OWD – HMRC unable to permit temporary trading pending appeal

In OWD Ltd trading as Birmingham Cash and Carry (in Liquidation) and Anor v HMRC [2019] UKSC 30, the Supreme Court has held that HMRC does not have power under section 88C, Alcohol Duties Liquor Act 1979 (ALDA), or section 9, Commissioners for Revenue and Customs Act 2005 (CRCA), to permit temporary trading pending the determination of an appeal to the First-tier Tribunal (FTT) against HMRC's refusal to grant approval under the Alcohol Wholesalers Registration Scheme (AWRS).

Background

Finance Act 2015 introduced the AWRS scheme requiring wholesalers supplying duty-paid alcohol to be approved by HMRC under section 88C, ALDA.  

OWD, together with a number of other wholesalers (the wholesalers) were already involved in the wholesale supply of duty-paid alcohol when the AWRS scheme was introduced.  They applied to HMRC for AWRS approval. The applications were refused as HMRC was not satisfied that they were "fit and proper" persons.  

The wholesalers appealed to the FTT and requested that HMRC allow them to continue to trade pending determination of their appeals.  HMRC refused and the wholesalers challenged HMRC's refusal by way of judicial review proceedings. 

The challenge was dismissed in the High Court and the wholesalers appealed to the Court of Appeal.  The Court of Appeal held that temporary approval can be granted to a person under section 88C,  ALDA, but not under section 9, CRCA.  

The wholesalers appealed and HMRC cross-appealed, to the Supreme Court.  

Before the Supreme Court, the following two issues were considered:

1. what power does HMRC have to permit a person to carry on trading pending the determination of an appeal to the FTT; and

2. if HMRC does not have such a power or it refuses to exercise it, what interim relief can the High Court grant?  

Supreme Court judgment

The Supreme Court allowed HMRC's appeal against the Court of Appeal's decision that HMRC has the power to permit temporary trading under section 88C, ALDA and dismissed the wholesalers' appeal against the Court of Appeal's determination that HMRC does not have the power to permit such temporary trading under section 9, CRCA.  

With regard to whether HMRC has power under section 88C, the Supreme Court was of the view that as HMRC had concluded that the wholesalers were not fit and proper persons, it does not have the power to grant temporary approval and the Court of Appeal was correct to conclude that consideration of hardship and the impact of the decision were not material to an evaluation under section 88C of whether a person was a fit and proper person.  

Having found that there was no power under section 88C, ALDA, the Court turned to whether there was a power under section 9(1), CRCA, which permits the Commissioners to do anything they consider "necessary or expedient in connection with the exercise of their functions, or incidental or conducive to the exercise of their functions".    The Court concluded that section 9 does not provide an alternative route to section 88C.  This is not only because section 88C permits authorisation under that section, but also because of the attributes of the whole scheme of which section 88C forms part.  If HMRC uses section 9 to allow a trader to continue to trade, HMRC would be holding them out as a "fit and proper" person when it has formed the opposite view under section 88C.  

In relation to the second issue regarding the interim relief powers of the High Court, the Supreme Court noted that if the High Court was to order HMRC to grant temporary approval pending an appeal where HMRC has concluded that the wholesaler is not a "fit and proper" person, it would be requiring HMRC to be satisfied that the wholesaler was a "fit and proper" person, contrary to its actual conclusion.  The High Court's power to issue an injunction is exercisable for the purpose of making a person do something that was within that person's power to do. In the situation under consideration, HMRC did not have such a power.  However, as the case for relief was not made out and there had been an absence of debate in relation to it, the Supreme Court decided not to express a definitive conclusion on this issue. 

Comment

As the Supreme Court has confirmed that (1) HMRC does not have power to permit temporary trading pending the determination of an appeal to the FTT against its refusal to grant approval under the AWRS; and (2) the High Court cannot grant interim relief, in the form of an injunction permitting temporary trading, taxpayers who have been refused HMRC approval under the AWRS, will have to apply to the FTT to expedite their appeals. Given that the FTT is already very busy, it is difficult to see how it will be able to cope with an influx of requests for expedited appeals.  

The Supreme Court also commented that the AWRS legislation may be incompatible with the ECHR and it will be interesting to see if the government amends the legislation to permit temporary trading pending the determination of an appeal to the FTT.  

The judgment can be viewed here.