In Gill v HMRC [2017] UKFTT 0597 (TC), the First-tier Tribunal (FTT) dismissed three applications made by HMRC for (1) permission to adduce expert evidence; (2) a direction excluding a large amount of documentation relied upon by the taxpayer; and (3) a direction that the taxpayer disclose data in an alternative format to that originally provided.

Background

Rajesh Gill (the taxpayer) claimed losses in the 2010/11 tax year of some £5.4m in relation to trading losses incurred as a result of transactions in stocks and other financial instruments which he claimed he was entitled to carry back and relieve against his general income.

HMRC refused the claim under section 64, Income Tax Act 2007 (ITA), on the basis that the taxpayer's activity was not a trade. It was of the view that even if it was a trade, loss relief was not available under section 66(1), ITA, as such a trade was not commercial.

In November 2016, the taxpayer appealed HMRC's decision to deny his loss relief claim.

HMRC made three interim applications to the FTT for:

1. permission to adduce expert evidence;

2. a direction excluding a large amount of documentation adduced by the taxpayer; and

3. a direction that the taxpayer disclose data in an alternative format to that originally provided by the taxpayer.

FTT decision

1. Permission to adduce expert evidence

HMRC sought permission to adduce expert evidence on the grounds that it would support its arguments that the taxpayer’s activities were not characteristic of the way in which financial trading was carried on and that being too speculative his activities could not amount to trading. HMRC also wished to rely on expert evidence to establish that trading on a “commercial basis” means in a business-like manner ie a trader must trade as a professional not an amateur or dilettante (see Wannell v Rothwell (1996) 68 TC 719).

Whilst the FTT accepted that a person can have expertise in relation to financial markets it considered it would be unlikely that an expert could comment with authority on every possible strategy that a financial trader might adopt. Even if this were not the case, it does not necessarily follow that if an expert has not encountered the strategy utilised by the taxpayer his activities could not be trading or trading on a commercial basis.

The FTT did not consider that the absence of expert evidence would prevent HMRC from advancing a positive case and therefore refused HMRC permission to adduce expert evidence.

2. Exclusion of certain documentary evidence

HMRC applied to exclude certain documentary evidence on the ground that it was inadmissible. The documents concerned included the judgment of the High Court in Parabola & Aria v Browalia Cal, MF Global and Bomford [2009] EWHC 901 (Comm), a case in which the claimant companies, which were beneficially owned by the taxpayer, succeeded in a claim in deceit, the essence of which was that it was fraudulently misrepresented to the taxpayer that the trading he conducted was profitable, whereas in reality this was not the case. HMRC also wished to exclude transcripts and witness statements (including that of experts) from that case and press articles referring to the litigation.

HMRC accepted that the documentary evidence concerned was contextually relevant but because of its volume (it occupied 12 lever arch files), argued that it should not be admitted.

The taxpayer argued that it was necessary to include all of the documents in their entirety so as to prevent any allegations that he was “cherry picking” the evidence.

In considering HMRC's application, the FTT referred to Mobile Export 365 Ltd v HMRC [2007] EWHC 1727 (Ch), in which it was confirmed that the presumption is that all relevant evidence should be admitted unless there is a compelling reason to the contrary.

The FTT concluded that given that it was accepted by HMRC that the evidence was relevant, the documents should be admitted and accordingly dismissed HMRC’s application for their exclusion.

3. Disclosure of data in a different format

With regard to the third issue, HMRC sought disclosure of data in a different format to that produced by the taxpayer in order to permit it to be analysed more meaningfully. In particular, it was claimed that the data should be in a format that identified whether the taxpayer had taken a “long” or “short” position, the number of “winning” and “losing” trades, the magnitude of wins and losses and the length of time over which the taxpayer held trades.

Despite HMRC claiming that such information would be relatively straight-forward for the taxpayer's broker to provide, after confirmation from the taxpayer's broker that this was not the case, the FTT dismissed HMRC's application.

Comment

The FTT has provided some helpful guidance in relation to the admission of evidence in proceedings before it and the correct procedure to be adopted in relation to such evidence. If evidence is relevant, as HMRC admitted was the case in this instance, then it should be admitted as the parties will have an opportunity to make submissions on the weight to be attached (if any) to that evidence at the substantive hearing.

A copy of the decision can be found here.