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Latest chapter in 322(5) tax discrepancy saga – between an accountant and a hard place

Specialist Immigration Barrister and Head of Chambers at Clarendon Park Chambers.
12 Aug 2020

The UT has reported a new decision relating to the tax discrepancy saga that has been ongoing for a number of years now. In Ashfaq (Balajigari: appeals) [2020] UKUT 226 (IAC), a decision of the Vice President of the UT (IAC), Mr C.M.G. Ockelton, the UT reporting committee has published the following three headnotes:

  1. If the decision of the Secretary of State carries a right of appeal, the availability of the appeal process corrects the defects of justice identified in Balajigari.
  2. In an earnings discrepancy case there is no a priori reason to suppose that any of the declared figures is or was accurate. In particular, the fact that a person is now prepared to pay a sum of money to HMRC does not of itself prove past income at the level claimed.
  3. The explanation by any accountant said to have made or contributed to an error is essential because the allegation of error goes to the accountant’s professional standing. Without evidence from the accountant, the Tribunal may consider that the facts laid by the Secretary of State establish the appellant’s dishonesty.

The tax discrepancy saga

The Home Office has for a number of years now been concerned about discrepancies between earnings declared to it, and those declared to HMRC. Such discrepancies were viewed as reasons to refuse to grant leave to remain, but the precise mechanism for refusal was initially problematic as the Home Office found that it was not so easy to prove that a person had used deception/ made false representations in a previous immigration application (required when relying on §322(2) of the Immigration Rules). Eventually, it settled upon the use of §322(5) of the Immigration Rules:

“(5) the undesirability of permitting the person concerned to remain in the United Kingdom in the light of his conduct (including convictions which do not fall within paragraph 322(1C), character or associations or the fact that he represents a threat to national security”

In Balajigari v The Secretary of State for the Home Department [2019] EWCA Civ 673, the Court of Appeal endorsed the Home Office’s use of §322(5) to the extent that establishing that deception has been used by an applicant in relation to his earnings (whether deception was practiced upon the Home Office or HMRC) is a sufficient basis to engage §322(5). However, the Court of Appeal also held that the process of decision-making must be fair, and that §322(5) was a discretionary ground of refusal and therefore discretion must be exercised properly, taking all relevant matters into account.

Summary of the Tribunal’s decision

This decision of the UT relates to the fair decision-making process, and also addresses the substantive and evidential considerations that a Judge will have to grapple with. In summary:

  1. An appeal hearing before the FTT will remedy any defect in the SSHD’s decision-making process.
  2. An appellant will have to establish that previously declared income that is now in question was in fact earned, and that declarations to the SSHD and to HMRC were accurate.
  3. If an appellant does not produce evidence from an accountant that is said to have been at fault (partly or wholly) for the alleged discrepancies, this will increase the likelihood that the Tribunal will find that deception was used.
  4. Where an accountant does provide evidence that he was at fault for any discrepancies, there is a real risk that the Tribunal will take action such as citing the accountant’s name in its judgment and passing a copy of the judgment to the accountant’s professional regulatory body.

FtT appeal remedies procedural defects

As far as the first headnote is concerned, there are no surprises there. It was inevitable that the appeals process would be seen to cure any procedural defects in the decision-making process. There would be no appetite whatsoever at the Tribunal for appeals being allowed on the basis of procedural defects in the first instance decision-making process, resulting in further decisions and further appeals. The appeals process will now be the best remedy available for those accused of dishonesty, and, as this decision makes clear, will need to be handled with great care. However, this does still leave some appellants with the unsatisfactory situation whereby there is no proper first instance decision-making process; and the appeal is not really an appeal, but instead becomes the first instance decision-making process it is supposed to be an appeal from.

Accuracy of all relevant earnings needs to be established

The second headnote is clearly correct. The real difficulty with this issue is, however, that the SSHD as the primary decision-maker always (in my experience) hedges her bets. I have not personally seen a decision where the SSHD has examined all the evidence available to her (provided by the applicant with previous applications) and concluded that she is or is not satisfied that the previous earnings declared to her were genuine. The approach seems always to be that there is a discrepancy, and therefore there has been dishonesty one way or another. There is no attempt to determine where the dishonesty lay. That leaves appellants in a difficult position before the FTT as they have to establish the baseline facts, often stretching back many years and covering multiple applications and tax returns.

With this reported decision, it is now clear that preparation for appeals should include establishing the correct factual matrix with respect to every application and tax return that has been put in issue by the SSHD. This factual matrix is crucial also because it provides the proper context for the exercise of discretion in the event that the appellant is found to have used deception. It is one thing to ask for discretion to be exercised in your favour if your presence in the UK is a result of obtaining leave by using deception (and not having in fact been entitled to that leave in the first place), and quite another where you have been lawfully resident, satisfying the requirements of the Immigration Rules, but have acted improperly in relation to your tax affairs. The former situation must surely weigh more heavily against the exercise of discretion in an immigration context.

Evidence from Accountants now a necessity (but also highly unlikely)?

The third headnote, read together with the substance of the judgment, is concerning for appellants. It suggests very clearly that, notwithstanding the burden of proof lying clearly with the SSHD, and the cogent evidence required to discharge what is a very serious allegation, the practical reality is that once a discrepancy has been identified, it is the appellant that must do all of the heavy lifting.

In Balajigari, the Court of Appeal was dealing with judicial review claims as opposed to statutory appeals. There had been no independent examination of those cases on the merits by the Tribunal as there would be in a statutory appeal. However, the court did give some consideration to what would be expected in a statutory appeal:

“105. The tribunal, as well as the Secretary of State, of course has an obligation to act with procedural fairness. Where the Secretary of State has alleged dishonesty, that will normally require the tribunal – whether the FTT on an appeal, or the UT on a claim for judicial review – to give the claimant an opportunity to adduce evidence in rebuttal; and, given that credibility will be in issue, that will normally include an opportunity to give oral evidence himself or herself and/or call relevant witnesses (e.g. their accountant) to give oral evidence.

106. Each case will depend on its own facts, but, where an earnings discrepancy is relied on (and without changing the burden of proof, which remains on the Secretary of State so far as an allegation that an applicant was dishonest is concerned), it is unlikely that a tribunal will be prepared to accept a mere assertion from an applicant or their accountant that the discrepancy on was simply “a mistake” without a full and particularised explanation of what the mistake was and how it arose.”

There was no suggestion that the absence of evidence from an accountant would present a particular difficulty for an appellant. What was important was that “a full and particularised explanation” was provided- “from an applicant or their accountant”. Even that, arguably, goes beyond the “minimum level of plausibility” evidential burden referred to by the UT in SM and Qadir v Secretary of State for the Home Department (ETS – Evidence – Burden of Proof) [2016] UKUT 00229 (IAC):

“57. Both the applicable principles and the jurisprudence were reviewed by this Tribunal in its recent decision in Muhandiramge (Section S-LTR.1.7) [2015] UKUT 00675 (IAC), at [9] – [11]:

“9. Burdens and standard of proof have progressively, and almost with stealth, become an established feature of decision making in the field of immigration and asylum law. Their emergence may properly be described as organic. They have featured particularly in cases where it is alleged by the Secretary of State that the applicant has engaged in deception or dishonesty with the result that the application in question should be refused. This discrete line of authority is not recent, being traceable to the decision of the Immigration Appeal Tribunal in Olufosoye [1992] IMM AR 141. In tribunal jurisprudence, the origins of this particular lineage can be traced to the decision of the House of Lords in R v Secretary of State for the Home Department, ex parte Khawaja [1984] AC 74, which concerned the inter-related issues of procuring entry to the United Kingdom by deception and precedent fact in the Secretary of State’s ensuing decision making process. It is well established that in such cases the burden of proof rests on the Secretary of State and the standard of 28 proof belongs to the higher end of the balance of probabilities spectrum.

10. One of the more recent reported decisions belonging to this stable is that of Shen (Paper Appeals: Proving Dishonesty) [2014] UKUT 236 (IAC). This decision is illustrative of the moderately complex exercise required of tribunals from time to time. Here the Upper Tribunal held, in harmony with established principle, that in certain contexts the evidential pendulum swings three times and in three different directions:

(a) First, where the Secretary of State alleges that an applicant has practised dishonesty or deception in an application for leave to remain, there is an evidential burden on the Secretary of State. This requires that sufficient evidence be adduced to raise an issue as to the existence or non-existence of a fact in issue: for example, by producing the completed application which is prima facie deceitful in some material fashion.

(b) The spotlight thereby switches to the applicant. If he discharges the burden – again, an evidential one – of raising an innocent explanation, namely an account which satisfies the minimum level of plausibility, a further transfer of the burden of proof occurs.

(c) Where (b) is satisfied, the burden rests on the Secretary of State to establish, on the balance of probabilities, that the Appellant’s prima facie innocent explanation is to be rejected.

A veritable burden of proof boomerang!

11. Shen is preceded by a lengthy line of Tribunal jurisprudence to this effect: see JC (Part 9 HC 395 – Burden of Proof) China [2007] UKAIT 00027, at [10]; MZ (Pakistan) v Secretary of State for the Home Department [2009] EWCA Civ 919, at [25]; Mumu (Paragraph 320; Article 8; Scope) [2012] UKUT 143 (IAC); and Kareem (Proxy marriages – EU law) [2014] UKUT 24 (IAC). In short, in cases of alleged deceit, the legal rules are well settled.”

In this context, we highlight what was stated at [11] of Shen:

“At the end of the day the SSHD bears the burden of proof. This is a proposition which is uncontroversial and has been confirmed on many occasions.”

In any event, the already demanding task facing an appellant has now become far more difficult because of the steer given to Judges towards expecting evidence from accountants; the consequences of there being no evidence from an accountant (leaning very clearly towards a finding that dishonesty has been established); and the stark and chilling warning to accountants of the consequences to them professionally of accepting that an error or errors were made that makes the availability of evidence from an accountant far less likely:

“15. …. There is no reason to suppose that accountants with professional qualifications and who have continued in practice without disciplinary measures would regularly make gross errors in submissions to HMRC or its predecessors. It is in nobody’s interest that accountants who make such errors should go uninvestigated. The explanation of how the error is said to have arisen is crucial, because it reflects on the accountant’s professional standing. The accountant needs to have an opportunity to say or show what instructions the appellant gave and how those instructions were carried out. In a case where the accountant is found to have been actually or apparently at fault, the Tribunal may well cite the name of the accountant in its judgment and may pass a copy of the judgment to the relevant professional body. On the other hand, where there is no evidence going beyond the appellant’s own statement, a Tribunal may well consider that the material adduced by the Secretary of State is sufficient to establish the appellant’s dishonesty….”

The warning given to accountants, with the threat of being reported to their professional body, will inevitably mean that accountants are far less likely to assist appellants. Which in turn makes it more likely (on the basis of the Tribunal’s reasoning, and the clear steer given to Judges) that the SSHD will succeed in establishing dishonesty. The upshot is that this general statement by the Tribunal, followed by the decision being “reported”, undermines generally the position of appellants accused of deception. It undermines their ability to obtain evidence in support of their case; and gives a consequent nudge to the Judge determining an appeal towards finding in favour of the SSHD- all without the SSHD having to adduce any evidence in support of an assertion in relation to which she bears the burden of proof.

Further, while the headnote does not refer to oral evidence from an accountant, the decision ends with this:

“20. …. given the clear statement in paragraph [106] of Balajigari and the observations above, the appellant will no doubt wish now to ensure that he has detailed, probably oral, evidence from both his accountants.”

It is likely that the lack of oral evidence from an accountant will now be seized upon by the SSHD as showing weakness in an appellant’s case. Judges, will, I am sure, assess the competing evidential cases presented to them carefully before holding against an appellant the lack of any or any oral evidence from an accountant, particularly in light of the clear incentive that accountants will now have to provide no assistance to an appellant. However, appellants will have to guide the Judge carefully through the minefield of caselaw on this issue.

What about consequences for the SSHD?

The decision in Ashfaq is silent on the consequences for the SSHD’s case in circumstances where the accountant has refused to cooperate with the appellant. If the appellant’s case is that the accountant was at fault and is now refusing to provide any evidence, surely such a claim by the appellant is now credible (because any claim that an accountant is refusing to cooperate due to concern for his/her reputation and professional standing is, in light of this decision, not only credible but extremely likely)? Surely, in these circumstances, the SSHD must now call the accountant to give evidence as she bears the burden of proof? And if the SSHD fails to call the accountant, surely that must mean that her case that the Appellant used deception is undermined, and that it is more likely that she has not established that the Appellant used deception because evidence central to her case (from the accountant) has not been adduced?

As the UT stated in SM & Qadir, once an appellant has discharged the evidential burden upon him of “raising an innocent explanation”- an “account which satisfies the minimum level of plausibility”, the evidential burden shifts back to the SSHD “to establish, on the balance of probabilities, that the Appellant’s prima facie innocent explanation is to be rejected”. The latter burden is an evidential one per SM & Qadir, citing from Shen (Paper Appeals: Proving Dishonesty) [2014] UKUT 236 (IAC).

If an appellant is unable to produce evidence from an accountant because the accountant refuses to cooperate, but the appellant asserts that the accountant was at fault for any tax discrepancies, unless such an assertion fails to meet even the minimum level of plausibility test, the SSHD must advance an evidential case to counter that. One would expect such a case to include evidence from the accountant in question, or some explanation as to why such evidence is not available. In any event, the lack of evidence from an accountant in such circumstances will need to be considered very carefully, in the context of the particular case, the particular facts, the evidence adduced by all sides, and most importantly in the context of the evidential burden upon the SSHD to disprove an appellant’s innocent explanation.

Appellants should take heed

While the Tribunal states at §18 of its decision that “there is no legal burden on the appellant to disprove dishonesty”, it is difficult to envisage anything other than that this judgment will make it easier for the SSHD to establish dishonesty; and that, in practical terms, it is appellants that will bear the burden of producing evidence once a discrepancy has been identified by the SSHD. If the SSHD does truly bear the burden of proving dishonesty, the lack of evidence from an accountant should surely be, primarily, an obstacle for the SSHD’s case. The failure to even try and obtain evidence from the relevant accountant (I have not personally seen a case where there has been any such attempt by the SSHD) indicates that an incomplete investigation has been undertaken, and an incomplete evidential case advanced by the SSHD. That should be a problem for the SSHD, not for the appellant. Any Judge considering these issues will, no doubt, have in mind the heightened evidential requirements where such a serious allegation is made- see R (Shahbaz Khan) v SSHD [2018] UKUT 00384 (IAC) at [26]:


“Richards LJ, in Giri, also referred to the case of NA (Pakistan) [2009] UKAIT 31 where the Tribunal said:

“However, we do agree … that the consequences of refusal under part 9 can be serious and that is certainly true for persons such as the three claimants who, depending on findings of fact made by the Tribunal may find themselves, if removed from the UK, faced with a five to ten year re-entry ban … whilst we would note that Lord Hoffman in Re B emphasised that the seriousness of the consequences do not require a different standard of proof, we do accept that for the Respondent to satisfy us he has discharged the burden of proof on him on the balance of probabilities he would, in the context of this type of case, need to furnish evidence of sufficient strength and quality and he (and the Tribunal) would need to subject it to a ‘critical’, ‘anxious’ and ‘heightened’ scrutiny.”

Richards LJ was concerned that the expression “heightened scrutiny” should not be treated as a surrogate for the application of a “heightened standard of proof” but otherwise approved the approach of the Tribunal as being consistent with the authorities on the standard of proof.”

However, Appellants will be, and should be, concerned by the decision and reasoning in Ashfaq. It will undoubtedly have an impact on decision-making at the FtT. Preparation for an appeal should always be careful and comprehensive. The need for that in tax discrepancy cases is now heightened.

Prepare very carefully

It is perhaps pertinent to bear in mind what was said by the Tribunal in the headnote to R (Shahbaz Khan) v SSHD):

“(i) Where there has been a significant difference between the income claimed in a previous application for leave to remain and the income declared to HMRC, the Secretary of State is entitled to draw an inference that the Applicant has been deceitful or dishonest and therefore he should be refused ILR within paragraph 322(5) of the Immigration Rules. Such an inference could be expected where there is no plausible explanation for the discrepancy.

(ii) Where an Applicant has presented evidence to show that, despite the prima facie inference, he was not in fact dishonest but only careless, then the Secretary of State must decide whether the explanation and evidence is sufficient, in her view, to displace the prima facie inference of deceit/dishonesty.

(iii) In approaching that fact-finding task, the Secretary of State should remind herself that, although the standard of proof is the “balance of probability”, a finding that a person has been deceitful and dishonest in relation to his tax affairs with the consequence that he is denied settlement in this country is a very serious finding with serious consequences.

(iv) For an Applicant simply to blame his or her accountant for an “error” in relation to the historical tax return will not be the end of the matter, given that the accountant will or should have asked the tax payer to confirm that the return was accurate and to have signed the tax return. Furthermore the Applicant will have known of his or her earnings and will have expected to pay tax thereon. If the Applicant does not take steps within a reasonable time to remedy the situation, the Secretary of State may be entitled to conclude that this failure justifies a conclusion that there has been deceit or dishonesty.

(v) When considering whether or not the Applicant is dishonest or merely careless the Secretary of State should consider the following matters, inter alia, as well as the extent to which they are evidenced (as opposed to asserted):

i. Whether the explanation for the error by the accountant is plausible;

ii. Whether the documentation which can be assumed to exist (for example, correspondence between the Applicant and his accountant at the time of the tax return) has been disclosed or there is a plausible explanation for why it is missing;

iii. Why the Applicant did not realise that an error had been made because his liability to pay tax was less than he should have expected;

iv. Whether, at any stage, the Applicant has taken steps to remedy the situation and, if so, when those steps were taken and the explanation for any significant delay.”

The above guidance related to decision-making by the SSHD, and was given in the context of a judicial review challenge. It is not, therefore, directly relevant to the determination of an appeal on the merits by the Tribunal, where the SSHD will have to prove to an independent Judge that the appellant used deception. However, it is a good guide for preparation. As the ETS saga has shown, in the immigration context, the burden of proof acts in mysterious ways. The absence of evidence from an appellant can help the SSHD to discharge her burden of proof. There is no right to silence here. In tax discrepancy cases, careful preparation is vital- both to counter the allegation of deception; and to seek the exercise of discretion if you fail on the deception issue.

Clarendon Park Chambers is able to receive instructions directly from members of the public under the direct access scheme, as well as from solicitors and other professional clients. Enquiries can be made here.

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