Customs and excise quarterly update - August 2024

Welcome to the August 2024 edition of RPC's Customs and Excise Quarterly Update.

News

1. HMRC has released a report which details the outputs of their strategy to tackle alcohol smuggling. The HMRC Alcohol Strategy was originally launched in 2010 and updated in 2016 and its focus was to address the estimated £1.2 billion per year in alcohol tax revenue which goes uncollected, due to fraud or error.
   
   HMRC's report sets out how much alcohol has been seized, how many criminal convictions there have been, and how many wholesalers have been approved by HMRC under the Alcohol Wholesaler Registration Scheme (AWRS), since 2016. The figures show that the volume of alcohol seized peaked in 2016/17, with a steady decline until 2022/23, when there was a slight increase. The number of arrests and prosecutions dipped dramatically during the Covid-19 pandemic and is yet to return to pre-pandemic levels. The number of annual AWRS approvals was naturally highest when it was first introduced and has remained consistent thereafter.

    

2. The government announced at Budget 2024 that it would introduce a new Vaping Products Duty, from October 2026. HMRC published a consultation in March 2024, in which it set out the proposals for how the duty will be designed and implemented and requested input from stakeholders and interested parties. The government is currently considering the responses to this consultation. The stated intention behind the new Vaping Products Duty is to make vaping products less affordable for young people.
   
   

3. At the 11th Ministerial Conference in December 2017, a group of 71 World Trade Organisation members agreed to initiate exploratory work towards future WTO negotiations on trade-related aspects of e-commerce. In January 2019, 76 WTO members confirmed in a joint statement their intention to commence these negotiations. As is the case for all joint statement initiatives, participation in the joint statement initiative on E-commerce (JIEC) is open to all WTO members and on 26 July 2024, the UK joined the JIEC.  Once in force the JIEC will ban customs duties on digital content, which should lower costs for UK businesses and help protect UK consumers from online fraud. The JIEC will commit participants to digitalise their customs documents and processes, recognise e-documents and e-signatures, and implement legal safeguards against online fraudsters and misleading claims about products.

Case reports

1. Electric Mobility Euro Ltd and Sunrise Medical Ltd v HMRC [2024] UKFTT 590 (TC)

Electric Mobility Euro Ltd and Sunrise Medical Ltd (the Appellants) imported 29 different models of mobility scooter (and mobility scooter parts) into the UK.  HMRC issued C18 post-clearance demands in excess of £1.3m, seeking customs duty and import VAT (the C18) and refused an application for a refund of customs duty and import VAT.  Most of the importations took place prior to the UK's departure from the EU, though some took place during the 'implementation period' during which EU law continued to apply in the UK.  The Appellants appealed the C18 to the First-tier Tribunal (FTT).

The issue for determination by the FTT was the correct classification of the mobility scooters.  Either they were 'vehicles principally designed for the transport of persons' (heading 8703 of the Combined Nomenclature (CN)), in which case they would attract duty of 10%, or they were 'carriages for disabled persons' (heading 8713 of the CN) in which case their importation would be free of duty.

Existing case law (Invamed C-198/15) determined that 'the words “for disabled persons” in heading 8713 of the CN, mean that the product “is designed solely for disabled persons”', that 'the fact that a vehicle may be used by non-disabled persons is irrelevant to the classification under heading 8713', and '“disabled persons” … means persons affected by “a non-marginal limit on their ability to walk”; the duration of that limitation and the existence of other limitations to their capacities [were] irrelevant'.

The FTT held that, on the facts, the mobility scooters were designed for persons with a non-marginal limit on their ability to walk.  The fact that some of the scooters provided their users with more than just mobility (for instance, some had a basket for carrying goods) did not detract from this, and nor did the fact that the scooters provided mobility at a greater speed than walking pace.  Moreover, they were intended solely for those with non-marginal limitations on their walking ability. Those without such limitations have better alternatives than 'being lumbered with a cumbersome vehicle unable to negotiate commonly occurring phenomena like steps' which was inferior to the obvious alternatives for both short and long-distance travel.  In the view of the FTT, this reasoning was not affected by the wording of Commission Regulation (EC) No 718/2009 of 4 August 2009. 

The FTT allowed the appeal, finding that the scooters fell within heading 8713 of the CN and attracted a nil rate of duty. 

Why it matters

This decision provides useful guidance on customs duty classification rules.  The decision highlights the complexity and technical nature of the application of the rules to specific products.  Importers would be well advised to obtain appropriate professional advice.

The decision can be viewed here.

2. Giles Bunting v HMRC [2024] UKFTT 00431 (TC)

Giles Bunting (the Appellant), appealed to the FTT against HMRC's decision to issue an assessment to excise duty in the sum of £808,842 and an associated penalty of £161,768.

The Appellant is the owner of a farm which rents out storage units in a barn situated on the farm. HMRC visited the farm unannounced and found duty-unpaid cigarettes in one of the storage units rented to a third party. The person found to be using the storage unit at the time was assessed to excise duty on the cigarettes. HMRC also issued a notice of joint and several liability to pay the assessment to the Appellant, on the basis that he was 'involved in the holding of' the cigarettes, for the purposes of Regulation 10(2), Excise Goods (Holding, Movement and Duty Point) Regulations 2010 (HMDPR). HMRC also issued the Appellant with a penalty notice under paragraph 4(1), Schedule 41, Finance Act 2008 (FA 2008) for being 'concerned in … keeping … the goods'.

The FTT concluded that a property owner who agrees to allow a third party to store goods on their property is not automatically considered to be 'involved in holding' or 'concerned in … keeping' or otherwise dealing with those goods under regulation 10(2), HMDPR, or paragraph 4(1), Schedule 41, FA 2008. The owner is only deemed involved if they know, or should have known, that excise goods are being stored. In this case, the Appellant neither knew nor should have known about the excise goods, and no other relevant circumstances applied.

The FTT therefore allowed the Appellant's appeals.

Why it matters

This decision provides useful guidance to taxpayers on the meaning of 'involved in the holding' and 'concerned in' for the purposes of excise duty legislation.  The decision also serves as a warning to those in similar circumstances who provide rental property to make sure sufficient due diligence is carried out on those renting their property and that appropriate contracts are entered into.

The decision can be viewed here.

3. Hayat Estates Ltd v HMRC [2024] UKFTT 00497 (TC)

Hayat Estates Ltd (the Appellant), appealed to the FTT against HMRC's decision to issue an assessment to customs duty in the sum of £71,594.95. The assessment related to consignments of personal protective equipment (PPE) imported by the Appellant (under EU law referred to as the Disaster Relief provisions) between 10 May 2020 and 22 July 2020, during the COVID-19 pandemic. These included face masks, face shields, gowns and gloves (the Goods).

In broad terms, the Disaster Relief provisions meant that there would be no customs duty applied where the import of goods was made by, or on behalf of, State organisations, or other philanthropic or charitable organisations (an Eligible Organisation) approved by the competent authorities of the Member States, for distribution free of charge to victims of disasters.

The Appellant sought customs duty relief on the basis that they met the duty relief conditions under the Disaster Relief provisions. HMRC disagreed and argued that not all of the imported goods met the duty relief conditions under the Disaster Relief provisions.

The issues in the appeal were:

1. whether sufficient evidence had been provided by the Appellant to show that an Eligible Organisation actually received the Goods; and
2. whether the Goods were then distributed free of charge within the UK, in accordance with the conditions of entitlement to the Disaster Relief.

The FTT dismissed the Appellant's appeal.

In the view of the FTT:

1. The Disaster Relief provisions did not apply to private organisations and commercial enterprises which were excluded from the definition of an Eligible Organisation.
2. The Disaster Relief provisions applied to medical supplies, equipment and protective garments following the outbreak of COVID-19.
3. The Disaster Relief provisions provided that the Goods must be distributed for circulation free of charge to victims of disasters.
4. Competent authorities must, not only be notified of any change of use and approve the new organisation, but must also be in a position to grant relief, which is only possible if goods are distributed in the territory of the State in question.

In relation to the Appellant, the conditions of the Disaster Relief provisions had not been met in relation to the Goods because:

1. Although the Goods were originally imported for free circulation on behalf of an Eligible Organisation, not all of the Goods were supplied to an Eligible Organisation and full audit trails were lacking in respect of whether the Goods were distributed free of charge.
2. Certain organisations (NHS Norfolk and Waveney Clinical Commission Group, East Anglian Air Ambulance and Norfolk County Council), on whose behalf the Appellant imported the Goods, cancelled their orders.
3. John Radcliffe Hospital cancelled their order despite being an Eligible Organisation.
4. Goods which were destroyed due to not meeting British Standards Institute standards, or those returned to the suppliers for settlement, did not qualify for the Disaster Relief.
5. Regal Healthcare Properties Ltd and IDC Ltd are private companies/commercial entities, and not State bodies, philanthropic or charitable organisations.
6. A full audit trail was lacking in respect of IDC Ltd and the claimed distribution to care homes.
7. Kent County Services cancelled their orders and the issue of whether they are an Eligible Organisation was therefore academic.
8. A full audit trail was lacking in respect of the supplies made to Edhi International Foundation UK, despite the acceptance that it is a registered charity.
9. Phoenix Resource Centre made supplies to Romania and thus failed to meet the condition that the Goods were to be used in the UK.
10. Family, friends and the community did not qualify for the Disaster Relief.
11. Returns were made to Elsa Pharma Kissel Bakin Ve Sag as one of the suppliers.

In light of certain concessions made by HMRC during the course of the proceedings concerning the supplies made to East Sussex NHT Trust, that aspect of the appeal was remitted back to HMRC in order for adjustments to be made to the relief granted with the consequence that the assessment be adjusted.

In response to the Appellant's argument that HMRC demonstrated an inconsistent approach in its interpretation and application of its guidance on the Disaster Relief provisions, the FTT said that it did not have the necessary jurisdiction to consider such an argument. It was limited to considering the application of the statutory provisions to the facts of the case.

Why it matters

The decision highlights the importance of preserving all relevant documentary evidence in order to satisfy HMRC in duty relief claims. In this case, the Appellant was unable to fully evidence the duty relief claimed and the FTT therefore concluded that the Appellant was unable to demonstrate that it met the conditions for Disaster Relief.

The decision also provides helpful analysis of the conditions that apply under the Disaster Relief provisions.

The decision can be viewed here.