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Avoid a HMRC hangover

12 December 2012

Alan Powell,UKWA's honorary adviser on Customs & Excise, considers the impact on the warehousing industry of HMRC's new excise anti-fraud powers

Alan Powell,UKWA's honorary adviser on Customs & Excise, considers the impact on the warehousing industry of HMRC's new excise anti-fraud powers

In the 2009 Budget, HMRC announced the renewal of the Tackling Alcohol Fraud strategy in a move designed to enable it to respond far more robustly to alcohol duty fraud. The key new powers, which took effect from April 2010, essentially take two linked forms:

• Universal powers for HMRC to assess for duty on goods illegally diverted from bonded movements upon anyone who was 'aware or should reasonably have been aware' of the diversion 'at any point in the supply chain'.

• Severe excise 'wrongdoing' penalties against anyone in the supply chain who has supplied, sold or at any time held excise goods on which duty has not been paid, whether the 'wrongdoing' was deliberate or non-deliberate.

What does this mean?
The concept of 'knowledge or means of knowledge' that goods will be, or have been, illicitly diverted from the bonded supply chain, is new for excise duty, but has an antecedent in VAT case law, and the 'means of knowledge' terminology inserted into excise law is almost a straight lift from a landmark VAT fraud case.

If HMRC follow the precedents in VAT, they could argue that 'means of knowledge' does not just include direct involvement in the diversion, but, also takes in:

• Warehouse keepers and third party owners of goods.
• Wholesalers and retailers (on and off-trade) 'turning a blind eye' to a suspiciously good deals.
• Hauliers/couriers handling such goods.
• Anybody setting up deals or handling the product. Knowledge of diversion fraud - forwards or backwards

In addition to events that have occurred, could HMRC prepare a case of 'knowledge or means of knowledge' of something which had not yet happened in relation to duty fraud?

This is very important: Unlike VAT, excise fraud or irregularity does not occur at the top of the chain, so can HMRC look either way along that chain of supply?

An initial legal view is 'yes' and this could include warehouse keepers and third party owners and anyone else involved with logistics. It might even go back to the manufacturer or supplying brand owner, if HMRC feel that the circumstances of certain sales are sufficient to establish that the manufacturer should have known it would be connected to subsequent irregularity (diversion).

HMRC could decide to issue such assessments even where the first sales were not themselves 'irregular' (eg UK bond to EU bond). This may be especially true if popular UK products are intercepted or otherwise identified as returning illicitly back into the UK from the near continent on a frequent basis.

Excise wrongdoings and civil penalties
From 1 April this year (2010), there are civil penalties for 'excise wrongdoing'. There is no legal definition of 'wrongdoing', a word which appears only in the heading to the schedule and, of course, has a pejorative implication.

A person commits a 'wrongdoing' if they handle goods on which there is unpaid excise duty. Handling goods includes:

• Acquiring possession of them.
• Being involved in the carrying, removing, depositing or keeping of them.
• Otherwise dealing with them.

If a person knowingly or unknowingly handles duty unpaid excise goods, there is, therefore, an absolute 'wrongdoing', with degrees of culpability. The wrongdoing has a liability to a penalty of up to 100% of the duty as 'potential lost revenue' on the goods, depending on the level of culpability.
A non-deliberate wrongdoing carries a penalty of between 10 and 30% of the 'potential lost duty'.

A person who has 'reasonable excuse' for accidental wrongdoing will not face penalties. HMRC states 'a reasonable excuse is usually an exceptional event outside of your control'.

If you are holding goods suspected of being duty unpaid, HMRC can detain and seize the goods and refuse to restore them, meaning the overall cost of those goods becomes a loss, in addition to losing the physical stock.What is more, going back to the joint and several liability to the duty, HMRC can also make an assessment for any and all stock put through the business believed to be duty unpaid.

In essence, if you touch 'suspect' goods in the course of your business, you are contaminated and liable to penalties and the full duty.

This action is not theoretical. It is happening now and businesses who believed themselves to be simply 'naive' are facing financial ruin. It could happen to anyone - warehouse keepers, retailers, publicans, cash and carries, suppliers, hauliers. Customs want their money and will be looking now for every penny.