Excise duty: penalty time limits

• Penalties for handling alcohol where excise duty not paid were out of time
• Where those assessed for the duty had handled the goods beforehand, time limit for penalty on subsequent handler of the goods was 12 months from unpaid duty being ascertained
• J C Harness & Co and DDS Supplies Ltd v HMRC [2019] UKFTT 272 (TC)

The company which sold the alcohol to the first appellant was assessed for the unpaid duty in 2013. The appellants were not assessed for the relevant penalties under appeal until 2017 however. The tribunal concluded that the penalties were raised out of time as the 12 month time limit ran from the date HMRC ascertained the amount of unpaid duty when assessing the seller in 2013 and not when the seller's appeal of that 2013 assessment was concluded.

Although HM Revenue & Customs (HMRC) can only recover an amount of unpaid excise duty from one person, it has powers to pursue various people involved in the supply chain for the duty. There has been a recent line of cases in the tax tribunal which have been exploring whether, in circumstances where there has clearly been an identifiable duty point at one point in the supply chain (with duty going unpaid), HMRC are nevertheless able to argue further duty points can also arise later in the chain such that later participants might be assessed for the unpaid duty instead. HMRC also has wide powers to impose penalties on a range of people involved in supplying, storing and transporting goods subject to excise duty, such as alcohol.

A recent First-tier Tribunal (FTT) case (31-page / 856KB PDF) considered the time limits for penalties to be assessed on those involved in the supply of alcohol which had not had excise duty paid earlier in the supply chain when a duty point had clearly arisen.  

From June 2010 to January 2012 Harness (the first appellant) bought wine from a company called Dawson’s (Wales) Ltd (DWL) and sold it to a supermarket with the second appellant (DDS Supplies) acting as broker. Following an HMRC visit to Harness's premises on 30 November 2011, HMRC formed the view that excise duty had not been paid on the wine where the duty point had been passed. HMRC assessed DWL for unpaid duty in 2013, DWL appealed and the appeal was still unresolved.

HMRC assessed the supermarket for a penalty for handling goods subject to unpaid excise duty in April 2016 and in May 2017 HMRC assessed the relevant penalties under appeal on the appellants. For completeness, it should be flagged that HMRC did issue earlier penalty assessments to the appellants but these were withdrawn and replaced by the 2017 ones.

The penalties were imposed under Schedule 41 of the Finance Act 2008.  Paragraph 16(4) of that schedule, says an assessment of a penalty must be made before the end of the period of 12 months beginning with:

• the end of the appeal period for the assessment of tax unpaid by reason of the relevant act or failure in respect of which the penalty is imposed, or
• if there is no such assessment, the date on which the amount of tax unpaid by reason of the relevant act or failure is ascertained.

The appellants argued that their penalties were out of time because under para 16(4)(a) there was no tax assessment which related to the relevant act which gave rise to their penalties and under para 16(4)(b) it was more than 12 months since the amount of unpaid tax had been ascertained. HMRC argued the relevant tax assessment for the purpose of the time limit could be the assessment on DWL which was still under appeal, making the penalty assessments received by the appellants still in time.

General Transport case

The Upper Tribunal (UT) considered a similar issue in a case concerning General Transport SpA (GT). GT had been assessed to an excise duty wrongdoing penalty in respect of a movement of wine on which its customer had been assessed to pay the duty. GT had arranged the transport of the wine from Italy in one of its containers on behalf of its customer (GBT), but had not known that wine was being transported. Before the assessment to a penalty, GT had been itself assessed for the duty, but HMRC had then withdrawn that assessment and had assessed GBT for the duty instead.

The UT decided that the withdrawn assessment on GT could not drive the determination of the time limit for the purposes of para 16(4)(a). However, the tribunal decided that the penalty was within the para 16(4)(a) time limit because it was within 12 months of the appeal period for the assessment on GT's customer. The tribunal said that the question was whether the tax (for which HMRC decided to assess GBT) was unpaid by reason of the relevant act or failure in respect of which the penalty was imposed on GT. The UT said paragraph 16(4)(a) is simply asking whether GT’s act or failure caused the tax which was assessed on GBT to be unpaid. The tribunal said that even though GT was not aware that there was wine in the container, its acts in arranging transport of the container containing the wine caused it to come into the UK in circumstances where UK excise duty was not paid. This caused the tax assessed on GBT to be unpaid.

FTT decision in Harness case

In the Harness case, the appellants dealt with the goods after the duty point assessed by HMRC (DWL's acquisition of the goods) arose. The judge said that although further duty points could have arisen, para 16(4)(a) sets a time limit for assessment of a penalty by reference to the duty point for which the duty assessment was raised – and in this case the only duty assessment raised was on DWL – which was before Harness dealt in the goods.

The judge said that applying the literal wording of para 16(4)(a) and the interpretation given to it by the Upper Tribunal in General Transport, the appropriate time limit for the penalty assessment on the appellants was that in para 16(4)(b) because there was no assessment to duty unpaid by reason of the act in respect of which the penalties were imposed (the dealing by the appellants in the wine). This differentiated the case from General Transport where the action which led to the penalty had been before the person who was assessed had acquired the goods.

The judge said the para 16(4)(b) time-limit is meant to apply in circumstances where there is no assessment to the duty in respect of the act which gives rise to the penalty.  It is the ‘alternative’ time-limit which applies when there is no such assessment so it is clearly referring to a duty liability that was not assessed, she said.

The time limit under para 16(4)(b) is 12 months from "the date on which the amount of tax unpaid by reason of the relevant act or failure is ascertained". The judge said that the question was when was the excise duty ascertained, and not when was the penalty ascertained. She said that in this case HMRC ascertained the duty when they assessed DWL to the duty.

The judge said that the 12 month time limit starts to run from when the tax is first ascertained, even if that first ascertainment contains an error. The duty was ascertained again in 2016 when the supermarket was assessed to a penalty, and then again when the appellants were first purportedly assessed to a penalty in 2016 (later withdrawn and replaced by the 2017 penalties), but she said these 're-ascertainments' did not re-start the clock for making an ascertainment.

DWL was assessed for the unpaid excise duty in 2013 and the appellants were not assessed for the penalties under appeal until 2017, so the penalty assessment on the appellants was outside the 12 month time limit.

Because this hearing only concerned a preliminary issue (based on assumed facts) the tribunal did not go as far as allowing the appeals. The tribunal did however give HMRC a strong steer the penalties should withdraw.

Implications

The excise duty regime is complex and there are many situations where those involved in the supply chain can become liable, where a duty point has arisen, for unpaid duty and/or can be liable for a penalty.

The decision illustrates the importance of considering time limits whenever a penalty assessment is received. In addition anyone involved in the supply of goods subject to excise duty should consider carefully their obligations under the complex regime and should ensure in particular  that they carry out the appropriate due diligence to make sure, for example, they are not dealing in goods where duty goes unpaid after the duty point.