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 its simplest form, MTIC revolves around a company in the EU selling goods to an importer in the UK. The UK importer sells the goods to a UK exporter who re-exports the goods back to the EU or in some cases, outside the EU. The UK importer adds VAT to his invoice when he sells to the export company who reclaim the input VAT and zero-rate their export sale. Normally there would be no tax loss to HMRC since the two transactions would cancel each other out. However, if the importer defaults on paying over the VAT to HMRC by disappearing or becoming insolvent, HMRC will be out of pocket.

HMRC have set up an office in Wigan with the aim of centrally controlling potential MTIC VAT fraud, whereby they are encouraging businesses which deal in high value wholesale commodities to notify them of their suppliers’ and purchasers’ company details. HMRC will then validate the VAT registration numbers of those businesses. HMRC state that this does not absolve traders from undertaking their own enquiries in relation to proposed transactions.

It is noticeable that, for the first time, HMRC are undertaking a pilot exercise whereby traders can notify HMRC by e-mail. HMRC have, in the past, been reluctant to embrace the receipt of e-mails and attachments by e-mail, citing security risks.

It is important that any business dealing in wholesale commodities such as alcohol and high value new motor vehicles should be aware of potential MTIC fraud and undertake appropriate due diligence with both their supplies and customers.

M&R Tax Advisers can advise companies on the appropriate supply chain checks required.

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.