Logistics And Warehouse Operators Concerned Over Excise Duty Application

UK – After a change to the regulations, concern is growing that third party logistics suppliers could face huge penalties over duty remaining unpaid on goods in their care. In April last year HMRC were awarded powers to ‘assess anyone for duty on goods illegally diverted from bonded movements who was “aware or should reasonably have been aware” of the diversion at any point in the supply chain.’ According to the United Kingdom Warehousing Association (UKWA) warehouse keepers and hauliers face “financial ruin” if knowingly – or unknowingly – they handle excise cargo on which the duty has yet to be paid.

The UKWA say that the wording of this new power, the 'Renewal of the Tackling Alcohol Fraud Strategy', springs directly from precedent in VAT fraud case law and has widespread implications because HMRC has promised to apply the lessons successfully learned in VAT to excise duty fraud anywhere in the supply chain. In addition, HMRC can also issue severe ‘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.

In simple terms, this means that if an organisation has been involved at any stage in the supply of goods that have been illicitly diverted from a bonded supply chain, it could be liable for duty – even if that organisation is not directly responsible for the diversion but has ‘means of knowledge’. Based on legal precedent, this could simply include knowledge of fraud in the market, in which the businesses participate.

Just before Christmas police and plain clothed Customs officers raided the premises of Eastenders Cash and Carry in Birmingham as part of a huge operation involving 200 HMRC staff investigating an alleged £50 million fraud involving non payment of duty on imported alcohol. Twenty men were arrested in a series of raids on 12 commercial and 17 domestic premises across the South East and the Midlands plus more in continental Europe but an Eastenders spokesman refused to comment as to whether any of their staff were detained and confirmed the company’s six depots were all trading as usual.

The worry for the UKWA’s seven hundred or so members, or indeed any company in a similar position, is that, under the new system, companies run a serious risk of being involved inadvertently and in November the Association warned anyone who handles excise goods to take extra care when handling or in any way dealing in such products.

The anti fraud powers mean that HMRC can penalise anyone found handling goods out of bond, with or without knowing the status of the cargo. What is even worse is that the penalties for transgressing the rules can extend over three different areas; potential of lost duty to 100% of the amount the HMRC deem to be owed, seizure of the goods and their permanent confiscation, plus penalties for any other goods which HMRC believe may have been previously handled without payment of Excise duty. Alan Powell of Alan Powell Associates, UKWA’s honorary advisor on excise duty matters, commented:

“Warehouse keepers and third party owners of goods, hauliers and couriers handling the goods as well as wholesalers and retailers – in fact anyone handling the product in the chain - can now be held liable to the duty if it can be shown by HMRC that they knew or should have known that duty was not, or would not be, paid on the product.

“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, HMRC can also make an assessment for any and all stock put through a business that it believes to be duty unpaid.In essence, if you touch ‘suspect’ goods in the course of your business, you will be deemed to be ‘contaminated’ and liable to penalties and the full duty.

“Beyond carrying out the usual due diligence when entering in to a contract, there is not much that a company can do to protect themselves. Even then, if VAT precedent is followed, due diligence may be no protection if HMRC alleges knowing participation in a market tainted with fraud.”

Anyone concerned that they may be exposed to a situation in which they could be construed as complicit when undertaking freight or storage operations of goods liable to bond conditions at any stage of their transit should take steps to ensure they can evidence that all is in order regarding the payment of duty. Even if deemed totally guilt free, retention of the seized goods by HMRC will mean that an innocent party can not even obtain a lien against the shipper for monies owed to them on the confiscated goods.

Full details of the HMRC powers to recover duty evaded can bee seen HERE.