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Blame the accountant? Tribunal weighs in on paragraph 322(5)


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In R (Khan) v Secretary of State for the Home Department (Dishonesty, tax return, paragraph 322(5)) [2018] UKUT 384 (IAC) the Upper Tribunal has issued guidance to the Home Office on how to properly decide applications from Tier 1 (General) applicants which raise issues of dishonesty under paragraph 322(5) of the Immigration Rules.

Home Office right to investigate tax discrepancies

On the face of it, this particular case does not look like one of the shamefully bad Tier 1 (General) decisions that the Home Office has been churning out (see for example the case of Owais Raja whose accountant was jailed for fraud, or many of the scenarios reported in the Guardian by Amelia Hill).

On a fair reading of the facts, one can readily see the Home Office’s point of view in Khan. Of course the authorities would suspect something untoward where a person declares his annual earnings to the Home Office as £36,000 and to HMRC as £7,650 with the consequence of a £15,000 tax saving. The Home Office, along with HMRC, can and should be investigating such discrepancies.

In this particular case, Mr Khan tendered the now familiar paragraph 322(5) excuse: it was the accountant’s fault. The accountant did what any self-respecting professional would do: blamed it on the computer. The letter said:

Recently it has come to our attention during our internal audit that an incorrect year end submission was made to HMRC. After detailed enquiry we found out that before the submission the computer that was used to file the year-end report was not working properly with the software.

In the course of further applications and pre-action correspondence, much more sympathetic facts mitigating the applicant’s failure to correct the tax return did come to light: the serious illness of a child undergoing life-saving brain surgery with subsequent treatment, rehabilitation and chemotherapy.

Judicial guidance for decision-makers

The problem for the Home Office in this case (and this is a common theme across many cases really) was that in its gleeful rush to refuse this case, officials failed to ask the right questions and failed to make the right decisions that would allow a lawful refusal under paragraph 322(5). It’s clear from reading the judgment that, in the words of Mr Justice Martin Spencer,

the Secretary of State could have lawfully and legitimately refused the Applicant’s ILR on the basis of the material before her.

Instead the Home Office made a meal of it, leading to the decision being quashed, and guidance to future decision-makers being issued:

(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. I would expect the Secretary of State to draw that inference where there is no plausible explanation for the discrepancy.

As a starting point, the Home Office can refuse tax discrepancy applications under paragraph 322(5) if there is reason to draw such an inference. The question that should then be posed is: is there a plausible explanation?

(ii) However, 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 is presented with a fact-finding task: she must decide whether the explanation and evidence is sufficient, in her view, to displace the prima facie inference of deceit/dishonesty.

The Home Office should seek to establish all of the facts surrounding the discrepancy and only then come to a view on whether the explanation tendered is sufficient.

(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.

This verges on advocating an ‘enhanced’ standard of proof, but it stops short. The standard of proof remains the civil standard, which is the balance of probabilities. Perhaps, if the Home Office can be shown to have failed to have regard to the seriousness of the consequences of its decision there might be scope for a challenge. Although this is a noble sentiment, in practice, how this could be done I am not sure given that the standard of proof is unchanged.

(iv) However, 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: far from it. Thus, the Secretary of State is entitled to take into account that, even where an accountant has made an error, the accountant will or should have asked the tax payer to confirm that the return was accurate and to have signed the tax return, and furthermore the Applicant will have known of his or her earnings and will have expected to pay tax thereon. If, realising this (or wilfully shutting his eyes to the situation), the Applicant has not taken steps within a reasonable time to remedy the situation, the Secretary of State may be entitled to conclude either that the error was not simply the fault of the accountant or, alternatively, the Applicant’s failure to remedy the situation itself justifies a conclusion that he has been has been deceitful or dishonest and therefore he should be refused ILR within paragraph 322(5) of the Immigration Rules.

An applicant can blame the accountant, but doing so is far from an easy way out. There has to be some recognition of the personal responsibility of tax payers to confirm their returns. 

(v) Where an issue arises as to whether an error in relation to a tax return has been dishonest or merely careless, the Secretary of State is obliged to consider the evidence pointing in each direction and, in her decision, justify her conclusion by reference to that evidence. In those circumstances, as long as the reasoning is rational and the evidence has been properly considered, the decision of the Secretary of State cannot be impugned.

The Home Office should make a rational, evidence-based decision. One would think that officials should be doing this in all cases. It’s a shame they have to be reminded of this.

(vi) There will be legitimate questions for the Secretary of State to consider in reaching her decision in these cases, including (but these are by no means exclusive):

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.

These questions are a good starting point. Any Tier 1 (General) applicants invited to credibility interviews would do well to consider them.

(vii) In relation to any of the above matters, the Secretary of State is likely to want to see evidence which goes beyond mere assertion: for example, in a case such as the present where the explanation is that the Applicant was distracted by his concern for his son’s health, there should be documentary evidence about the matter. If there is, then the Secretary of State would need to weigh up whether such concern genuinely excuses or explains the failure to account for tax, or at least displaces the inference that the Applicant has been deceitful/dishonest. The Secretary of State, before making her decision, should call for the evidence which she considers ought to exist, and may draw an unfavourable inference from any failure on the part of the Applicant to produce it.

This again seems like common sense; applicants should produce evidence to back up their claims. What marks a considerable change in the approach being advocated here is the onus being shifted on to the Secretary of State to call for such evidence.

Practitioners will be used to seeing refusals rejecting all of an applicant’s excuses without so much as a telephone call or interview to discuss and request evidence. We can only hope this might now change. Such an approach benefits both applicants and the Home Office. Applicants are given a chance to explain themselves, and the Home Office, if proceeding to refuse, can at least do so on the back of considered evidence (or an applicant’s failure to provide evidence when called upon). This ought to lead to more robust decisions.

(viii) In her decision, the Secretary of State should articulate her reasoning, setting out the matters which she has taken into account in reaching her decision and stating the reasons for the decision she has reached.

Again, this should not be something that has to be spelled out.

Impact of guidance remains to be seen

So will this mark a fresh new approach for Tier 1 (General) applicants? Some of this judicial guidance does seem to have filtered into the Home Office’s own guidance on such cases, published last week. It helpfully includes an “interview tips” section (the tips are aimed at the caseworkers, not the applicants in this case, but it gives a useful insight as to what one should expect from an interview).

[ebook 20010]

One of the questions very reasonably added in by the Home Office is “Have you taken any action against the accountant that you claim submitted your initial declaration to HMRC inaccurately?” I find it hard to believe that many will have done so, particularly when they are reliant on the accountants falling on their swords in a mea culpa letter for the Home Office and HMRC. It’s unlikely such a letter would be forthcoming if a formal complaint were made against them. Maybe it is time that the Home Office and HMRC themselves started taking this kind of action. Until then, we eagerly await the next wave of decisions from the Home Office on this issue.


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John Vassiliou

John Vassiliou is legal director and head of immigration at Shepherd and Wedderburn LLP. His profile can be found at: https://shepwedd.com/people/john-vassiliou.