Witness Statements – a fork in the road of an HMRC Enquiry
Using a witness statement as evidence, prior to cross-examination at appeal hearing, is often a key aspect in the case management of a contentious dispute with HMRC.
Also, this gives both parties a basis to assess the strengths and weaknesses of their position prior to formal appeal proceedings and this may facilitate an earlier and less costly alternative dispute resolution (“ADR”) settlement.
Capturing oral evidence taken in this way is structured, concise, and in the own words of the witness.
However, as memory fades faster than ink, using supporting evidence helps to prove the facts. This is especially the case when a witness has to recall complex particulars about events which may have occurred some time ago - caution needs to be exercised.
Obviously, there are circumstances where the use of witness statements is unnecessary. However, when used appropriately, a properly prepared witness statement can provide HMRC with a “touch stone” reality check that someone is prepared to attest to!
The tax adviser’s role
Crucially, the fundamental principle is that words should not be put into the mouth of the witness. The statement should be factual and only cover matters to which the witness can speak to. In this situation, the witness should be reminded that he/she may be later cross-examined* at an appeal hearing. Clearly, tax advisers should consider a draft statement very carefully bearing in mind the following guidelines:
- Check the relevant facts are covered and numbered in chronological order.
- Clarify ambiguous facts and keep statements concise.
- Only ask the witness to comment on matters which is in their knowledge.
- Show the witness documents that he/she might have seen at the time and ask him/her to comment.
- Give the witness the opportunity to reconsider what the statement says and to confirm the content is truthful.
- Inform the witnesses that they may be cross examined on the statement in a Tax Tribunal*.
*NB. Where the issue is an HMRC challenge regarding the witness’s credibility and the reliability of the facts, experience at First Instance tax tribunals suggests that the judge is likely to allow, and even participate in, an extensive oral examination of the witness.
