The First-tier Tax Tribunal have ruled in the case of B&M Retail Ltd v HMRC UKFTT 34 (TC).
HMRC had discovered that the company was unable to substantiate whether UK duty had been paid on substantial stocks of alcoholic drinks. An assessment and penalty were raised. The company attempted to appeal the penalty on a number of grounds. All of these grounds were rejected by the tribunal:
- The penalty was invalid as it was based on an initial assessment that was subsequently revised following the discovery of an arithmetical error on HMRC’s behalf – the tribunal held that there was no reason why a revision to the assessment should make the penalty invalid, although it held that the penalty should be reduced to reflect the amended amount.
- B&M believed that they had a reasonable excuse in that the terms and conditions with their suppliers required a warranty that the supplier had complied with UK legislation and would reimburse B&M for any such breach and that as such they had done all they reasonably could do to ensure that the goods were duty paid – for a number of reasons the tribunal held that B&M’s due diligence procedures, including their terms and conditions and order documentation, were insufficient to enable them to reasonably conclude that duty had been paid on any particular supply of goods.
- B&M argued that a number of special circumstances applied to them, essentially the penalty was flawed as HMRC had issued it without considering all of the submissions that B&M had made to them – this argument was somewhat circular in that the principal evidence that HMRC had allegedly ignored was the due diligence procedures which the tribunal had already decided did not constitute a reasonable excuse, as such the tribunal held that there were no special circumstances.
- B&M argued that the penalty should be calculated on a “unprompted” basis as they believed that by having due diligence procedures in place they had acted in good faith and had not deliberately concealed matters – the tribunal held that “unprompted” was a question of fact, the legislation stated that it would only apply if the person making the disclosure “has no reason to believe that HMRC have discovered or are about to discover the relevant act or failure” and that as already stated the company’s due diligence procedures did not provide a reasonable excuse.
- B&M argued that the penalty was disproportionate and unfair – the tribunal felt that the company’s argument here essentially rehashed its already discredited reasonable excuse argument; B&M also argued that the penalty should be based on the actual settlement negotiated with HMRC rather than the full amount of the outstanding duty, however the legislation was clear that the penalty should be based on the potential lost revenue i.e the actual amount of tax at stake.
https://www.bailii.org/uk/cases/UKFTT/TC/2023/TC08693.html
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