HMRC's alcohol fraud powers could leave hauliers and warehouse keepers facing financial ruin

As a result of powers recently handed to HM Revenue & Customs (HMRC) to tackle alcohol fraud, warehouse keepers and hauliers face "financial ruin" if knowingly or unknowingly they handle excise goods on which the duty has yet to be paid. That is the stark warning from the United Kingdom Warehousing Association (UKWA) the trade body that represents nearly 700 leading third party logistics service companies in the UK.

Since April 2010 HMRC has had the authority to: 'assess anyone for duty on goods illegally diverted from bonded movements who was "aware or should reasonably have been aware" of the diversion at any point in the supply chain.'The wording of this new power springs directly from precedent in VAT fraud case law and has widespread implications because HMRC has promised to apply the lessons successfully learned in VAT to excise duty fraud anywhere in the supply chain. In addition, HMRC can also issue severe 'wrongdoing' penalties against anyone in the supply chain who has supplied, sold or at any time 'held' excise goods on which duty has not been paid, whether the 'wrongdoing' was deliberate or non-deliberate.

In simple terms, this means that if an organisation has been involved at any stage in the supply of goods that have been illicitly diverted from a bonded supply chain, it could be liable for duty even if that organisation is not directly responsible for the diversion but has 'means of knowledge'. Based on legal precedent,, this could simply include knowledge of fraud in the market, in which the businesses participate.

"Warehouse keepers and third party owners of goods, hauliers and couriers handling the goods as well as wholesalers and retailers in fact anyone handling the product in the chain - can now be held liable to the duty if it can be shown by HMRC that they knew or should have known that duty was not, or would not be, paid on the product." Says Alan Powell of Alan Powell Associates, UKWA's honorary advisor on excise duty matters.

Alan Powell concedes, that as things stand, there may not be much that businesses can do to avoid falling foul of HMRC. "Beyond carrying out the usual due diligence when entering in to a contract, there is not much that a company can do to protect themselves," he says.  "Even then, if VAT precedent is followed, due diligence may be no protection if HMRC alleges knowing participation in a market tainted with fraud." HMRC's anti-fraud powers come with the ability to impose harsh penalties on anyone found to have held or dealt in duty-unpaid excise goods outside of duty suspense ("bond").   If a person knowingly or even unknowingly handles such goods, there is now an absolute liability to a penalty of up to 100% of the duty as "potential lost revenue" on the goods.  

This can be one element of a triple blow, as Alan Powell explains: "If you are holding goods suspected of being duty unpaid, HMRC can detain and seize the goods and refuse to restore them, meaning the overall cost of those goods becomes a loss, in addition to losing the physical stock.  What is more, HMRC can also make an assessment for any and all stock put through a business that it believes to be duty unpaid. In essence, if you touch 'suspect' goods in the course of your business, you will be deemed to be 'contaminated' and liable to penalties and the full duty. HMRC's action plan and its enforcement is not theoretical. It is happening now and businesses who believed themselves to be simply 'nave' are facing financial ruin.  It could happen to anyone suppliers, warehouse keepers, retailers, publicans, cash and carries, hauliers.  HMRC want their money and are looking for every penny."

Because the new system has very serious implications for anyone who handles excise goods, UKWA is warning its members to take extra care when handling or in any way dealing in such products. Roger Williams, UKWA chief executive officer, commented: "We are seeking urgent talks with HMRC in an attempt to force them to clarify the situation. We are extremely concerned that, rather than tackling the real fraudsters, HMRC will take the easy option and look to other parts of the alcohol supply chain to recover lost duty."

UKWA is organising a series of seminars to brief its members on the broader implications of HMRC's excise anti-fraud powers and the penalties that can be imposed.