Common Law and Relevance To Tax Matters

Basically, there are three types of law:-

 

STATUTE LAW

 

This is law enacted by parliament and placed on the statute book.

 

CASE LAW

 

This involves the interpretation of statute by the courts and its application to a particular case. This is often referred to as “the authorities”. It must be remembered however that no two cases are identical and individual circumstances may differ, so it does not always follow that just because a judge decided a particular case in a particular way, another judge will decide a similar but not identical case in the same way. I have heard a senior high court judge remark about a decided case “I have to be guided by it but I do not have to follow it”.

 

COMMON LAW

 

Common Law is rather more difficult to define. It is not statute law and therefore not written in the statute book. Common Law can, and often does go back many hundreds of years and I think a simple definition would be law based on common customs and usage and on past judicial decisions.

 

Despite the fact that Common Law is not contained in any statute, it is extremely important. For example, the most serious offence a person can commit (other than making an error in his tax return of course) is murder. Murder is a Common Law offence. Unlike the USA there is no statute against murder.

 

HMRC find Common Law rather inconvenient and would like to pretend that it does not exist. That is why there is no reference to it in their staff manuals. I give below two examples of the impact of Common Law on revenue law.

 

The right to remain silent

 

The police can obtain a search warrant, search you premises and take away documents. They can arrest you and take you to the police station but they cannot force you to make a statement or answer any questions because you have a Common Law right to remain silent.

 

Similarly, HMRC, under certain circumstances, can issue “a taxpayer notice” under FA 2008 Schedule 36 Paragraph (1) and (2) requiring information or documents in your possession or power. However, they cannot force you to go to a meeting with them or answer questions either verbally or in writing because you have the Common Law right to remain silent. HMRC try to forget this important right which is why I said they find Common Law inconvenient.

 

He who avers must prove

 

This expression is often heard in our courts. It really means that if an allegation is made is made against you, it is for the person making the allegation to prove it, not for you to prove otherwise. If HMRC find during the course of an enquiry that you have received sums of money into your bank account which do not reconcile with your business profits, they will say that they are going to assume that those sums represent undeclared profits unless you can prove otherwise. This is contrary to the Common Law principle that “he who avers must prove”. It is for them to prove that those sums represent undeclared profits, not for you to prove that they do not.

 

I should add however, that the burden of proof in revenue cases is the civil burden of proof, that is on the balance of probabilities, in other words “more likely than not”. They therefore have only to prove that those sums are more likely than not to represent undeclared profits but the burden of proof is theirs, not for the taxpayer to prove otherwise.