Ifeoma Nwadei v The Commissioners for HMRC

Part VIA of the ALDA, which was inserted by the Finance Act 2015 with effect from 26 March 2015, provides for the regulation of the wholesale of alcoholic liquor upon which duty is charged under that Act. The selling of alcohol wholesale is a controlled activity under that Part.

In so far as relevant to this appeal, section 88C ALDA provides:

It follows from section 88C(2) ALDA that if HMRC are not satisfied that a person is a fit and proper person to carry on the activity of a wholesaler of dutiable alcoholic liquor they cannot approve that person under the AWRS.

EN 2002 sets out details about the AWRS and how it applies to persons who sell (or offer to sell or arrange to sell) alcoholic products subject to excise duty to businesses. Although some parts of EN 2002 have the force of law, the paragraphs quoted below do not. EN 2002 is useful because it shows how HMRC view the law and also how they approach the issue of determining whether a person is a fit and proper person to be approved under the AWRS.

The information that HMRC require a person to provide when applying for approval to carry on a controlled activity is set out in Section 6.6 of EN 2002. The list includes the following as a minimum:

In addition, HMRC require sole proprietors, such as Ms Nwadei, to provide the following:

The above lists are not exhaustive and HMRC may request additional information.

When HMRC receive an application for approval, they carry out a series of checks (see EN 2002 section 6.8).

There is no definition of “fit and proper person” in the ALDA. EN 2002 contains non-statutory guidance on whether a person is regarded as fit and proper by HMRC. Section 6.9 of EN 2002 states:

In this case, there are no ‘other key persons’ as the only person who plays a key role in the operation of the business and is its ‘guiding mind’ in the sense of being responsible for directing and controlling the activities of the business and its day to day management is Ms Nwadei.

If HMRC refuse an application for approval under the AWRS and the applicant wishes to challenge that decision then the applicant can either appeal immediately to the FTT under section 16 FA 1994 or ask for the decision to be reviewed by another HMRC officer not previously involved in the matter and then, if the decision is confirmed on review, appeal to the FTT.

Section 16 FA 1994 provides that an appeal against a ‘relevant decision’ may be made to the FTT. Section 13A(2)(j) FA 1994 defines ‘relevant decision’ by reference to Schedule 5 to FA 1994 which includes, in paragraph 3(1)(p), any decision for the purposes of Part 6A ALDA as to whether or not a person is to be approved and registered for the wholesaling of controlled liquor. Section 16(8) FA 1994 provides that, subject to an irrelevant exception, any decision described in Schedule 5 to the FA 1994 is an ‘ancillary matter’. Accordingly, a decision to refuse an application for approval under Part 6A ALDA is a decision as to an ancillary matter for the purposes of section 16 FA94.

Section 16(4) provides that the FTT has a supervisory jurisdiction in relation to decisions as to ancillary matters as follows:

Section 16(6) FA94 provides that the burden of proof in an appeal under the section is on the appellant, ie Ms Nwadei. The standard of proof is the ordinary civil standard, ie the balance of probabilities.

Whether HMRC are satisfied that a person is fit and proper to carry on the activity of a wholesaler of alcoholic goods is a matter for the administrative discretion of HMRC. The FTT’s powers to interfere with a decision by HMRC that a person is not fit and proper are limited and can only be exercised where the decision is one which could not reasonably have been arrived at (see CC & C Ltd v HMRC [2014] EWCA Civ 1653 at [15] – [17]). The House of Lords in Customs & Excise Commissioners v JH Corbitt (Numismatists) Ltd [1980] STC 231 set out the approach for the FTT (then the VAT Tribunal) to follow where it has a supervisory jurisdiction at page 239 where Lord Lane stated that the tribunal could only review the decision if it were shown that the Commissioners (now HMRC) had acted in a way which no reasonable panel of Commissioners could have acted; if they had taken into account some irrelevant matter or had disregarded something to which they should have given weight. In Balbir Singh Gora v Customs & Excise Commissioners [2004] QB 93, [2003] EWCA Civ 525, Pill LJ accepted that the tribunal could decide for itself primary facts and then go on to decide whether, in the light of its findings of fact, the decision was reasonable.

The only issue to be determined in this appeal is whether Ms Nwadei, who bears the burden of proof, has established that the decision by Officer Ames to refuse her application to be approved as a wholesaler of alcoholic goods for the purposes of the AWRS was a decision which no reasonable officer of HMRC could have reached. In order to do so, Ms Nwadei must show, on the balance of probabilities, that Officer Ames failed to consider matters which should have been taken into account or took into account some irrelevant matters when she made the decision or otherwise reached a decision that was so plainly wrong that no officer of HMRC, acting reasonably, could have reached it.

In considering whether to grant or refuse Ms Nwadei approval as a wholesaler of alcoholic goods under the AWRS, Officer Ames took into account the matters at [51] and [54] above. Having considered those matters, Officer Ames concluded that she was not satisfied that Ms Nwadei was a fit and proper person to be approved due to the conflicting information received and the lack of any reasonable evidence of a credible and viable business.

Ms Nwadei did not argue that Officer Ames had failed to take any relevant matter into account but simply that she, Ms Nwadei, had answered all the questions asked of her and provided everything requested. In effect, she contended that Officer Ames had reached the wrong conclusion on the material available to her and should have been satisfied that Ms Nwadei was a fit and proper person to be approved to carry on a controlled trade in alcoholic liquor. Ms Nwadei also contended that that her application for AWRS approval had been refused because of her criminal record for an offence that she did not commit but we found that there was no evidence to support that submission (see [53] above).

We consider at [75] to [86] below each of the reasons relied on by Officer Ames for refusing Ms Nwadei’s application.

Officer Ames considered that it was not credible that Ms Nwadei was unaware of the very large income and expenses figures in her self-assessment tax return for 2019/20. These figures (£142,500 income and £132,834 expenses) were said by Ms Nwadei to relate to the church for which she provided catering services and that her accountant had somehow included the Church’s revenue and expenditure in her Self-Assessment Tax return by mistake. Officer Ames considered that it was unsatisfactory that, if her explanation were true, Ms Nwadei had been completely unaware of the income and expenditure figures that her accountant had submitted to HMRC on her behalf. Officer Ames also noted that Ms Nwadei had not amended her incorrect tax return and had never provided any evidence of the catering contract and payment of around £9,000 for her services.

We agree that the errors, if that is what they are, in Ms Nwadei’s tax return for 2019/20 are significant as is her failure to take steps to correct them. We do not need to determine the correct treatment for tax purposes of the amounts shown in Ms Nwadei’s tax return or whether she or her accountant were wrong to include them. It is sufficient for the purposes of this appeal if we conclude that it was reasonable for Officer Ames to take the view that the errors showed that Ms Nwadei was not a fit and proper person to carry on a controlled activity. We consider that these errors and the lack of any convincing explanation of how they occurred and why they went undetected and uncorrected for so long cast serious doubt on Ms Nwadei’s ability to carry on a controlled activity such as the wholesale of alcohol which requires careful record keeping and transparency when there have been errors. In the circumstances, we consider that Officer Ames was fully entitled to consider that Ms Nwadei had not satisfied the fit and proper test.

Officer Ames was also concerned that Ms Nwadei had not provided a complete and accurate statement of her sources of income. Ms Nwadei made inconsistent statements about her income and failed to provide satisfactory explanations for payments, including multiple large deposits of cash, into her bank account. In her email of 5 October 2021, Ms Nwadei stated in response to HMRC’s question regarding regular large payments of cash made into her Santander bank account that she bought and re-sold jewellery:

The payments into the account were explored at the hearing in cross-examination. When asked about deposits of cash (totalling £10,000 in December 2020 and £1,910 in January 2021) paid into her Santander account via an ATM and significant transfers of money (totalling £5,374 in December 2020 and £5,222 in January 2021) from a beauty parlour, Ms Nwadei said that she did not explain them to Officer Ames as she had not asked questions about the payments. Ms Nwadei could not really explain them to us at the hearing either.

In relation to her Metro Bank account, Ms Nwadei acknowledged that all payments into the account during September 2021 were made by her apart from credits of £488.80 on 14 and 28 September and of £250.20 on 24 September which were from the DWP. The deposits by Ms Nwadei amounted to £27,200 in total. In response to questions about the credits by the DWP, Ms Nwadei said that the Metro Bank account was not entirely hers, despite being in her sole name. She stated that the payments from the DWP were not for her but for someone else. Ms Nwadei said that she acted as a third party for that person and the DWP paid them through her. Ms Nwadei could not or would not name the third party at the hearing. Other Metro Bank statements showed that Ms Nwadei had received payments from the DWP in June, July and August 2021. Following the hearing, Ms Nwadei provided information about the DWP payments. She said that she was an appointee to Mr Isaac Asemah and she was responsible for overseeing his care. She maintained that the payments by the DWP into her Metro Bank account were for his care and his National Insurance number was stated as a reference on the payment details. Ms Nwadei also provided a statement of account of payments which she claimed to have made to the care home in which Mr Asemah resides. The statement of account from the London Borough of Lewisham was addressed to Mr Asemah c/o Ms Nwadei and showed regular (mostly monthly) payments of £608.80 for residential and nursing services between May 2021 and May 2022 when the payments increased to £627.80 and continued into 2023. The statements for the Metro Bank account showed that there were payments by Ms Nwadei to the London Borough of Lewisham in the amounts shown on the Borough’s statement of account.

Although Ms Nwadei has provided some explanation for the payments which she received from the DWP, she has not provided any details about her relationship with Mr Asemah and how she is involved in his care or why the DWP pays money to her and not direct to him. Whatever the situation in relation to the DWP payments, there are also the large payments into both of Ms Nwadei’s bank accounts which have never been explained by her. The deposits strongly suggest that Ms Nwadei’s statement in her witness statement that she had no other sources of income apart from monies earned during her brief work with Serco as a detention custody officer between August and November 2020 is not true. We do not, however, have to decide whether Ms Nwadei was being truthful when she stated that she had no sources of income. It is sufficient that we find, as we do, that Officer Ames was justified in forming the view that Ms Nwadei had not provided a complete and accurate statement of her sources of income and there remained unanswered questions about her income. In the circumstances, it was reasonable for Officer Ames to conclude that Ms Nwadei’s failure to provided full and frank disclosure of her sources of income meant that she was not a fit and proper person for the purposes of the AWRS.

Officer Ames considered that Ms Nwadei had never satisfactorily explained how she would obtain the start-up capital of £32,000 which was required by her business plan. In her witness statement Ms Nwadei said that she had not been able to obtain business loans from banks but her children and a friend would provide funds. There was, however, no evidence from her children or her friend that supported Ms Nwadei’s assertion that they had the money and were willing to make a loan of £32,000 to her. In the absence of any evidence, we consider that it was reasonable of Officer Ames to take the view that the proposal to fund the business lacked credibility and, as a result, Ms Nwadei did not satisfy the fit and proper test.

Officer Ames asked Ms Nwadei to explain why the monthly revenue figure of £454 and annual projected revenue figure of £65,435 in the business plan were inconsistent (see [82] above). In her further and better particulars and when asked in the hearing, Ms Nwadei said it was a typo although she did not suggest what the true figure should be. She also said that the error had been corrected but could not say when or where such correction could be found in the documents. At the hearing Tribunal Member Neil commented that it looked as though there was a ‘5’ missing from the monthly amount and £454 should have been £5,454 although that gives a slightly higher figure than £65,435 shown in the business plan. We accept that the inconsistency was the result of a slip and should not count against her in any consideration of whether she was a fit and proper person to be approved as a wholesaler of alcoholic goods for the purposes of the AWRS. It was, however, troubling that Ms Nwadei could not explain the error herself or point out where and when it had been corrected. We could not find anything in the hearing bundle to support her claim that she had provided HMRC with a corrected monthly revenue figure and we find that she did not do so. By itself, we would not consider that a clerical error would justify a conclusion that someone was not a fit and proper person. However, the inability of Ms Nwadei to explain the error and the mistaken assertion that she had informed HMRC of the correct figures, for which there was no evidence, all suggest that Ms Nwadei was not fit to carry on a controlled activity.

Ms Nwadei’s business plan stated that she had secured six customers but she only ever provided evidence from two. In her witness statement, Ms Nwadei said that the other four potential customers were not, at present, willing to supply any documents to show that they intended to trade with her. Officer Ames considered that the fact that Ms Nwadei had not been able to provide evidence of more potential customers showed that the business was not credible. While it is obvious that a brand new business is unlikely to have many confirmed customers, we agree that the fact that Ms Nwadei had said in her business plan that she had identified six potential customers but could only provide evidence in relation to two undermines the credibility of the business plan and the business.

In relation to the figures provided by Ms Nwadei and the profitability of the proposed alcohol wholesale business, Officer Ames considered that Ms Nwadei’s projected sales and purchases figures were not credible. In particular, Officer Ames focussed on the costings provided by Ms Nwadei as an attachment to her email dated 14 October 2021which showed VAT exclusive purchase prices for two Guinness products but appeared to show VAT inclusive figures for the sales prices because she was not (and had not applied to be) registered for VAT. At the hearing, Officer Ames said that she could not remember why she thought that the sales price was VAT inclusive while the purchase prices were VAT exclusive meaning that it would cost Ms Nwadei more to buy the Guinness products than she would obtain for selling them. There was no doubt that Ms Nwadei was not registered for VAT but she said that she thought she was registered. If so then the figures might both have been expressed as VAT exclusive. At the hearing, Ms Nwadei told us that she had registered for VAT when she wanted to be a child minder. It was not clear if Ms Nwadei ever traded and accounted for VAT but it was clear that she was de-registered on 22 March 2016. Ms Nwadei said (and we accept) that she was not aware that she had been de-registered. Ms Hickey confirmed that HMRC were not saying that Ms Nwadei had sought to mislead when she put her old VAT number on the AWRS application form.

Even though we accept that Ms Nwadei thought that she was still registered for VAT, notwithstanding the fact that she had not made any VAT returns or accounted for VAT for several years (if ever), she had not carried out any investigation into whether her sales and purchases figures were VAT inclusive or VAT exclusive and could not explain how she proposed VAT would apply to the proposed business. There was no evidence that Ms Nwadei had considered how her proposed sales prices compared to those of competitors except for a reference in her updated business plan provided to HMRC on 14 October (see [41] above). The business plan referred to two competitors and, in both cases, described their average prices as “more expensive” without any detail. In relation to the second competitor, the business plan stated that one of their strengths was “product is superior to other competitors” while also identifying one of their weaknesses as “competitors’ products are superior or cheaper”. When asked about her profit margins by Officer Ames, Ms Nwadei simply responded by saying that she would buy larger quantities by the pallet load but she never provided any figures to show how the unit price reduced or explain what the effect on her profit margins would be. In our view, it was entirely reasonable for Officer Ames to conclude on the evidence that Ms Nwadei had failed to provide credible purchases and sales figures and, as a result, she did not satisfy the fit and proper test.

In her email of 14 October (see [41] above) Ms Nwadei had said that there were no direct suppliers of the Nigerian branded products that she proposed to supply but Officer Ames pointed out to her that her intended supplier, Kato Enterprises Limited was based in Croydon. Ms Nwadei’s response in her witness statement (see [50] above) was that HMRC’s query did not make sense and she asked whether HMRC were saying that everyone who trades in alcohol must buy directly from Kato. In our judgement, there was nothing unclear about Officer Ames’s question. Ms Nwadei has never explained why her customers, which were all businesses such as bars and restaurants, would buy products from her when they could obtain them more cheaply from another wholesaler only a few miles away. In some cases, it may be that a wholesaler can purchase large quantities from a manufacturer or distributor at a significant discount and supply them in smaller lots to retail outlets, who are not able to purchase in bulk, at a higher unit price and thus make a profit. Ms Nwadei’s updated business plan suggested that she would buy in bulk but also that she intended to make bulk sales to supermarkets. There were no figures that showed the purchase and sales prices for the bulk model of the business. We agree with Officer Ames that the business model put forward by Ms Nwadei lacked credibility and this was reinforced by her inability to understand HMRC’s question about why her customers would not bypass her and buy direct from her supplier.

Having considered the points above individually, we must now consider them as a whole in the context of all the evidence in the case. In our view, taking everything into account, Ms Nwadei has not demonstrated on the balance of probabilities that Officer Ames’s decision to refuse her application for approval under the AWRS because she was not satisfied that Ms Nwadei was a fit and proper person was unreasonable. In summary, we conclude that Officer Ames was entitled to conclude on the information available to her that she was not satisfied that Ms Nwadei was a fit and proper person to carry on the controlled activity of the wholesale of alcoholic liquor. In view of the lack of clarity and credibility of some of Ms Nwadei’s answers in correspondence (and at the hearing) we do not see how Officer Ames could have reached any other decision. It follows that we do not consider that Officer Ames’s decision to refuse to approve Ms Nwadei under the AWRS was so plainly wrong that no officer of HMRC, acting reasonably, could have reached it. Accordingly, we confirm that HMRC’s decision stands.

For the reasons set out above, Ms Nwadei’s appeal is dismissed.

Although our decision means that Ms Nwadei is not approved to carry on the activity of a wholesaler of dutiable alcoholic liquor, she is able to apply again. If she can address HMRC’s objections to her approval and satisfy them that she is a fit and proper person to carry on a controlled activity then she should be able to obtain the approval she seeks.

Ms Nwadei provided some further information on 28 April 2023 in response to the panel’s request (see [16] above). HMRC responded with their comments on the further information on 4 May. Unfortunately, Ms Nwadei’s further information and HMRC’s comments were not forwarded to the panel until the end of June. Due to other matters, Judge Sinfield has not been able to consider the further material and incorporate it into the decision until recently. Judge Sinfield apologises to the parties for the delay in finalising and issuing the decision in this case.

This document contains full findings of fact and reasons for the decision. Any party dissatisfied with this decision has a right to apply for permission to appeal against it pursuant to Rule 39 of the Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009. The application must be received by this Tribunal not later than 56 days after this decision is sent to that party. The parties are referred to “Guidance to accompany a Decision from the First-tier Tribunal (Tax Chamber)” which accompanies and forms part of this decision notice.