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Cubism Law successfully appeals HMRC penalty notices exceeding £400,000

Cubism Law successfully appeals HMRC penalty notices exceeding £400,000

Cubism Law's success in appealing HMRC penalty notices has implications for businesses handling consignments of beers, wines and spirits. In this case, HMRC argued that they were able to extend the penalty notices' statutory time limits in which HMRC can take such action, and they are set down in statute.

Cubism Law’s success in appealing HMRC penalty notices has implications for businesses handling consignments of beers, wines and spirits.  Part of HMRC’s armoury in combating the trade in stock that is not duty paid, is the ability to levy a penalty on any party who has ‘handled’ a consignment of the goods and where they have no reasonable excuse for doing so.  There are strict time limits in which HMRC can take such action, and they are set down in statute.

In this case, HMRC argued that they were able to extend the penalty notices’ statutory time limits by many years because of ongoing appeal proceedings against a supplier to our client.

The ability to extend time limits by linking it to a third party appeal is not present anywhere in legislation.  The ability to extend the timeframe, by way of a link to a third party’s assessment is a construct of case law, and it is currently allowed in circumstances where the court is satisfied that a causative link exists between the two.

In the joined cases of JC Harkness & DDS Ltd, we proceeded by way of a hearing of agreed preliminary issue – namely, ”were the penalty assessments raised in time?”. The First Tier Tax Tribunal decision issued on 24 April 2019 found in our favour that HMRC was out of time in raising their assessment, and that a causative link was not present.

Our clients are large distributors of soft drinks and groceries to the retail trade.  In 2010 and 2011 they supplied a well-known supermarket chain with wines.  Our clients had purchased those wines from a long established wine distributor.  In 2013, that distributor was assessed by HMRC for unpaid excise duty in respect of these wines.  Later, in 2014, the supermarket chain also received a penalty notice for handling the wines in question.  However, it was not until three years later, in 2017, that our clients each received penalty notices, exceeding £400,000 in respect of the same series of transactions.  HMRC sought to extend the category of circumstances in which they could raise the penalties with reference to ongoing appeal proceedings in the excise tribunal to include situations involving third party litigation.

The significance of this case:

“Timing provisions for penalty notices and assessments are a key issue, especially in relation to matters where a taxpayer is required to dispute them with a ‘reasonable excuse’ defence.” commented Martin O’Neill, Head of Indirect Tax Litigation who led the Cubism team.

“How can a taxpayer account for something it did not know was significant until many years after the transactions are completed?” Adding, “Key staff may have left, emails deleted, diaries and notes destroyed the longer time passes. Some of this material you would only keep if you knew that the subject was in dispute.”

He continued “The ability to extend time limits by linking it to a third party appeal is not present anywhere in legislation.  It was introduced via a decision in the First Tier Tax Tribunal and subsequently upheld by the Upper Tribunal* and demonstrates how further powers have been granted to HMRC without any sanction by lawmakers in Parliament”, adding “Clearly the time between the conduct giving rise to the penalty and the matter being disputed is a key consideration and should only be extended in extreme circumstances where no ongoing prejudice will result.” 

“It is certainly arguable that in this case, the penalty raised against the supermarket was also ‘out-of-time’ and this underlines the need to carefully analyse the minutiae of any penalty or assessment received”.

 “I would urge anyone who finds themselves in a similar situation to seek specialist advice at the earliest stage of any potential enquiry by HMRC.”

 

*This is now the subject of ongoing proceedings in the Court of Appeal; we were working within the current Tribunal interpretation.

 This publication is for general information only and is not intended to provide legal advice.