The Customs and Excise Management Act 1979 (CEMA) will be strengthened from 1 April 2011 to improve HM Revenue & Customs (HMRC) ability to tackle excise fraud.
The legislation affects:
Anyone who buys, sells, imports, exports, deals in, or handles any goods which are subject to Excise Duty – also premises that hold or store anything that may be used in the conduct of such trade. This applies regardless of who owns or occupies the premises.
Inspections - Existing powers of entry are strengthened so HMRC can inspect documents, as well as goods. The CEMA Section 161A search warrant is also extended to include documents. Current policy that HMRC does not inspect premises used solely as dwellings is now in the law.
Information notice - There is a new Tribunal approved Excise Information Notice. HMRC can use this to obtain information about revenue traders and goods from third parties, for example banks, landlords or haulage firms. If they don't provide the information they can be penalised.
Time limits - The time limits for assessments and claims increase from three years to four. There will be a transitional period from 1 April 2011 to 31 March 2012 before the new time limits become fully operational from 1 April 2012. There is a 20 year time limit for assessments where money is due because the person has deliberately not paid it.
Record keeping - There are minor changes to record keeping requirements to help align them with the other taxes.
This is the next stage to modernise HMRC’s information and inspection powers following the merger to form the new department.
The department set up the Review of HMRC Powers, Deterrents and Safeguards after Customs and Excise merged with the Inland Revenue to form HMRC. The departments had different legislation and each tax had its own approach to checking compliance. Safeguards to protect customers were varied.
The review consults customers, representative bodies, and HMRC staff. It aims to provide an improved and consistent framework of powers and safeguards.
The powers HMRC uses to check most taxes were modernised and aligned in the Finance Acts 2008 and 2009. It means HMRC has one set of compliance checks powers for these taxes to inspect premises, assets and records and to ask taxpayers and third parties for information and documents.
Now HMRC is amending its powers to check excise duties. The review consulted on the changes in July and December 2009. HMRC published draft legislation in January 2010. Industry groups are largely supportive of the changes.
HMRC’s excise powers developed over many years. They focus on the control of goods because the issues excise faces, such as smuggled goods, are significantly different from those in other taxes. That’s why HMRC reviewed it separately to the other main taxes.
No this is about getting people to pay the correct duty at the right time. These powers allow HMRC to more effectively tackle those who don’t comply, making it fairer for the legitimate trade.
Excise Duty makes up a large proportion of the selling prices of these goods. There is a high risk of fraud, for example when alcohol or tobacco is shipped and the duty is suspended. Criminals, who sell these goods without paying the Excise Duty, undercut the legitimate trade.
Traders and representative bodies throughout the consultations have supported the need for HMRC to have robust powers to effectively tackle the illicit trade. They understand specialist powers are required for the department to do this.
Traders benefit from being in the Excise Duty suspension system, as they can store or ship goods with the duty suspended. Because of the risk of fraud these benefits come with strong controls.
The aim of the compliance checks legislation was to align powers where appropriate to do so, not to enforce a ‘one-size-fits-all’ approach.
The main focus of excise checks is to inspect the goods, although paperwork may also be checked to verify the origin, duty status and destination of goods. The department needs to have powers to enter premises where excise goods are stored, legitimately or not, to check them before they are moved. To do this it needs robust, specialist powers.
Responses to the excise consultations have consistently said that, given the different risks that apply, it should not be treated the same as other taxes. That’s why the existing excise powers, which are different to those for the other taxes, have been kept, and in some cases strengthened.
Yes it has. HMRC asked for views on safeguards that could be introduced into excise legislation. Following representations from the industry a consultation document was issued in July 2007 on the excise review and appeal provisions. The aim was to identify any decisions that ought to be appealable.
There were already rights of appeal against most excise information and inspection powers. Finance Act 2008 extended those rights where there were gaps. It also removed the compulsory HMRC review for excise from 1 April 2009. Now people can appeal direct to the Tribunal or choose to have a review first.
Check on what to do if you disagree with an HMRC decision.
Current policy that HMRC does not inspect premises used solely as dwellings is now in the law.
Under Sections 112 and 118 of the Customs and Excise Management Act (CEMA) 1979, excise officers have the right to enter premises where there is revenue trade being carried out.
The new legislation:
A revenue trader is any person carrying on a trade or business subject to any of the revenue trade provisions of the Customs and Excise Acts.
Unannounced visits are a crucial part of HMRC’s compliance checks. Because excise goods can be moved quickly officers must be able to visit premises without notice. Stakeholders recognised and accepted this during consultation.
Officers will usually be able to get the information or documents they need through an informal request. There will however be times when they have to use statutory information powers.
For example the department has an agreement with the British Bankers Association that it will not make informal requests for information. Sometimes it is impractical to ask for information first, for example there may be a possibility of collusion between parties.
The Tribunal has the power to approve a notice without a written request if it is convinced on the need to give no warning.
HMRC can require a person to provide documents that are reasonably required for the purpose of protecting, securing, collecting, or managing Excise Duty. It must have reasonable cause to believe the person is in possession or control of the information and documents required.
HMRC can obtain information from anyone who is not a revenue trader but who has information relevant to an excise check. Examples include haulage firms, landlords of premises where excise goods are stored, and banks.
Before an HMRC officer can request information from a third party they must seek approval from the Tribunal. As part of that application they will need to satisfy the Tribunal they have reasonable grounds to believe that the person who will receive the notice is in possession or control of the information. The person must have had opportunity to make representations to the officer, including whether they have the information.
However, an application can be made to the Tribunal without prior requests being made to the person concerned. This should only happen if an officer considers that prior notice may put the revenue at risk.
Use of the information notice includes several safeguards:
These safeguards provide assurance that the power is used correctly and protect customers, the department and its officers.
HMRC can’t use an information notice to ask for:
Officers must not issue an Excise Information Notice for information or documents that they did not have the power to require before 1 April 2011.
If the recipient of an Excise Information Notice fails to comply they may be charged a penalty. There are two occasions when HMRC may charge a penalty:
1. When a person fails to provide the required documents and information.
2. When a person destroys or conceals documents which are, or an officer has said may be, required by an Excise Information Notice. The person may also be fined or imprisoned.
If the person has a reasonable excuse for the failure to supply the information there will not be a penalty.
There are three types of penalty - an initial penalty, a daily penalty, and a tax-related penalty.
Daily or tax-related penalties cannot be charged unless an initial penalty has been assessed. The amount of the initial penalty is £300.
A person can appeal against initial and daily penalties, but not a tax-related penalty. A tax-related penalty can only be applied after an Upper Tribunal hearing so the person will get an opportunity to make their case then anyway.
The officer must get their line manager’s agreement before assessing an initial penalty. Once their manager agrees, they will write to the person warning them that HMRC will assess a penalty of £300 if they do not comply with the notice within 14 days from the date of the letter.
However, a person who deliberately destroys records required by an information notice has already been warned in the notice that their actions may be penalised. No further warnings are given in these cases.
A daily penalty of up to £60 a day can be assessed for each day that the failure to provide the information continues after the initial penalty was assessed.
When HMRC is deciding the level of daily penalty it will consider:
Daily penalties start from the day after the date on which the initial penalty was assessed. They may only be assessed with the agreement of an authorised officer. They may be charged where an initial penalty has been assessed, but the person continues to fail to provide the information.
An authorised officer is a specially trained HMRC officer who has the authority to do certain actions or who authorises other officers to do certain actions.
They will review the request to issue a notice, or assess a penalty, and determine whether what is being requested is:
Where an authorised officer has to give agreement they will be responsible for ensuring the use of HMRC’s powers is reasonable, proportionate and complies with the Human Rights Act.
As part of the safeguards self-authorisation is not permitted. An authorised officer has no role when officers are using powers of entry, search or inspection.
Only the Upper Tribunal can impose a tax-related penalty. The amount is decided by the Tribunal taking into account how much duty is at risk. If the Tribunal decides that a tax-related penalty is payable, HMRC will notify the person.
HMRC can apply for a tax-related penalty where:
The application to the Tribunal must be made by an authorised officer. A tax-related penalty will only be considered in cases where the duty at risk because of the failure to provide information is substantial.
A tax-related penalty is charged in addition to the initial penalty and any daily penalties.
The recipient of an information notice will not be liable to a penalty if they have a reasonable excuse for what they have or have not done.
There is no definition of reasonable excuse and what is reasonable may vary from person to person and depend on the particular circumstances of a case. It will usually be an exceptional or unforeseen event beyond the recipient’s control.
Some examples an officer might consider to be a reasonable excuse include:
The following are not normally accepted as a reasonable excuse:
The legislation changes the time limits for HMRC to assess excise duties that are due and for businesses to claim duty back. These new time limits will now be the same as for the other taxes. The normal time limit for most excise assessments and claims will be four years.
However, HMRC can go back 20 years for an assessment where duty has been underpaid, or where HMRC has repaid more duty than is due, because of deliberate behaviour by the person concerned.
A deliberate inaccuracy or failure to comply with an obligation occurs when a person, or someone acting on their behalf, intentionally gives HMRC an inaccurate document or fails to comply with a tax obligation.
Although the time limits for claims and assessments will be extended from three to four years, there is no change on how long businesses must retain records.
Although the new time limits will come into effect from 1 April 2011 there will be a transitional period from 1 April 2011 until 31 March 2012.
The assessing and claims time limit will gradually increase from three to four years during the transitional period. The transitional arrangements do not affect the 20 year time limit.
Traders need to keep the information and documents necessary to ensure accurate returns and claims are submitted. Research shows that poor record keeping is a key factor in many incorrect returns.
Section 118A CEMA 1979 (duty of revenue traders to keep records) is amended to align some of the record keeping rules for Excise Duty with the other taxes: the changes allow:
HM Revenue and Customs (HMRC) have set up procedures so that it can share information about excise fraud, in tightly defined circumstances with other agencies. These agencies are the Police, Trading Standards and The Vehicle and Operator Services Agency (VOSA).
The Police and Trading Standards can then include this with other information for a Local Licensing Authority (in England and Wales) or Board (in Scotland) to consider whether to revoke a business's license to sell alcohol.
Similarly VOSA can include this with other information to submit to The Traffic Commissioners, a body that has the power to revoke an operator’s license for Heavy Goods Vehicles or coaches.
These procedures do not yet cover Northern Ireland.
These measures are another tool HMRC can use to protect businesses that play by the rules from unfair competition. HMRC will also use them to help stop unsafe products reaching consumers.
Excise duty makes up a large proportion of the selling prices of excise goods such as alcohol, tobacco and diesel. There is a high risk of fraud, for example when alcohol or tobacco is shipped and the duty is suspended.
Criminals, who sell these goods without paying the excise duty, undercut the legitimate trade. They can be violent and are often involved in other types of crime.
A high proportion of the illicit cigarettes and spirits sold are counterfeit. Legitimate products are manufactured by companies who are regulated and anxious to protect the reputation of their brands. Those manufactured by criminals are often produced in unhygienic conditions and use poor quality ingredients.
Red diesel, and other rebated oils, have a lower rate of duty and are therefore cheaper than diesel legally sold for vehicles using the roads.
The use of red diesel is restricted, for example to agricultural vehicles and kerosene for heating. There is however, significant non-compliance with some commercial hauliers deliberately misusing these fuels to undercut their competitors.
The loss of licences will sit alongside the range of other sanctions used against the non-compliant. These sanctions include financial penalties, the forfeiture of goods and vehicles, criminal prosecutions or revoking a business’s registration for excise duty.
HMRC staff regularly work with both Police and Trading Standards to tackle illegal tobacco and alcohol products.
As a result both these agencies have sometimes passed on evidence of excise fraud to licensing authorities and boards to consider when deciding whether to revoke a license to sell alcohol.
The new process we have introduced in March 2011 puts this on a formal footing.
HMRC also began to send information to VOSA in February 2011.
Local Licensing Authorities consider a variety of factors at a hearing to determine whether to issue or revoke a license to sell alcohol. Their decisions can be appealed to Magistrates’ Courts.
The evidence from HMRC to revoke a license will be presented by the Police or Trading Standards, who have the power to request the Authority to review the license.
Licensing Boards have similar responsibilities in Scotland to Licensing Authorities in England and Wales. Although HMRC can make direct applications for licence review to Licensing Boards, they shall continue to work with the Police to build robust cases. Their decisions can be appealed to the Sheriff.
A body called The Traffic Commissioners consider a variety of factors at a hearing to determine whether to issue or revoke a license to operate heavy goods vehicles or coaches. Their decisions can also be appealed, to the Administrative Appeals Chamber.
Under provisions in the Commissioners for Revenue and Customs Act 2005 (CRCA) section 18(2)(a), HMRC may, where it is proportionate to do so and supports a function of HMRC, disclose information to VOSA about relevant vehicles, such as HGVs, involved in excise seizures.
The purpose of disclosure is to ask VOSA to seek the review, and possibly revocation, of the vehicle operator’s licence on the grounds that they cannot possibly 'be of good repute', which is a condition of their licence. There must be a reasonable expectation that any information provided will be used by VOSA to build a case to be taken to The Traffic Commissioners.
Officers in the Border Agency also record details of relevant vehicles on systems shared with HMRC, who may then refer the information on to VOSA where appropriate.
Under provisions in the Commissioners for Revenue and Customs Act 2005 (CRCA) section 18(2)(a), HMRC may, where it is proportionate to do so and supports a function of HMRC, disclose information to Trading Standards or the Police about excise seizures for companies or persons that hold licenses to sell alcohol.
HMRC may disclose information where it has been formally requested by the Police or Trading Standards to support a case to be presented to the Local Licensing Authority or Board. The objectives of both The Licensing Act 2003 and The Licensing Act (Scotland) 2005 include the prevention of crime, which includes excise fraud.
For proactive disclosure there must be a reasonable expectation that any information provided will be used by the relevant agency to build a case to be presented to the licensing board.
In all cases the licence holder can appeal the decision to revoke or take any other action in relation to a license. HMRC will only pass information on for serious offences or where there is persistent abuse of the excise rules.
The sharing of information is covered by HMRC legislation, and is subject to the Data Protection Act 1998 and the Human Rights Act 1998.
Powers Review information about these changes
Compliance checks for the other taxes