispute must do the best it can but with “the minimum of prejudice to the non-criminal element which, viewed in isolation, would fall outside the scope of the Article altogether”, see paragraph [122]. In that paragraph Henderson LJ also notes that “tax penalties typically occupy a position at the lower end of the criminal spectrum, and that it may be appropriate to reflect this in considering what safeguards are required by Article 6 to protect the taxpayers in such cases.”

Accepting HMRC’s conceded position on what it must prove when penalties are imposed the Court determined that it was for HMRC to establish “any special or bespoke features of the relevant legalisation upon which liability to the penalty depends” (paragraph (125]) or put another way “the primary facts which need to be proved to justify the imposition of the penalty” (paragraph 130]).

Household concerned discovery assessments issued by HMRC under paragraph 41 Schedule 18 Finance Act 1998. The burden of proof lies with HMRC to establish that it made a discovery and that the conditions for making a discovery assessment are established. The burden lies with the taxpayer to challenge the quantum of a discovery assessment (section 50(6) Taxes Management Act 1970). By reference to paragraph 45 Schedule 18, the taxpayer defended the discovery assessment on the basis that its returns had been rendered in accordance with the practice generally prevailing. One of the issues for determination was which party bore the burden in respect of establishing whether the terms of paragraph 45 were met. On the basis of “he who asserts proves” Henderson J (as he was) concluded that it was for the taxpayer to prove the facts concerning both the practice said to be generally prevailing and that the return had been rendered in accordance with such practice.

The approach to interpretation necessitated by section 3 Human Rights Act 1998, ensuring that Convention rights are given effect, is set out by the House of Lords in Ghaidan v Godin-Mendoza [2004] UK HL 30. That case establishes that where a Convention right is impermissibly limited by the terms of the statutory language chosen by Parliament the relevant provision should be construed so far as is possible to ensure a Convention compliant outcome. The line between a section 4 HRA declaration of incompatibility which may be made by the High Court (or more senior courts) and conforming interpretation being the “grain of the legislation”. Legislation need not be ambiguous in order for it to be interpreted expansively so as to protect Convention rights, an interpreting court or tribunal can read words in and change the meaning of the language used but cannot cross the constitutional line of legislating, in particular when choosing between alternative means of achieving a Convention-compliant meaning.

Bennion Bailey and Norbury on Statutory Interpretation advances a proposition, accepted by the Court of Appeal in Ricketts v Ad Valorem Factors Ltd [2003] EWCA Civ 1706 and ESS Production Ltd (In Administration) v Sully [2005] EWCA Civ 554 (ESS)and most recently inRakusen v Jepsen & Ors [2023] UKSC 9 that a person should not be penalised except under clear law thereby ensuring that a party on whom hardship is to be inflicted should be given fair warning. In ESS, this presumption was applied in the context of the imposition of personal liability for the debts of an insolvent company. When applying the presumption, a significant detriment imposed will require clearer wording than one imposing a lesser detriment.

Other restrictions on provisions depriving an individual of property (and hence involving Article 1 Protocol 1 rights) were considered by the Court of Appeal in Lindsay v Customs and Excise [2002] EWCA Civ 267 in which the Court emphasises that such provisions must be: (1) justified in the public interest, (2) proportionate, not going beyond what is strictly necessary for the objectives pursued, and (3) fair.

None of the following points were in dispute:

The dispute centres on the scope, if any, of the Tribunal’s jurisdiction to consider what are described as “public law” challenges.

In Birkett (t/a Orchards Residential Home) v HMRC [2017] UKUT 89 (TCC) (Birkett) having reviewed the relevant jurisprudence, the UT distilled the following principles concerning public law jurisdiction:

Whilst there continues to be some doubt as to the correct starting point when considering jurisdiction i.e. whether one assumes no jurisdiction unless it is found or assumes jurisdiction unless it is precluded the parties appeared to agree that I must determine the question of jurisdiction by reference to the terms of, in particular, paragraphs 13 – 15 Sch 13 properly construed.

The principles determining when an appeal should be struck out as having no reasonable prospect of success are as set out in First De Sales:

The European jurisprudence provides that domestic classification of a charge as criminal and/or as a penalty is not determinative of the application of Article 6 rights. Rather, it is the nature and severity of the provision which is likely to determine whether Article 6 rights are invoked. The fact that Parliament chose to label the “charge” under Sch 13 as a liability notice does not therefore greatly assist me.

When considering the nature of the provisions I accept the Appellant’s invitation that I consider the Schedule as a whole and not to consider paragraph 3 JSLNs in isolation. Parliament was invited to implement the JSLN regime as a whole and not in its component parts and I consider that the nature of the provision must be interpreted in that context.

Relevant to determining the nature and severity are the Bendenoun factors. Taking each in turn and applying them to Sch 13.

I consider that JSLNs are broadly applicable to all citizens, certainly there is a sufficient analogue to VAT penalties. In each case they apply to a community that fall within their terms for imposition however big or small that group.

It is also my view that the purpose of the provisions was to penalise/act as a deterrent thereby intended to change behaviours rather than purely compensatory. I reach this view starting with the Explanatory Note to clause 97 Finance Bill 2020 which introduced the provisions. The use of Explanatory Notes as an aid to statutory interpretation is permissible as recently confirmed in For Women Scotland Ltd v The Scottish Minsters [2025] UKSC 16. The Explanatory Notes provide as follows:

“This clause and Schedule have been introduced to allow HMRC to recover tax and other liabilities … It is designed to change the behaviours of those who misuse company insolvency to retain the proceeds of their tax avoidance or evasion, or from the facilitation of avoidance or evasion by others.”

I consider that allowing HMRC to recover tax liabilities is an outcome of the issue of a JSLN though recovery assumes that the individual to whom the JSLN is issued has the means of meeting the liability placed on them. But that outcome is not the intention of the provisions which, as stated in the Explanatory Note, is to prevent individuals causing a loss to the revenue through connection with insolvent companies from being allowed to retain the fruits of that loss. I accept the background to the provision as set out in the Explanatory Note does not expressly reference a change of behaviour or depriving a participant of the benefit of Phoenixism, but the assurance given that “turnaround specialists” (i.e. those genuinely attempting to save a company) will not receive JSLNs is indicative of the intended purpose of paragraph 3 as consistent with the intended purpose of paragraphs 2 and 5. The explained purpose is consistent with the language of the statute which applies an objective assessment in each case of the factors which result in a revenue loss and its attribution through relevant connection to the company rather than any mens rea on the part of the individual. I consider therefore that it can reasonably be inferred that the intention of paragraph 3 Sch 13 is to deter Phoenixism by depriving those involved in repeated insolvencies from “retaining the proceeds” of such behaviour.

The amounts payable pursuant to a JSLN at least have the potential to be very significant. In Jussila despite the penalty being only €300 the maximum potential or a priori penalty was greater and thereby justified a conclusion that the penalties under consideration were significant enough to represent a criminal charge for Article 6 purposes. The potential liability in respect of a notice issued under paragraphs 2 and 5 Sch 13 is likely to routinely be significant. For example, some of the section 98C TMA penalties are calculated at £5000 per offence. As regards paragraph 3 the JSLN will be significant as the conditions require there to have been at least 2 old companies with total tax losses of £10,000. Moreover, the full potential liability can be very significant, as demonstrated in the present case.

I am therefore satisfied that the JSLN faced by Mr Hall is a criminal charge for Article 6 purposes. He is thereby entitled to be presumed innocent.

Having concluded that the JSLN is a criminal charge and applying the Court of Appeal judgment in Sintra it is my view that it is HMRC which bears the burden of proving the bespoke features of the relevant legislation justifying the issue of, and continued need for, a JSLN. In the case of paragraph 3 that is the four conditions identified as conditions A – D and, in accordance with paragraph 10, that the JSLN is necessary for the continued protection of the revenue (otherwise HMRC would be required to withdraw the JSLN).

I do not consider that the statutory language, or a conclusion that the JSLN is an enforcement decision, reverses this burden of proof, rather I consider they support it. Starting with paragraph 10, and as indicated immediately above, HMRC “must” withdraw a notice if the relevant conditions are not met and/or the continuation of the notice is not necessary for the protection of the revenue. There is no statutory defence to a JSLN it applies unless the conditions are not met or there is no continuing need to protect the revenue and it may be varied if the amount is incorrectly stated. Consistently with the approach taken in Euro Wines and BAT it is therefore appropriate that HMRC bear the burden of establishing that the conditions are met and there is a continuing need for the JSLN. If HMRC do not satisfy the Tribunal hearing the appeal that the conditions were met and/or the revenue continues to need to be protected, then the Tribunal must allow the appeal and set aside the notice. However, if HMRC are able to establish a prima facie case in respect of each of the conditions and the continuing need for the JSLN there is an evidential basis to rebut the presumption of innocence and it will be for the Appellant to show that despite the prima face case, in fact and at law the conditions were not met and/or the JSLN is not needed to continue to protect the revenue. This conclusion also reflects that HMRC must have the evidence to support the conclusion they reached on the application of the conditions and the continuing need to protect the revenue otherwise they would be in breach of paragraph 10.

In view of my conclusions that a JSLN represents a criminal charge in respect of which HMRC bear the burden of proving the specific conditions of paragraphs 3 and 10, I approve the draft directions provided by the Appellant with its application dated 23 April 2025. HMRC are required to serve their witness evidence and skeleton argument first.

I am satisfied that the Tribunal has jurisdiction to hear grounds 3 – 5 of the Appellant’s grounds of appeal. Section 3 HRA will require the Tribunal hearing this appeal to consider whether, in the facts and circumstances presented, the JSLN regime, as applied to the Appellant, respects his Article 6 rights and his (undisputed) A1P1 right to property. Whilst there is no power for the Tribunal to make a declaration of incompatibility it is the obligation of the Tribunal to interpret the provisions of Sch 13 as far as it is possible to do so, to give effect to the Appellant’s convention rights. Where appropriate using robust means of interpretation.

The Appellant’s rights of appeal are prescribed in paragraph 13 – 15 Sch 13. There is no dispute that there is a right of appeal against the notice. HMRC contend that the effect of paragraph 14 and 15 is that the Appellant’s scope for challenge to the notice is limited. It is certainly the case that there is no permissible challenge to the underlying tax liability within these proceedings. The Appellant was expressly provided with a personal means of bringing such a challenge. He did not avail himself of it and it must therefore be taken as a given in these proceedings that the tax assessed on those companies was properly assessed as due in the amounts so assessed. But, the question then is whether the terms of paragraph 14 are prescribed in such a way that public law arguments may be scoped in and/or have not been excluded.

I have already determined that HMRC bear the burden of showing that there is a prima facie case that the conditions specified as A – D in paragraph 3 and the condition for the continuance of the notice are met with it then being for the Appellant to show that despite the prima facie case they are not, in fact or law, met. I can see no language which precludes an assessment of proportionality or rationality when determining whether the Appellant has made out its defensive case.

I am reassured that this conclusion is correct given the forums in which similar disputes were resolved in Lindsay, Hok, Euro Wines and BAT. In each of those cases public law arguments were heard and determined by the Tribunal. The positions in BAT and Euro Wines are particularly analogous. The Tribunal (and in the case of Euro Wines the higher courts) respectively considered the effect of the statutory language of section 16(6) Finance Act 2008 (BAT) and section 154 Customs & Excise Management Act 1970 (Euro Wines) through a public law/HRA lens. It may well be that, as in those cases, the Tribunal hearing this case sees no breach of any public law principle but that does not mean that there should be no consideration of such principles before this Tribunal and/or that a challenge to the JSLN should be bifurcated between the administrative court and the Tribunal. It is absolutely clear that the administrative court would have no jurisdiction to consider whether the relevant conditions and continuing need for the JSLN were met as that is the statutory jurisdiction of the Tribunal. The convention compliant interpretation of the conditions themselves and the circumstances in which the revenue continues to need to be protected are, in my view, within this Tribunal’s jurisdiction.

Hearing these arguments before the Tribunal also meets the Article 6 requirement that there be a forum with full jurisdiction on all matters of fact and law when considering the issue of the JSLN. Separating the issues between the administrative court and the Tribunal would run the risk of facts being evaluated differently and thereby inhibiting a fair trial.

I therefore refuse HMRC’s application that these grounds be struck out for want of jurisdiction.

As regards reasonable prospects of success: Ground 4 is pleaded in terms that the decision to issue the JSLN was irrational because it failed to take account of the following identified factors:

Ground 5 is similarly pleaded but by reference to a failure by HMRC to apply their own guidance. Each of the points (1) – (4) in paragraph 85 being said to be derived from HMRC’s guidance.

HMRC contend that these grounds are unarguable and meet the First de Sales requirements for the grounds to be struck out. They contend that the paragraph 3 A – D conditions are all objective and do not permit an assessment of the Appellant’s motives or intentions or the circumstances of insolvency. They contend that the terms of the guidance reflect the statutory provisions and do not import any such requirements. Indeed, they contend that the guidance is clear that, for example, acting in good faith is irrelevant unless also coupled with insufficient practical connection with the insolvent companies (despite formally meeting the conditions).

I have found this issue more difficult to determine as I have some significant sympathy with HMRC’s case as presented on these Grounds. However, in order to strike out the grounds I must be satisfied that in the absence of hearing any evidence and on the materials available to me in this hearing that the grounds are unarguable or fanciful. Whilst I do not consider them to be strong grounds, at least on the materials available to me, given my decision that public law arguments are within the Tribunal’s jurisdiction I consider that it is right that there is a fuller exploration of these grounds and it is therefore right that I do not strike them out.

For the reasons stated:

This document contains full findings of fact and reasons for the decision. Any party dissatisfied with this decision has a right to apply for permission to appeal against it pursuant to Rule 39 of the Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009. The application must be received by this Tribunal not later than 56 days after this decision is sent to that party. The parties are referred to “Guidance to accompany a Decision from the First-tier Tribunal (Tax Chamber)” which accompanies and forms part of this decision notice.