Please contact us if you consider that we can be of assistance to you in any issue arising with HMRC.  

Please contact us if you consider that we can be of assistance to you in any issue arising with HMRC.  

In the light of HMRC’s current robust policy which came into force on 1 April 2010 relating to their new powers to recover unpaid excise duty, we are pleased to announce that we have recently been successful in overturning a £46,000.00 excise duty assessment on review. It is becoming increasingly difficult to overturn excise duty assessments at the review stage since HMRC maintain that evaded duty can now be recovered after goods have been released onto the UK market, for example, when they are held for wholesale or retail.

How, then, may a disputed HMRC seizure be challenged?

There are two options, as follows:

(i)   To challenge the legality of the seizure by way of a Notice of Claim that anything seized as liable to forfeiture is not so liable, submitted within one month of the date of the HMRC Notice of Seizure, within an action termed ‘condemnation proceedings’; and

(ii)               To request that HMRC restore the goods to the owner.    

It is possible for a claimant to almost inadvertently stumble into condemnation proceedings and thereby to potentially become liable for the attendant costs. We are aware of a recent case where at the outset, a claimant merely indicated an intention to contest the case but HMRC were thereby obliged to institute condemnation proceedings, with the result that having heard nothing further for several months, the claimant then received a summons advising him of a Court hearing within a very few weeks and threatening him with costs.

HMRC threatened costs of not less than £1,800 against the claimant should he fail to indicate whether he intended to continue to contest the case; and costs of not less than £7,500 should a full hearing be required.   

The second option in contesting a HMRC seizure involves the owner of the goods proceeding by way of a restoration request, ie. a request to HMRC that they restore the goods to him. This HMRC may do on payment of a fee (a ‘restoration penalty’) or of the relevant excise duty, depending on the circumstances of the seizure. 

It should be noted, however, that the seizure of goods and their subsequent forfeiture to the Crown is not within the jurisdiction of the independent Tax Tribunal, which is confined by the legislative authority within the Finance Act 1994 to matters relating to the non-restoration of goods or the restoration of goods with conditions, under option (ii) above. The Court of Appeal recently held within a judgment reported on 18^th July 2011 in the case of HMRC Commissioners v. Jones that where seized goods and a vehicle were deemed to have been duly condemned as forfeited under Schedule 3 para. 5 of the Customs and Excise Management Act 1979, the appellate jurisdiction of the First-tier Tribunal is limited to the correctness or otherwise of HMRC’s discretionary review decision not to restore the seized goods and vehicle; the Tribunal had no jurisdiction to re-open the question of whether the seized goods had been legally imported for personal use.

The case of Jones has therefore confirmed the two separate routes to challenging a HMRC seizure: either through the Courts on the issue of the legality of the seizure and/or through the Tribunal on the application of the principles of judicial review – such as reasonableness and proportionality – to the review decision not to restore the goods to the owner.  

Given the many potential pitfalls involved in either route to challenging a HMRC seizure, we strongly recommend that the owner of the seized goods or vehicle should first seek the assistance of an independent specialist adviser. 

Please contact us if you consider that we can be of assistance to you in any issue arising with HMRC.  

This particular peasant is more concerned about the availability of large amounts of cake to the British aristocracy in the guise of HM Revenue and Customs. Because, when it comes to HMRC’s own interpretation of the new powers and penalties introduced to enable them to tackle excise fraud in the alcohol industry - a fraud which is said to cost an estimated £1 billion a year – they are most definitely seeking to have their cake and eat it, several times over.

I have catalogued these various new powers and penalties in some detail in my previous website articles. In summary, they are intended to enable HMRC to specify who is liable to pay lost excise duty, to recover such duty and to penalise those trading in illicit alcohol within fraudulent supply chains.

It may be helpful at this stage, over a year on, to examine how HMRC are implementing certain powers and penalties in practice. They relate to the seizure of excise goods (typically, large consignments of alcohol) on which it is alleged excise duty has not been paid; the recovery of excise duty from anyone found holding undutied excise goods through the raising and enforcement of assessments to excise duty; and the issuing of excise wrongdoing penalties of up to 100% of the lost revenue (depending on the level of culpability) where a person handles goods on which excise duty has not been paid.      

The new HMRC powers and penalties have arisen from the implementation into UK legislation of EU law in the form of EU Council Directive 2008/118/EEC. This Directive was passed by the EU Council to replace Council Directive 1992/12/EEC of 25^th February 1992 in the interests of clarity, since the latter had been substantially amended several times and required further amendment. The requirements of Council Directive 2008/118/EEC became law in the UK from 1^st April 2010 under the Excise Goods (Holding, Movement and Duty Point) Regulations 2010. These Regulations have introduced a severe penalty system enabling HMRC to seize goods, assess for excise duty and issue a penalty where there is evidence of wrongdoing, even where the goods have by now been released onto the UK market for wholesale or retail. Under Article 8 of the Directive, the person liable to pay the excise duty which has become chargeable includes “any person who participated in the irregular departure [ie. the fraudulent diversion of duty suspended excise goods] and who was aware or should reasonably have been aware of the irregular nature of the departure”.

Where, then, in UK law specifically, have the HMRC powers to seize goods, assess for excise duty and issue a penalty originated?

• Under section 139 of the Customs and Excise Management Act 1979, an Officer may seize or detain any thing liable to forfeiture under the customs and excise acts. Under Regulation 88 of the Excise Goods (Holding, Movement and Duty Point) Regulations 2010, if there is a contravention of the Regulations in relation to any excise goods that are liable to duty that has not been paid, then those goods shall be liable to forfeiture.

• Regulation 6(1)(b) of the Excise Goods (Holding, Movement and Duty Point) Regulations 2010 provides that an excise duty point is created where excise goods are held outside a duty suspension arrangement and excise duty has not been paid. Regulation 10 states that the person liable to pay the excise duty in such circumstances is the person holding the goods at that time. Such a person may therefore be assessed for the excise duty due.

• Excise wrongdoing penalties were introduced from 1st April 2010 under Schedule 41 of the Finance Act 2008. They will be imposed by HMRC where a person handles goods on which excise duty has not been paid or deferred; uses a product in a way that means more excise duty should have been paid; or supplies a product at a lower rate of excise duty knowing that it will be used in a way that means a higher rate of excise duty should be paid. Further, under section 9(4) of the Finance Act 1994, where any conduct consists in a failure to pay an amount of excise duty, then HMRC may impose a civil penalty calculated by reference to the amount unpaid, as well as daily penalties.   

There is no doubt, therefore, that these powers and penalties exist in law; and further, that they are being implemented by HMRC in practice. This much is “a piece of cake”, you might say. However, what we as a firm have recently queried with HMRC on behalf of clients in specific cases is whether HMRC are empowered to apply two - or even all three - of the powers and penalties in relation to the same excise goods. This is tantamount to double – or even triple – taxation, an arrangement which has long been recognised to be inequitable. Within the introduction to EU Council Directive 2008/118/EEC, the Council refers at paragraph 30 to the need to “avoid conflicts of interest between Member States and double taxation” in cases where excise goods already released for consumption in one Member State then move within the Community. Yet despite the Council’s concerns regarding the potential for double taxation, it would appear that HMRC are actively pursuing policy and procedures that result in exactly this here within the UK.

Our own concerns as a firm have arisen following an apparent change in HMRC policy. Prior to 1^st April 2010, HMRC would either seize excise goods or issue excise duty assessments where they alleged that excise duty had been unpaid. Since 1^st April 2010, HMRC have been routinely both seizing goods and raising assessments in relation to the same consignments of alcohol. Further, our experience suggests that HMRC are now reviewing individual cases, apparently concluded after 1^st April 2010, in which they previously limited their action to the seizure of goods and are now additionally issuing excise duty assessments.

In justifying their use of both seizure and assessment powers in relation to the same excise goods, HMRC have pointed us to their published guidance relating to the new powers and penalties introduced on 1^st April 2010, “New HMRC Powers to Recover Unpaid Excise Duty Affecting Wholesalers and Retailers”. The second paragraph of this guidance states “The person holding the goods and any other person involved in the holding is liable to pay the duty and can be assessed for it. The goods will also be seized”. That is what the guidance states. However, it should be noted that HMRC guidance is not law. It is merely HMRC’s interpretation of the law. We have seen in other, unrelated cases that HMRC can be quick to distance themselves from their own guidance when it becomes expedient to do so, for example because the guidance contravenes a new policy or a reinterpretation of the law.

It is possible that on a literal reading of the law, the view may be taken that HMRC are permitted to seize, assess and issue wrongdoing penalties with regard to the same excise goods. We anticipate that legal argument on this point will be raised within an appropriate case in the near future, to determine whether the combined use of these powers and penalties is indeed lawful given the double or triple taxation involved.

In any event, HMRC activity in this field must be reasonable and proportionate, under the guiding principles of EU legislation.       

Of course, when the masses who had neither bread nor cake revolted in France in 1789, royalty and aristocracy were led to the guillotine. Perhaps there is a historical lesson here for HMRC. Vive la Revolution!

More importantly, is anyone else feeling hungry? 

Please contact us if you consider that we can be of assistance to you in any issue arising with HMRC.  

Please contact us if you consider that we can be of assistance to you in any issue arising with HMRC.  

In relation to VAT and revenue matters, then under paragraph 10 of Schedule 36 of the Finance Act 2008, an Officer of HMRC may enter a taxpayer’s business premises and inspect both the premises and any business assets and business documents that are on the premises if the inspection is reasonably required for the purpose of checking the person’s tax position. The inspection may be carried out at any reasonable time without prior notification to the taxpayer provided that the approval of an authorised Officer has been obtained and a written notice is made available at the time of the inspection.

At the visit, the taxpayer is entitled to have an adviser present should he or she so wish.

Further, an Officer may serve a notice on a taxpayer or a third party (for example, the taxpayer’s accountant or his business’ customers) requiring the production of information or documents that are reasonably required to ascertain tax liability. HMRC may still make an oral request for information or documents but such a request is not enforceable until formalised by a written notice (known as an ‘information notice’). An information notice has the effect of legally requiring a taxpayer to provide that which has been requested.

There are penalties for failure to comply with an information notice. If a taxpayer fails to provide HMRC with all information and documents referred to within a notice then he may be liable to one or more of the following penalties:-

• A £300 standard penalty;

• A penalty of up to £60 a day for every day that HMRC do not receive all information and documents required under the notice;

• A penalty based upon the amount of tax that HMRC consider is due (a penalty which must be authorised by the independent Tax Tribunal).

Information provided by a taxpayer must be correct to the best of his knowledge. HMRC may prosecute or impose a penalty of up to £3,000 where a taxpayer provides information which he knows is incorrect or documents which he has altered; or conceals, destroys or otherwise disposes of any required document.

Please contact us if you consider that we can be of assistance to you in any issue arising with HMRC.  

It may be helpful at this stage to summarise these measures. They have included:

• As announced in the 2009 Budget, the renewal of HMRC’s “Tackling Alcohol Fraud” strategy in order to attempt to counter diversion fraud across beer, wine and spirits, a fraud which costs an estimated £1 billion a year in lost duty.
• The withdrawal of the drawback facility for duty paid on goods warehoused for export, in order to avoid duty free excise goods being illegally diverted onto the UK home market after the payment of reclaimed duty drawback. This measure came into effect in June 2009.
• The requirement from 1^st April 2010 for duty to have been paid – rather than just guaranteed or secured – in the Member State of receipt prior to repayment of UK duty, thereby applying more stringent checks upon the correct payment of excise duty overseas in an attempt to control the abuse of the direct drawback scheme.
• The introduction of VAT and excise wrongdoing penalties from 1st April 2010 under Schedule 41 of the Finance Act 2008, an Act which introduced new powers for HMRC, deemed necessary following the merger of HM Customs and Excise and the Inland Revenue in 2005. The excise wrongdoing penalties will be imposed by HMRC where a person handles goods on which excise duty has not been paid or deferred; uses a product in a way that means more excise duty should have been paid; or supplies a product at a lower rate of excise duty knowing that it will be used in a way that means a higher rate of excise duty should be paid. Further, Schedule 36 of the Act sets out various information and inspection powers. For example, an “Officer of HMRC may enter a person’s business premises and inspect: the premises; business assets that are on the premises; and business documents that are on the premises if the inspection is reasonably required for the purpose of checking that person’s tax liability”.
• The introduction of new excise duty point provisions, defining when UK duty becomes due for payment, which implemented the requirements of EU Council Directive 2008/118/EEC and became law in the UK from 1^st April 2010 under the Excise Goods (Holding, Movement and Duty Point) Regulations 2010.
• Again with effect from 1^st April 2010 and also in accordance with EU Council Directive 2008/118/EC, the replacement of the “Registered Excise Dealers and Shippers” (‘REDS’) arrangements by an entirely new scheme to which HMRC Public Notice 203A refers, termed “Registered Consignees”, with onerous approval requirements.
• The implementation from 1^st January 2011 of the Excise Movement and Control System (‘EMCS’), an EU-wide electronic system for recording and validating all movements of duty suspended excise goods, replacing the system whereby a paper Accompanying Administrative Document is required for all movements.
• The initiation of a review of excise financial securities in 2009. A Consultation Document was published in April 2009 and a Summary of Responses from interested parties in December 2009.
• The undertaking of a consultation exercise on “Excise Modernisation and Compliance Checks”, concerned with HMRC’s powers, deterrents and safeguards in relation to compliance within excise regimes. The consultation period ended on 3rd March 2010. Subject to ministerial agreement, the proposals set out in the “Consultation and Response Document” are due to be implemented on 1st April 2011.

These arrangements, penalties and powers represent the most recent of HMRC’s attempts to dismantle the fraudulent alcohol trade and address serious non-compliance. Having summarised them, we now propose to discuss in a little more detail the ramifications of one aspect of this ongoing excise revolution.

We turn to the matter of the introduction of the excise wrongdoing penalties under Schedule 41 of the Finance Act 2008, as referred to above. The corresponding new HMRC powers have arisen from the implementation into UK legislation of EU law in the form of EU Council Directive 2008/118/EEC. In simple terms, the effect of these provisions is that HMRC can recover duty from anyone found holding excise goods which have not had duty paid on them previously, even where the goods have by now been released onto the UK market for wholesale or retail; issue a penalty where there is evidence of wrongdoing; and further, seize the goods. This is a severe penalty system with a stringent strict liability element, as discussed further below.

There is a novel twist to this EU law. Under Article 8 of the Directive, the person liable to pay the excise duty which has become chargeable includes “any person who participated in the irregular departure [ie. the fraudulent diversion of duty suspended excise goods] and who was aware or should reasonably been aware of the irregular nature of the departure”. This formulation of the ‘mens rea’ element of a person’s involvement in the diversion fraud appears to have been lifted directly from case law in an entirely separate field, that of Value Added Tax Missing Trader Intra-Community (‘MTIC’) fraud. According to HMRC analysis, MTIC fraud typically involves fraudulent supply chains in goods such as mobile telephones and computer components, arranged in order to enable a business at the end of the supply chain in the UK to despatch the goods to the EU and thereby reclaim from HMRC the VAT input tax in relation to which the business at the beginning of the UK supply chain has failed to account, for example, by going missing. Following the decision of the ECJ in Axel Kittel v. Belgium and Belgium v. Recolta Recycling SPRL in July 2006, the test to be applied in alleged MTIC cases in determining the entitlement of a business to recover input tax is whether: (i) the assessed transactions formed part of supply chains in which one or more of the transactions was “vitiated by fraud”; and (ii) the taxpayer “knew or should have known of that fact”, having regard to objective factors. The effect of this judgment is that a trader who is not party to any fraud may nevertheless have his claim for the repayment of input tax rejected if he had knowledge or means of knowledge of fraud elsewhere in the chain of supply.

It is not yet clear how the ‘means of knowledge’ test will be applied in alleged excise diversion fraud; it has, after all, generated lengthy and voluminous discussion and interpretation in MTIC cases. Nevertheless, it is apparent that the Directive as implemented into UK legislation has created enhanced powers for HMRC to apply joint and several liability to any party who has participated in a movement of duty suspended excise goods where an irregularity has arisen and who was aware or should reasonably have been aware of the irregularity. Liability will not be limited to the party who provides the movement guarantee which HMRC require in relation to a movement of duty suspended excise goods, being either the owner of the goods, the excise bonded warehouse or the haulier. Very many other people who deal with excise goods could become liable for the payment of unpaid excise duty upon them and for a related wrongdoing penalty, including the wholesaler, courier, retailer and ultimate customer.

Joint and several liability is not a new concept within UK excise law. The Duty Suspended Movement of Excise Goods Regulations 2001 (‘DSMEG’) introduced such secondary liability where the duty due had not been recovered from the person having prime liability, normally the party providing the movement guarantee. Regulation 7(2) of DSMEG provides that any person whose activity causes or has caused an excise duty point to occur is jointly and severally liable for the excise duty due, along with the person who has prime liability.

What is different, however, about the new joint and several liability provisions associated with the excise wrongdoing penalties as introduced by the Finance Act 2008, is the strict liability element. Under the law, any person who handles (ie. acquires, carries, removes, deposits, keeps or otherwise deals in) undutied excise goods, whether knowingly or unknowingly, is responsible for an absolute ‘wrongdoing’ and is liable to a penalty of up to 100% of the lost revenue on the goods, depending on the level of culpability. The wrongdoing penalty will be calculated as a percentage of the duty according to whether there is a reasonable excuse or the wrongdoing was non-deliberate, deliberate but not concealed or deliberate and concealed; and the extent to which the wrongdoing has been disclosed to HMRC. A reasonable excuse is defined as being “an unforeseeable and exceptional event beyond your control”. HMRC will not consider deliberate action to amount to a reasonable excuse. Nor will simple ignorance amount to a reasonable excuse, since this is already covered by the 30% penalty applicable to the ‘non-deliberate’ wrongdoing category.

It is therefore necessary for a trader to take reasonable care to avoid sourcing or handling goods in relation to which excise duty has been evaded. Under paragraph 20(2)(b) of Schedule 41 of the Finance Act 2008, the test applicable in determining whether there is reasonable excuse is active rather than passive, ie. it is insufficient either: (i) to do nothing even where it would not have been possible to establish whether the goods were duty paid in any event; or (ii) to rely on another party to do something, such as pay the duty. Active reasonable care is required, enabling a party to demonstrate that it has done everything it reasonably could to ensure that it has avoided handling undutied goods, for example through appropriate due diligence undertaken upon business partners.

As the law beds in and the HMRC squeeze on the duty suspended regime in excise goods continues, it will be interesting to observe how far those who are engaged in the alcohol trade are able to argue reasonable excuse and avoid even a ‘non-deliberate’ wrongdoing penalty.

Please contact us if you consider that we can be of assistance to you in any issue arising with HMRC.

]]> http://mandrtaxadvisers.com/2011/02/030210-excise-duty-compliance-%e2%80%93-the-hmrc-squeeze-continues/feed/ http://mandrtaxadvisers.com/2010/11/241110-excisemen-promise-little-xmas-cheer-for-the-alcohol-trade/ http://mandrtaxadvisers.com/2010/11/241110-excisemen-promise-little-xmas-cheer-for-the-alcohol-trade/#comments Wed, 24 Nov 2010 15:31:15 +0000 admin http://mandrtaxadvisers.com/?p=280 In April 2010, HM Revenue and Customs (“HMRC”) announced the renewal of the ‘Tackling Alcohol Fraud Strategy’ to respond more robustly to alcohol fraud and serious non-compliance. The effects of this strategy and the HMRC revised excise powers are now likely to be felt in the alcohol trade in the lead up to Christmas. HMRC and their counterparts, the UK Border Agency (“UKBA”), are targeting excise traders by:

· Making multi-agency unannounced visits to inspect stock and the company records (it is not uncommon for a combination of VAT, Excise, PAYE, Trading Standards and Police officers to arrive unannounced at a warehouse);

· Issue of ‘Notices to Provide Documents & Information’. Businesses failing to provide information will be liable to daily penalties;

· Issue of excise wrongdoing penalties. The wrongdoing may attract a penalty of up to 100% of the potential lost revenue;

· Seizing goods where they suspect duty may have been lost in the supply chain, either at the port by UKBA or inland by HMRC Specialist Excise Investigation Teams;

· Looking to recover losses/debts using where necessary the confiscation of assets and the issuing of winding up orders.

· Tightening controls on duty drawback.

Please do not hesitate to contact M&R Tax Advisers if we can be of any asssitance.