Excise penalty regime is ˜unfit for purpose™ and will drive long established and honest 3PLs out of business

June 10, 2013

UKWA is warning that Her Majesty’s Revenue & Customs (HMRC) is imposing draconian sanctions on companies in the excise goods  supply chain that will drive long established and honest firms out of business.

The Association says that logistics service businesses “ including third party warehouse keepers and hauliers “ risk incurring crippling duty assessments and fines if they make any procedural error relating to any ‘duty-suspended’ excise goods that they may store or distribute on behalf of their clients.

Alan Powell, UKWA’s advisor on excise matters, explains: Any breach of duty suspension arrangements creates a ‘duty point’ and means that the company which created that ‘duty point’ has liability for all the duty owed. In addition, the company would also face a ‘wrong doing’ penalty of up to 100 per cent of the duty owed for handling the goods if the duty isn’t paid at the ‘duty point.’

He continues:  Any company that accidentally ‘ticks the wrong box’ while goods are under duty suspense “ whether in production, holding or movement “willcreate a ‘duty point’. And if the company doesn’t pay the duty at that time, a liability of up to 100% of the duty will be incurred for ‘holding’ duty-unpaid goods.

Furthermore, everyone in the supply chain that handles the goods on which the duty hasn’t been paid is similarly liable to the penalty.

Given that excise duty is so high, the risk of such liability can be damaging at best and catastrophic in the worst case.   As one UKWA member has put it:  all it takes is one mistake relating to a large duty risk and an assessment can send companies to the wall!

The situation has arisen as a result of laws passed in 2010 that requires duty to be paid at the earliest of stipulated duty points, including any breach of duty suspension arrangements.  At the same time, HMRC were given powers to raise wrong-doing penalties, which are linked to 100% of the duty potentially at risk.

Everyone accepts that HMRC needs strong powers to deter non-compliance, especially in the light of excise frauds, but such powers must be proportionate and should not jeopardise honest businesses that simply make a genuine error, says Alan Powell.

However, he continues, we are seeing a growing number of cases where long-established and legitimate businesses have fallen foul of the new penalty regime.

He adds: HMRC says that the regime is meant to deter businesses from gaining an unfair advantage and to ‘change the behavior’ of the non-compliant.  But compliant businesses are being punished disproportionately for occasional human or system errors.  

HMRC contends that it is constrained to enforce the law as it stands but has undertaken  to review the proportionality of the penalty regime. 

Following recent high-level discussions with industry, HMRC confirmed that it is keen on having a system that hits fraudsters but does not unduly impact on legitimate trade. Nevertheless, this balance is not easy and no assumptions should be made that any changes will result from the review.

UKWA believes that the random creation of ‘duty points’ as a result of genuine error in the supply chain and the resultant huge assessments and penalties incurred, render the law totally unfit for purpose, as Alan Powell explains:

We have taken initial legal advice from senior counsel about this problem and feel that, as it stands, UK law is inconsistent with the purpose of overarching EU law and clearly lacking proportionality. 

Roger Williams, UKWA’s chief executive officer, comments: The current rules evidently do not deter fraudsters but put legitimate business at great risk.  We will fight this all the way for our members.