Alan Powell

Following representations by the United Kingdom Warehousing Association (UKWA), Her Majesty's Revenue & Customs (HMRC) has announced an internal review of the way sanctions are applied within excise law to companies operating in the excise goods supply chain.

The UKWA has argued that logistics service businesses - including third-party warehouse keepers and hauliers - risk incurring duty assessments and huge related penalties if they make a simple procedural error relating to 'duty-suspended' excise goods that they may store or distribute on behalf of their clients.

Alan Powell, UKWA's advisor on excise matters, says: "We identified significant dangers in the law introduced in 2010 that can result in honest businesses being assessed for duty as a result of a genuine minor error in the duty-suspended supply chain - literally 'ticking the wrong box'.

Powell explains that such duties become a cost to the business in the form of double taxation or a de facto penal levy, for example when duty is assessed due to an 'irregularity' on exported goods that no longer subsist in the UK or EU. "By ticking the 'wrong box' while goods are under duty suspense - whether in production, holding or movement - a company effectively creates a 'duty point' and if duty is not paid at that time, a liability of up to 100% will be incurred for 'holding' duty-unpaid goods."

He adds: "As UK law currently stands, legitimate businesses are facing massive risks of 'unfair taxation' for each and every minor genuine error during transactions, together with associated penalties. Meanwhile, those who actively seek to cheat the revenue by 'committing irregularities' in the supply chain continue to flourish almost unhindered."

However, Powell points out that, in fairness to HMRC, there has been concern within sections of the department for some time that the current sanctions may be disproportionate and have unintended consequences.

Prior to the review being announced, Powell was invited by HMRC policy officials to discuss industry concerns and problems with the law he had identified and brought to their attention. Most of those concerns have been identified as themes within the draft terms of reference of the review.

"What we would like to see is a formal mechanism for HMRC to be able to remit duty in cases of irregularities caused by genuine error where the relevant products have been secured in a tax warehouse or there is proof of export.

"Without such assurance, we believe UK law breaches the principle of proportionality and fundamental rights and, consequently, excise businesses face being taxed and penalised out of existence for genuine errors that involve no material revenue risk. Then who would legitimately collect and pay the GBP40-odd billion excise duties to the Exchequer per year?", Powell ponders.

The findings of HMRC's review will be released on 31 March 2014.