The Importer’s Nightmare. Imposition of Security Duty by HMRC and Winning Against HMRC in the Tax Tribunal

Overview

An importer’s three-year nightmare was ended when HMRC belatedly agreed to permit our client’s Appeal on the second day of their Taxpayers Tax Tribunal Appeal, with HMRC also agreeing to pay our client’s legal costs. This was a great result for our client by our Commercial Litigation Specialists, and Neil Davies, our senior partner and director takes up the story.

Commercial Litigation Specialists

Background to this Commercial Litigation Case

Our client imported seasonal and other goods (blankets, clothing and household goods) from the Far East, for sale in the UK.

Its business was massively disrupted by HMRC intercepting all of its inbound shipping containers, then putting them in a storage facility for months on end (pending a physical HMRC inspection) and then imposing security duty payments on each shipment. Our client was also left to pay the storage charges.

What to do?

Our client had frankly had enough of HMRC’s conduct. He instructed our Commercial Litigation Specialists to challenge the security demands imposed by HMRC. Through us, our client made application to the Tax Tribunal, challenging the security assessments and HMRC’s conduct.

After two years, our client’s Appeal finally came on for a final hearing.

The Tax Tribunal Hearing

The imported goods were clearly seconds, and the HMRC officer under cross-examination (by our client’s Barrister) admitted that he saw goods of that quality every day. But in line with HMRC policy, he decided to slap a security on the shipment as though they were full value. This meant that the goods, many of which were seasonal, would not be released until the security was paid over. The disruption to our client’s business and its cashflow was significant.

In addition to our client being left with last season’s stock, as the importer, he also had to pay four months of storage charges whilst waiting for a HMRC inspection of the containers. At the hearing, under cross-examination, the HMRC officer admitted that everything was correctly declared by the Taxpayer – our client.

The Security Duty Imposed

The amount of duty is calculated by HMRC adding a percentage to the purchase price. Bizarrely, although the HMRC officer had decided the amount of security HMRC wanted, he admitted when cross-examined that he had no idea what the percentage was.

HMRC had seen the importer’s purchase invoices and the payments it made for the goods through its bank. The importer’s agent had applied the correct percentage for duty, and this had been paid over to HMRC.

The Period in the Lead up to the Final Hearing – HMRC Threw in the Towel

The turnaround for the client came shortly before the case was due to be heard in September 2020. HMRC had thought that the importer was acting in person, until they discovered the importer had instructed this firm, NDP, and its team of commercial litigation specialists.

On finding this out, HMRC asked for the case to be adjourned so it could try and produce more evidence. That further evidence was (in part) from a statistician who was expected to say what the average purchase price had been, for similar imported goods over the last four years. But she knew absolutely nothing about these imported/re-imported goods. When the case came on for hearing, the statistician never gave evidence as HMRC threw in the towel, before that point was reached.

Our Comments

Neil Davies of NDP who was acting for our client (both the importer and the Taypayer) in this case had, from the outset, been clear that there was no justification for imposing any security duty. He also considered the four-month delay in inspecting the goods to be unacceptable. He was also shocked at HMRC’s cavalier attitude to his client’s wasted storage charges. Neil commented:

“Following Brexit, it is vital that there is minimal disruption to imports. It’s one thing to hold goods up where on the face of it there might be a problem, buts entirely another when there does not appear to be anything wrong.

This appears to be a case where HMRC are improperly boosting their coffers by taking security payments which, after a few years, they would have to pay back. This might be good for their statistics, but it’s disastrous for the individual trader and for the economy.”

Unfortunately, we will not be able to read the Judgment of the Tribunal because HMRC withdrew their decision to impose security duty mid-hearing, so the Taxpayers Appeal was withdrawn, albeit with HNRC agreeing to pay our client’s legal costs of the Appeal. HMRC’s statistics will not thus show that they have lost a security case.

Our Commercial Litigation Specialists are Experienced at Dealing with HMRC in such matters

As always, the outcome of any commercial litigation case always turns on the details. This particular Case demonstrates that HMRC is not always right in its judgements or correct in its actions and that they can be successfully challenged.

If you, or a client is experiencing similar issues with HMRC, then please contact our commercial litigation specialists or call them on 0121 200 7040. The initial discussion is free of charge with no obligation to instruct us.