In acting for our client, we addressed each of the grounds upon which HMRC relied in revoking our client’s WOWGR registration and requested that HMRC conduct an independent review of the decision. HMRC have been persuaded by M&R Tax Advisers’ arguments and the decision to revoke our client’s WOWGR registration has now been withdrawn. We have been advised that our client’s WOWGR registration has been reinstated so that trade can recommence.  

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• Issues an invoice that includes VAT which the person is not entitled to charge,
• Handles goods on which excise duty has not been paid or deferred (ie. acquires, carries, removes, deposits, keeps or sells the relevant goods),
• Uses or supplies a product in such a way that a higher rate of excise duty is thereby avoided.

A wrongdoing penalty will not be charged by HMRC where a reasonable excuse - being “an unforeseeable and exceptional event beyond your control” – for the relevant activity can be demonstrated. However, HMRC will not consider deliberate action to amount to a reasonable excuse.

The wrongdoing penalty will be calculated as a percentage of the lost revenue, ranging from a minimum (0%) through to a maximum (100%) depending on 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.

It should be noted that where HMRC can identify that a company officer (a director or company secretary) caused a deliberate wrongdoing, such person will be personally liable for the payment of the penalty if there is evidence that they gained personally, or the company is insolvent or there are grounds to suspect that the company will become insolvent.

The usual rights to request a review of the decision to issue a penalty notice and to appeal the matter to the independent Tax Tribunal are available to the taxpayer.

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

In direct tax cases, it would appear that HMRC are likely to take a harder line in requiring a taxpayer to pay ‘upfront’ the tax allegedly due following the raising of an assessment where that assessment has been appealed by the taxpayer to the Tax Tribunal. Historically in such cases, HMRC have generally agreed to postpone payment of the disputed tax pending the final outcome of the case, even where HMRC have won the case in the Tribunal but the matter has been appealed to the Upper Tribunal or the higher Courts. In future, HMRC intend to collect the tax in dispute at an earlier stage in the process, possibly after an initial win at the Tribunal, and to refund the tax with payment of interest at a far from generous statutory rate should they ultimately lose the case on appeal. In this way, the approach in direct tax is to be brought more directly into line with that in indirect taxes such as VAT and excise duties, where HMRC normally require the disputed tax to be paid at the outset; unless, that is, the taxpayer can satisfy the rigorous HMRC test of ‘hardship’. 

It will be interesting to observe how two further Pre-Budget Report measures impact upon the current considerable backlog of cases within the newly-reformed Tribunal system. HMRC propose to undertake more investigations into cases where taxpayers are non-compliant in consequence of an alleged failure to take reasonable care, with the statutory penalty for such careless behaviour ranging from 30% of the tax loss down to zero where the taxpayer makes an unprompted, voluntary disclosure. At the same time, HMRC intend to discontinue ‘marginal or lower value cases’ in order to concentrate on areas of greater perceived risk. The net effect of these two measures upon the number of cases which will be or already have been appealed to the Tribunal may be neutral, but of course only time will tell.  

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

Furthermore, we are now established and regular contributors of articles relating, for example, to HMRC powers, as published in monthly issues of “De Voil Indirect Tax Intelligence” magazine by LexisNexis.

Relevant websites are as follows:

www.lexisnexis.co.uk

www.complianceradar.co.uk

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

You have been warned!

Please contact M&R Tax Advisers if you require further advice on this matter.

Our client had previously been unsuccessful in its WOWGR application but following its engagement of M&R Tax Advisers to assist with its application, a revised business plan was prepared and we commenced correspondence with HMRC.

The trade in duty suspended goods is an area that HMRC allege is rife with fraud.  HMRC, as part of their enhanced vetting of businesses wishing to apply for a WOWGR registration, are scrutinising applications very carefully.  This can often result in an application being rejected many months after it had first been submitted.

A company has the right to appeal a decision made by HMRC to reject a WOWGR application to the First Tier Tribunal, Tax.  Unfortunately the appeal process can take over twelve months.  Further, the Tribunal only has the power, in the event of the appellant company being successful, to refer the matter back to HMRC for further review.  The whole registration process then re-commences with no guarantee that the WOWGR application will finally be approved. We would therefore recommend that potential applicants for WOWGR registration take professional advice at the earliest opportunity.

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

One example involves HMRC’s use of insolvency law and practice to close down a business it suspects of involvement (whether through actual or “blind eye” knowledge) in excise diversion fraud, thereby potentially bypassing the availability to the relevant party of the normal review and appeal procedures. In doing so, HMRC operate through external firms of solicitors and accountants.

In one version of excise diversion fraud, according to HMRC, consignments of excise goods (such as alcohol and tobacco) intended for despatch from the UK to other EU Member States never reach their intended destination and are instead illegally diverted for sale in the home market, duty free, with the excise duty due to HMRC being defrauded.

Alcoholic products are subject to the payment of excise duty in the EU Member State in which they are released onto the home market. They can, however, be stored duty suspended in bonded warehouses approved by and registered with HMRC.

Our client ABC Ltd. was so approved by HMRC and was a well-established excise bonded warehouse. However, quite out of the blue (or twilight?), in early February 2009 it was placed in provisional liquidation further to a High Court order made ex parte on the application of HMRC. The following day, an excise duty assessment in the amount of almost £6,000,000 was hand-delivered to the directors of the company at the business premises and the company was immediately placed in provisional liquidation on the basis of an assumed inability to pay the assessment. The company officers were then summarily excluded both from the company’s premises and from the conduct of its affairs.

HMRC allege that there were irregularities in hundreds of different movements of duty suspended alcohol despatched from the bonded warehouse. These alleged irregularities form the basis of the assessment by which the business has been made liable for the excise duty. The former directors of the bonded warehouse argue that the movements of the goods were not under the control of the bond; and that if there have been irregularities in the movements of the goods, then they had no knowledge of them, did not cause them and cannot be held liable for the excise duty. Nevertheless, in direct consequence of the allegations underpinning HMRC’s assessment, the former company officers are also subject to a legal action for compensation for alleged breaches of fiduciary and/or statutory and/or common law duties brought on behalf of the company in provisional liquidation by a firm of solicitors instructed by HMRC.

The action taken by HMRC had potentially circumvented the normal review and appeals procedure which would be open to the directors of the company subject to the assessment.

A second example involves another client, XYZ Ltd., termed a WOWGR trader (an acronym derived from the name of the relevant regulations). Such a business has been authorised by HMRC to deal in excise duty suspended goods, transferred (for example) between different UK bonded warehouses or for despatch duty suspended to another EU Member State. HMRC arrived unannounced at the company premises, which are also the director’s home address, and:

• Removed all the business records.
• Removed the computer, fax machine and mobile telephone. This was despite the absence of either search powers following arrest, or a search warrant, or authority for a search by consent or any other apparent legal authority.
• Contended that the computer was a ‘document’, despite their own internal guidelines stating otherwise.

Turning to the law, the Finance Act 2008 introduced new powers for HMRC, deemed necessary following the merger of HM Customs and Excise and the Inland Revenue in 2005. 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”. However a business should be provided with seven days notice, unless overridden by an authorised Officer. Further, an Officer has the power to remove a “document” at a reasonable time and retain it for a reasonable period if it appears necessary for the Officer to do so. Other legislation specifically excludes the uplifting of computer equipment in the absence of other legal authority, such as a search warrant. The provisions of the VAT Act 1994, for example, allow computer records to be copied and removed but the computer itself must not be uplifted. These legal requirements are reinforced within HMRC’s own internal guidance.

Despite the provisions of the law, however, the Officers who visited our client that day appeared to be directed by another force, a force which can only have emanated from “the Twilight Zone”…. 

The trade in duty suspended goods is an area where HMRC allege that fraud is rife. In one version of what is known as excise diversion fraud, according to HMRC, consignments of excise goods (such as alcohol and tobacco) intended for despatch from the UK to other EU Member States never reach their intended destination and are instead illegally diverted for sale in the home market, duty free, with the excise duty due to HMRC being defrauded.

In March 2009, HMRC raised an assessment for excise duty (effectively a demand for tax) of nearly £40,000 against our client in relation to two consignments of alcohol owned by our client, on the basis that the two consignments had been fraudulently diverted onto the UK market.

On behalf of our client, we requested that HMRC conduct an independent Departmental review of the decision to raise the excise duty assessment, providing detailed grounds in support of our client’s case. HMRC have been persuaded by our arguments and the excise duty assessment has now been withdrawn by letter dated 5^th June 2009 on the basis that there is insufficient evidence that excise diversion fraud had taken place. In consequence, our client is no longer required to pay the assessment.

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

In acting for our client, we addressed each of the detailed grounds upon which HMRC relied in rejecting our client’s application and requested that HMRC conduct an independent formal Departmental review of the decision. HMRC have been persuaded by M&R Tax Advisers’ arguments and the decision to reject our client’s movement guarantee application has now been withdrawn. While the rules relating to the review of excise matters require that the application has to be reconsidered by HMRC, we anticipate that our client’s application will now be approved and the movement guarantee granted. 

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