Judgment summary
B&M Retail Limited appealed against a penalty of £1,172,340.94 imposed under paragraph 4 of Schedule 41 to the Finance Act 2008 for acquiring possession of excise goods, mainly beer and wine supplied by Ruby Trading Company Limited, where duty payment could not be verified (1)-(2).
The appeal had a lengthy procedural history: the FTT originally dismissed the appeal in 2023 ([2023] UKFTT 00034 (TC)), but the Upper Tribunal set that decision aside for procedural unfairness in [2024] UKUT 00409 (TCC) and remitted the case for a fresh hearing before a differently constituted panel, based on the existing findings of fact plus limited further evidence on the Appellant's due diligence procedures on onboarding the supplier (4).
The Tribunal, having considered the preserved findings of fact, additional agreed evidence and submissions, found that the Appellant had established a reasonable excuse under paragraph 20 of Schedule 41 and allowed the appeal (7), (64)-(67).
Background
The Appellant is a national retailer operating a value-based business model, sourcing alcohol from wholesale intermediaries including Ruby, a long-standing supplier since approximately 2005 (2), (37).
Between 2010 and 2011, HMRC detained and seized several consignments of beer and wine supplied by Ruby because it could not verify that UK excise duty had been paid (2), (40)-(46). Following a series of excise duty assessments, most later resolved between the parties, HMRC imposed the penalty now under appeal on the basis that the Appellant had acquired goods on which duty was outstanding (2).
The Appellant accepted, for the purposes of the statutory regime, that it was treated as having held goods on which duty was unpaid; the sole issue was whether it had a reasonable excuse under paragraph 20 of Schedule 41 (3).
Core dispute
The parties agreed on the applicable legal framework, including that liability arises under paragraph 4 of Schedule 41, that the burden lies on the Appellant under section 154(2) of the Customs and Excise Management Act 1979 to show duty had been paid, and that the test for reasonable excuse is the objective test in Christine Perrin v HMRC [2018] UKUT 156 (TCC) (10)-(11).
HMRC argued that the Appellant, as an experienced and sophisticated retailer operating in the wholesale 'grey market', acted unreasonably in continuing to trade with Ruby despite repeated detentions and seizures, which it said were clear warning signs requiring cessation of trading, and that reliance on supplier assurances, invoices and contractual warranties was insufficient (13)-(15).
The Appellant argued that it operated detailed, HMRC-guidance-consistent due diligence procedures, including onboarding checks and transaction-level verification, obtained assurances from a reputable long-standing supplier, and that it was commercially unrealistic to obtain definitive proof of duty payment in a multi-intermediary wholesale market; it contended it had taken all reasonable steps available (16)-(18).
Court findings
The Tribunal declined to admit further witness evidence from HMRC's officer, Mr Neil Smith, served after remittal, on the basis that it amounted to commentary on the ultimate issue rather than relevant factual evidence within the scope of the remittal (21)-(23).
The Tribunal found that the Appellant operated structured and consistent supplier onboarding and transaction-level due diligence procedures, generally followed by its buying teams, consistent with HMRC guidance at the time (32)-(36).
It found that the Appellant did not know, and could not commercially be expected to know, the upstream supply chain, and that HMRC itself was unable, despite extensive investigation, to establish conclusively whether duty had been paid or to identify the point in the supply chain where duty was lost, this being a 'missing trader' issue (39), (48)-(50).
The Tribunal found that the Appellant's continued trading with Ruby after the earlier seizures in March 2010, November 2010 and March/April 2011 reflected reliance on supplier assurances, financial recovery from Ruby, and the absence of any clear direction from HMRC to cease trading, rather than disregard of risk (41)-(43), (59).
Following a further, more serious intervention on 23 November 2011 in which HMRC indicated a wider issue with Ruby's supplies, the Appellant placed a stop on Ruby's account and ceased trading, reflecting a loss of confidence rather than earlier awareness of non-payment (44)-(47).
The Tribunal held that seizures demonstrated that HMRC could not verify duty payment, not that duty had definitively not been paid, and that this distinction was material to assessing what a reasonable trader would have understood at the time (58). It held that the Appellant's conduct fell within the range of responses open to a reasonable trader and that HMRC's position would effectively require a standard of certainty not required by the legislation (60)-(62).
Outcome
The Tribunal concluded, applying the Perrin approach, that the facts relied upon by the Appellant were established and, viewed objectively, amounted to a reasonable excuse under paragraph 20 of Schedule 41 (64).
It found that any reasonable excuse continued until the Appellant ceased trading with Ruby following the November 2011 intervention, with no proper basis to conclude the excuse ceased earlier (65).
The Tribunal held that the Appellant had established a reasonable excuse, the penalty could not stand, and allowed the appeal (66)-(67).
Major issues / areas of contention
- Whether the Appellant had a reasonable excuse under paragraph 20 of Schedule 41 to the Finance Act 2008 for acquiring excise goods on which duty payment could not be verified.
- Whether the Appellant's due diligence procedures, including supplier onboarding and transaction-level checks, were sufficient in the circumstances.
- Whether repeated HMRC detentions and seizures of goods supplied by Ruby should have caused the Appellant to cease trading with Ruby at an earlier stage.
- The admissibility and relevance of further witness evidence served by HMRC following remittal from the Upper Tribunal.
- The scope of the remittal from the Upper Tribunal and reliance on preserved findings of fact together with limited additional agreed evidence.