22/07/11: Excise Duty Compliance – HMRC Having its Cake and Eating it: Three Times!
A famous quotation is attributed to Marie Antoinette at the time of a famine that occurred in pre-revolutionary France during the reign of her husband King Louis XVI. Upon being alerted that the people were suffering from widespread bread shortages, the Queen is said to have rather insensitively replied, “Qu’ils mangent de la brioche” or “Let them eat cake”.
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 25th 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 1st 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 1st April 2010, HMRC would either seize excise goods or issue excise duty assessments where they alleged that excise duty had been unpaid. Since 1st 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 1st 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 1st 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.
