Kent Couriers Limited v The Commissioners for HMRC

This decision relates to appeals against:

The material facts are not in dispute and are as follows:

Although the material facts in this case are agreed, as outlined in paragraph 2 above, we were provided with some additional evidence at the hearing.

The evidence in question took the form of:

We were provided with two documents in relation to the Network, the relationship of the Members inter se and the relationship of the Members with Palletways. The first was a draft of a so-called “Member Evaluation Agreement” (the “MEA”) pursuant to which the Appellant was given temporary rights to use the Network over a period of evaluation with a view to its becoming a Member in due course whilst the second was the Palletways “Operating Manual and Code of Practice for Operating Standards and Methods” (the “Operating Manual”), to which the MEA made reference and which was stated to govern the activities of, and the rights and obligations of, Members in using the Network.

We should observe that we did not find either of these documents to be of much use in relation to the issues in the appeals. Leaving aside the fact that the MEA was in draft form and unsigned by the Appellant, the drafting of both documents can best be described as Delphic. Moreover, although extensive, they do not shed any meaningful light on the rights and obligations of a Member as regards goods which are in transit within the Network, presumably because those are a function of the system itself. We found the evidence of the Appellant’s representatives to be much more enlightening in that regard. However, we did note the following provisions:

We were provided with witness statements from a number of witnesses, most of whom simply testified to the agreed facts and did not need to be cross-examined. All of the witnesses who provided witness statements were present at the hearing. In our view, the hearing could have been conducted more efficiently if the parties had agreed in advance as to which witnesses needed to be present in order to supplement their witness statements with oral testimony and/or in order to be available to be cross-examined. As it was, we considered that only the oral evidence of Mr Phipps and Mr Baldock at the hearing shed additional light on the matters in issue.

In relation to their evidence, we would observe that we found both men to be honest and entirely credible witnesses and therefore find the facts which we gleaned from their testimony, as summarised in paragraph 9 below, to be facts for the purposes of the appeals.

The witnesses testified that:

Each of Mr Phipps and Mr Baldock pointed out that:

There are two issues in dispute in the appeals and they are as follows:

For reasons which will become clear in due course, those two issues are quite distinct. The fact that the Appellant might be liable for the excise duty but not for the wrongdoing penalty is hardly surprising but what is surprising is that the converse is the case as well and the Appellant might be liable for the wrongdoing penalty even if it is not liable for the excise duty itself. Accordingly, we propose to deal with each issue separately in the rest of this decision.

Regulation 13 of the Excise Goods (Holding, Movement and Duty Point) Regulations 2010 (SI 2010/593) (the “Regulations”) provides as follows:

—

Where excise goods already released for consumption in another Member State are held for a commercial purpose in the United Kingdom in order to be delivered or used in the United Kingdom, the excise duty point is the time when those goods are first so held.

Depending on the cases referred to in paragraph (1), the person liable to pay the duty is the person—

making the delivery of the goods;

holding the goods intended for delivery; or

to whom the goods are delivered.

For the purposes of paragraph (1) excise goods are held for a commercial purpose if they are held—

by a person other than a private individual; or

by a private individual (“P”), except in a case where the excise goods are for P's own use and were acquired in, and transported to the United Kingdom from, another

Regulation 13 of the Regulations was enacted by Parliament in order to reflect Article 33 of Directive 2008/118/EC (the “Directive”), which lays down common rules within the European Union (the “EU”) on the holding, movement and monitoring of goods that are subject to excise duty.

Article 33 of the Directive provides as follows:

Without prejudice to Article 36(1), where excise goods which have already been released for consumption in one Member State are held for commercial purposes in another Member State in order to be delivered or used there, they shall be subject to excise duty and excise duty shall become chargeable in that other Member State.

The person liable to pay the excise duty which has become chargeable shall be, depending on the cases referred to in paragraph 1, the person making the delivery or holding the goods intended for delivery, or to whom the goods are delivered in the other Member State.”

It is common ground that the alcohol which was seized by UKBF on 2 July 2020 had already been released for consumption in Germany and was being held for commercial purposes for the first time in the UK when it was seized, with the result that excise duty was chargeable in respect of it. However, the parties are in dispute over whether the Appellant is liable to that excise duty.

It may be seen that each of Regulation 13 of the Regulations and Article 33 of the Directive specifies three different categories of person who are liable to the excise duty. Those are:

It is common ground that the Appellant cannot fall within the third of the above categories for the simple reason that the goods were never delivered to it but were instead seized while they were in transit. However, the Respondents submit that the Appellant falls within one or both of the first two categories as the person “making the delivery” of the goods or the person “holding” the goods. The Appellant submits that it is neither.

In addressing that dispute, we think that it is helpful for us to consider each of those two categories separately and to start with the question of whether the Appellant was “holding” the goods at the time when the excise duty point arose because authorities in relation to that question are more plentiful.

The leading decision on the meaning of the word “holding” in this context is the decision of the European Court of Justice (the “CJEU”) in The Commissioners for Her Majesty’s Revenue and Customs v WR (C-279/19) (“WR”), a decision which is binding upon us notwithstanding the United Kingdom’s withdrawal from the EU. The reasons why it is binding upon us despite that withdrawal were set out at some length by Newey LJ (with whom Baker and Snowden LJJ agreed) in The Commissioners for Her Majesty’s Revenue and Customs v Perfect [2022] EWCA Civ 330 (“Perfect CA2”) at paragraphs [13] to [23] and we do not propose to repeat them in this decision.

In WR, the CJEU was asked to consider whether a lorry driver who, at the excise duty point, was found to be in physical possession of goods in respect of which duty had not been paid was liable under Article 33 of the Directive to pay the duty. In that case, the lorry driver in question had no right to, or interest in, the goods he was transporting and was unaware, and had no reason to believe, that the goods were subject to excise duty.

The CJEU held that:

Of course, the Respondents accept that the Appellant did not have physical possession of the alcohol when the excise duty point arose in this case. However, the question which arises following the decision in WR is the extent to which something other than physical possession can be sufficient to amount to “holding” for the purposes of Article 33 of the Directive and Regulation 13 of the Regulations.

There are a number of decisions of the English domestic courts prior to the decision in WR which suggest that de facto or legal control of goods, without physical possession of them, can also amount to “holding” for those purposes – see the Court of Appeal, Criminal Division, in R v Taylor and another [2013] EWCA Crim 1151 (“Taylor”) and R v Tatham [2014] EWCA Crim 226 and the Upper Tribunal in Dawson’s (Wales) Limited v The Commissioners for Her Majesty’s Revenue and Customs [2019] UKUT 296 (TCC) (“Dawson’s UT”) at paragraphs [131] to [149]. However, these were decisions based on English law whereas it is now clear following the decision in WR that the term “holding” must be given an independent EU law meaning. As Asplin LJ put it in Dawson’s (Wales) Limited v The Commissioners for Her Majesty’s Revenue and Customs [2023] EWCA Civ 332 (“Dawson’s CA”), all decisions preceding WR need now to be construed “through the prism of the decision of the CJEU in [WR]” (see Dawson’s CA at paragraph [66]).

The question at issue in Dawson’s CA was whether the appellant, which had been assessed to excise duty on the basis that it had physical possession of the goods, could identify a person who should be regarded as “holding” the goods outside the duty suspension arrangement before it did, because then there would have been an earlier excise duty point. The appellant alleged that its supplier, who had never had physical possession of the goods, had had de facto and/or legal control of the goods and was, by virtue of that, “holding” the goods so that the earlier excise duty point arose. It should be observed that the case concerned the application of Articles 7 and 8 of the Directive, as opposed to Article 33 of the Directive. However, both parties in Dawson’s CA agreed – and the Court of Appeal, in any event, held, at paragraphs [70], [97] and [98] – that:

In answering the question of whether an earlier “holder” of the goods could be identified and hence an earlier excise duty point could be established, the Upper Tribunal in Dawson’s UT had held, albeit on an obiter basis, that this was a mixed question of fact and law and required the answer to four questions – namely:

In Dawson’s CA, Asplin LJ, with whom Arnold and Elisabeth Laing LJJ agreed, agreed that this was a mixed question of fact and law and held that, in each case, the answers to questions (1), (3) and (4) posed by the Upper Tribunal in Dawson’s UT were crucial to the determination of whether an earlier “holder” of the goods outside the duty suspension arrangement could be identified and, hence, an earlier excise duty point arose. Asplin LJ did not comment on question (2) posed by the Upper Tribunal apart from noting that it was not disputed by the appellant in that case. She went on to say that she expressed no view on the question of whether de facto or legal control of goods, without physical possession, could be sufficient to amount to “holding” for the purposes of the Directive and the Regulations, noting that “[that] issue was not directly before us and may need consideration on another occasion” – see Dawson’s CA at paragraph [72].

Such another occasion has in fact recently arisen, in the case of Agniezska Hartleb T/A Hartleb Transport v The Commissioners for His Majesty’s Revenue and Customs [2024] UKUT 00034 (TCC) (“Hartleb”). In Hartleb, the Upper Tribunal was considering whether the FTT had erred in concluding that an employer was “holding” goods which, at the excise duty point, were in the physical possession of her employee acting in the course of his employment. In dismissing the appeal, the Upper Tribunal:

We are, of course, bound by the decision in Hartleb. It follows that we are bound to hold that de facto and/or legal control of goods without physical possession of them can be sufficient to amount to “holding” the goods in an appropriate case. However, that does not mean that de facto and/or legal control of the goods will always be sufficient to amount to “holding” the goods. In each case, it is necessary to consider all of the relevant facts by reference to the four questions set out in Dawson’s UT.

Of critical significance in this regard is that it is implicit in the nature of the four questions – and indeed it is explicit in the decision in Hartleb at paragraphs [88] to [90] - that, in a case where physical possession of the goods and de facto and/or legal control of the goods are in separate hands at the excise duty point, we are bound to decide which of the relevant persons is to be regarded as “holding” the goods at that point to the exclusion of the other or others. It is not possible to treat more than one of the relevant persons as “holding” the goods at that point. In Hartleb, the Upper Tribunal applied the four questions set out in Dawson’s UT to determine whether it was the appellant or her employee who should be treated as “holding” the goods at that point. It did not suggest that both the appellant and her employee could be treated as “holding” the goods at that point. Similarly, in Dawson’s UT at paragraph [147], the Upper Tribunal did not suggest that both the person in physical possession and the person with de facto or legal control of the goods at the excise duty point could be treated as “holding” the goods at that point. It clearly envisaged that one of the persons would be “holding” the goods at that point to the exclusion of the other. We are bound to adopt a similar approach in this case and therefore to consider whether, on the basis of applying the four questions set out in Dawson’s UT to the facts in this case, it was the Appellant or someone else – whether Palletways, as the controller of the Network through which the delivery was being made, or the driver of the lorry carrying the goods – who should be treated as “holding” the goods at the excise duty point. A finding that one of those persons was “holding” the goods at the excise duty point necessarily precludes a finding that the other or others was or were doing so and therefore a comparative exercise is required in which the position of each potential candidate must be weighed up against the other or others.

We now turn to the question of whether we consider the Appellant to have been “holding” the alcohol at the excise duty point on the facts in the present case, applying the principles set out in the authorities as discussed above and, in particular, those adopted by the Upper Tribunal in Hartleb. On that basis, we consider that the Appellant was not “holding” the alcohol at the excise duty point in this case for the following reasons:

As for the question of whether the Appellant should be regarded as “making the delivery” of the alcohol at the excise duty point, the Upper Tribunal in Hartleb:

The above suggests that the absence of physical possession, whilst not being definitive, is a significant factor in reaching the conclusion that the person in question is not “making the delivery” in any particular case.

Turning to the facts in this case, we think that, for essentially the same reasons as we have set out in paragraph 31 above in relation to the question of “holding”, the Appellant, in addition to not “holding” the relevant goods, was also not “making the delivery” of them at the excise duty point. If the goods had reached the Hub in the UK from where the Appellant was obliged to collect them, then the Appellant would no doubt have been “making the delivery” of the goods after it collected them from that Hub and removed them to its warehouse for collection by the customer. However, that moment, which never arrived in this case, would have been well beyond the excise duty point. As at the excise duty point, the goods in question were being carried by a Member who was unknown to the Appellant and whose route to the UK and time of entry into the UK were similarly unknown to the Appellant. We therefore struggle to see how the Appellant could be said to have been “making the delivery” of the goods at the excise duty point.

For the reasons set out above, we have concluded that the Appellant was neither “holding” the alcohol nor “making the delivery” of the alcohol at the time when the alcohol reached the UK and the excise duty point arose. That, taken together with the fact that the alcohol was never delivered to the Appellant, as we have already observed in paragraph 18 above, means that the Appellant does not fall within any of the categories set out in Article 33(3) of the Directive and Regulation 13(2) of the Regulations. Consequently, it is not liable to the excise duty and its appeal in relation to the excise duty is upheld.

We now turn to the second issue involved in the appeals, namely whether or not the Appellant is liable to the wrongdoing penalty.

The legislation relevant to this second issue is set out in Schedule 41 to the Finance Act 2008 (“Schedule 41”).

Paragraph 4(1) of Schedule 41 provides that a penalty is payable by a person (P) where:

It can be seen that liability for the penalty does not depend on whether P falls within any of the three categories of person set out in Article 33(3) of the Directive or Regulation 13(2) of the Regulations. Thus, curiously, it is not necessary for P to be liable to the excise duty in question in order to be liable to the wrongdoing penalty in respect of that duty. Instead, it is merely necessary for P to acquire possession of the goods or be concerned in carrying, removing, depositing, keeping or otherwise dealing with the goods.

Paragraphs 5 and 6B of Schedule 41 then specify that the amount of the penalty is to be determined by reference to whether P’s acquisition of possession of the goods, or P’s being concerned in dealing with the goods, was:

Paragraphs 12 and 13 of Schedule 41 then provide for a reduction in the penalty to be made by reference to:

As regards the types of disclosure, paragraph 12(2) of Schedule 41 refers to three different types of disclosure as follows:

As regards whether or not the disclosure was “prompted” or “unprompted”, paragraph 12(3) of Schedule 41 provides that a disclosure of an act or failure is “unprompted” if it is made at a time when the person making it has no reason to believe that the Respondents have discovered or are about to discover the relevant act or failure and, otherwise, is “prompted”.

As regards the quality of disclosure, paragraph 12(4) of Schedule 41 provides that, in relation to disclosure, “quality” includes timing, nature and extent.

Paragraph 13 of Schedule 41 specifies the amount of the reduction which is to be made by reference to the matters described in paragraphs 42 to 44 above. In the case of a deliberate but not concealed act or failure, where the standard penalty for a prompted disclosure is 70% of the unpaid duty in question, the penalty can be reduced to 35% of the unpaid duty depending on the quality of the disclosure. In the case of a non-deliberate act or failure, where the standard penalty for a prompted disclosure is 30% of the unpaid duty in question, the penalty can be reduced to 20% of the unpaid duty depending on the quality of the disclosure.

Although it is not set out in Schedule 41, the Respondents’ practice is to calculate the reduction in the penalty for the quality of disclosure by allocating a maximum of 30% of the potential reduction for “telling”, a maximum of 40% of the potential reduction for “helping” and a maximum of 30% of the potential reduction for “giving”.

Paragraph 14 of Schedule 41 provides that the Respondents may reduce the penalty if they consider that “special circumstances” apply.

Paragraphs 16 to 19 of Schedule 41 provide that:

Paragraph 20 of Schedule 41 provides that no liability to a penalty arises in relation to a non-deliberate act or failure if P is able to satisfy the Respondents or, on appeal, the FTT that there is a reasonable excuse for the act or failure.

We now turn to address the assessment to the wrongdoing penalty in the light of the legislation described above.

In the present case:

The Appellant accepts that paragraph 4 of Schedule 41 is engaged because of the extensive scope of the language used in that paragraph. We agree. Even though the Appellant’s involvement with the goods in this case was somewhat peripheral, its role in the transaction was sufficient to mean that it was “otherwise dealing with the goods”. The Appellant also accepts that there are no “special circumstances” for the purposes of paragraph 14 of Schedule 41 and we agree with that conclusion as well. “Special circumstances” are not defined in paragraph 14 of Schedule 41 but the House of Lords has determined that, in order for circumstances to be “special”, they must be “exceptional, abnormal or unusual” (see Crabtree v Hinchcliffe [1971] 3 All ER 967) and we do not think that the circumstances of this case fall within that description. However, the Appellant says that it should be relieved from the wrongdoing penalty pursuant to the application of paragraph 20 of Schedule 41 because its act or failure was not deliberate and it had a reasonable excuse for the act or failure.

Before we address that question, we need first to deal with a preliminary matter which is the fact that the Respondents have twice reduced their original assessment to the penalty instead of cancelling the previous penalty and issuing a new assessment. This occurred once as a result of the review and then again shortly before the hearing.

We consider that it is clear that the reduction made to the penalty as a result of the review falls within the Respondents’ powers under the legislation because:

It is less clear that the Respondents are empowered by the legislation to reduce an assessment to a wrongdoing penalty after the review has been concluded and the Appellant has notified its appeal against the review conclusion to the FTT. The Respondents submit that Section 12(3) of the FA 1994 is authority for that proposition because it stipulates that an amount assessed as due and notified under Section 12 of the FA 1994 shall, subject to any appeal, be deemed to be the amount of the duty due and may be recovered accordingly “unless, or except to the extent that, the assessment has subsequently been withdrawn or reduced”. The Respondents say that the reference in that section to a reduced assessment means that the Respondents may reduce the assessment at any time. That may be so but it is not entirely clear to us that a mere reference in the legislation to a reduced assessment as an exception to the rule that the amount shown in the original assessment is to be deemed to be the amount due is sufficient to empower the Respondents to reduce an assessment at any time without express authority to do so in the legislation. We would have expected a power of that nature to have been set out expressly in the legislation. As it stands, the reference in that section to a reduced assessment seems more likely to us to be referring to the power of the Respondents to reduce the amount assessed on review pursuant to Section 15F(5) of the FA 1994, as mentioned in paragraph 54 above. However, this question is of little moment in the present context because, even if we are confined in this decision to considering the penalty following its reduction on review and not the penalty as subsequently reduced on 24 January 2024, we consider that, for the reasons set out in paragraphs 68 to 71 below, we are entitled by paragraph 19 of Schedule 41 to substitute for the Respondents’ decision another decision which the Respondents had the power to make. Accordingly, we can consider the penalty position ab initio for ourselves.

The Appellant submits that it is entitled to be relieved from the wrongdoing penalty because its act or failure was not deliberate and it has a reasonable excuse for the act or failure. The Appellant says that it was innocent of any wrongdoing in accepting the order and lacked any actual or constructive knowledge of the smuggling. It says that it was told by Mr Patel that the pallets in question contained soft drinks and it had no reason to disbelieve him. It accepts that, in retrospect, it should have carried out some due diligence on Mr Patel and Hi Line Cash and Carry before accepting and processing the order but it says that that was an innocent mistake and that there were no grounds for suspecting that the transaction would involve smuggled goods.

In making that submission, the Appellant relies on the similarities between the facts in the present case and the facts in Perfect v The Commissioners for Her Majesty’s Revenue and Customs [2017] UKUT 476 (TCC) (“Perfect UT”) – see Perfect UT at paragraphs [69] to [72]. In that case, Mr Perfect was a self-employed lorry driver who was found to be carrying pallets of beer on which excise duty was due but had not been paid when he arrived at Dover Docks. The FTT in that case - Perfect v The Commissioners for Her Majesty’s Revenue and Customs [2015] UKFTT 639 (TC) (“Perfect FTT”) - had made a finding of fact to the effect that Mr Perfect was an innocent agent who lacked actual or constructive knowledge of the fact that the goods that he was carrying were liable to the duty which had not been paid. The FTT’s findings of fact in Perfect FTT are set out in greater detail in paragraphs [42] to [54] of that decision. Crucially in terms of this decision, the FTT in Perfect FTT found that Mr Perfect was in possession of a CMR and delivery note that accurately described the cargo of beer which he was carrying and the destination. What he did not know, and had no means of knowing, was that the unique Administrative Reference Code (or “ARC”) number on the CMR related to an earlier consignment of beer and so had been used previously. That meant that the documentation he was carrying was not valid but he had no means of discovering this.

The Upper Tribunal’s decision in relation to reasonable excuse in Perfect UT was upheld by the Court of Appeal in Perfect v The Commissioners for Her Majesty’s Revenue and Customs v Perfect [2019] EWCA Civ 465 (“Perfect CA1”) in the following terms:

that Mr Perfect had no interest of his own in the goods, was not part of any conspiracy, and had simply followed instructions;

that the only information that he had was to be found in the documentation he collected when he picked up the goods;

the documentation appeared to be consistent with the movement of goods subject to a valid duty-suspended arrangement; and

Mr Perfect had no means of checking whether the ARC on the documentation had been used or not.

Mr Glover invited us to follow the reasoning adopted by the Upper Tribunal in Perfect UT and the Court of Appeal in Perfect CA1 to conclude that the Appellant in this case had a reasonable excuse for its act or failure.

In response, Mr Holt accepted that the Appellant’s act or failure was not deliberate but said that the Appellant did not have a reasonable excuse for that act or failure. Although the Respondents accepted that the Appellant did not know of the smuggling and had no reason to be suspicious, so that the Appellant lacked actual or constructive knowledge of the smuggling, it had not acted reasonably because it had failed to carry out any investigation into Mr Patel and Hi Line Cash and Carry before accepting and processing the order. In particular, he pointed out that both Mr Phipps and Mr Baldock had conceded that they should have conducted some due diligence before accepting and processing the order and that Mr Phipps had confirmed that he was aware that there were obligations in the Operating Manual as regards the acceptance of orders from Unknown Shippers with which the Appellant had not complied.

We agree with both parties that the act or failure by the Appellant in this case was not deliberate.

Turning then to the question of whether the Appellant had a reasonable excuse for its act or failure, the case law in relation to reasonable excuse shows that the test to be applied in determining whether or not an excuse is reasonable is an objective one. One must ask oneself whether what the taxpayer did was a reasonable thing for a responsible person, conscious of, and intending to comply with, its obligations under the tax legislation but having the experience and other relevant attributes of the taxpayer and placed in the situation in which the taxpayer found itself at the relevant time, to do – see, for example, The Clean Car Company Ltd v The Commissioners of Customs & Excise [1991] VATTR 234.

We have given this question considerable thought and, although we are very sympathetic to the Appellant’s predicament in this case, we have concluded that it has not met the standard described above. Our starting point is to note that, in the extract from Perfect CA1 set out in paragraph 58 above, the Court of Appeal did not rely exclusively on the fact that Mr Perfect had no actual or constructive knowledge that his cargo was subject to excise duty. Instead, in paragraph [73(4)] of its decision, the Court of Appeal also relied on the fact that “Mr Perfect had no means of checking whether the ARC on the documentation had been used or not.”

The Appellant is not able to surmount the equivalent hurdle in the present appeal. If it had carried out some due diligence into Mr Patel or Hi Line Cash and Carry, it might well have discovered some irregularity which would have alerted it to a problem with the order. The evidence of Mr Baldock was that walk-in customers were a rarity in the business. He said that there was on average about one every month. Mr Patel was such a customer. Moreover, Mr Patel had never placed an order with the Appellant before. In addition, Mr Phipps knew, and Mr Baldock should have known, of the obligations which Palletways had placed upon its Members when it came to Unknown Shippers. All of this should have led a responsible person, conscious of, and intending to comply with, its obligations under the tax legislation but having the experience and other relevant attributes of the Appellant and placed in the situation in which the Appellant found itself at the relevant time to make some further enquiries into Mr Patel and Hi Line Cash and Carry.

We accept that the events in question were occurring during the pandemic when staffing levels were low and that the person who took the order from Mr Patel was a temporary member of staff. However, we do not think that these mitigating factors are quite enough to see the Appellant home on this question.

We have therefore concluded that the Appellant does not have a reasonable excuse for its act or failure and that a penalty is due. We have reached this conclusion with considerable regret. We think that the Appellant can justifiably consider itself to be extremely unfortunate but both Mr Phipps and Mr Baldock themselves recognised at the hearing that the Appellant had not taken all reasonable steps to avoid the circumstances which arose.

Whilst that means that the Appellant is not entitled to have the penalty cancelled, we need to address the further question of whether we are therefore obliged simply to affirm the penalty as it stands or whether we have the jurisdiction to substitute for the amount of the penalty a different amount which the Respondents had the power to assess.

In that regard, we note that:

However, we think that that would be an overly-restrictive approach to the legislation and the facts and would not be in keeping with the overriding objective in paragraph 2 of the Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009 (the “Tribunal Rules”) or our power to regulate our own procedure in paragraph 5 of the Tribunal Rules. The former paragraph requires that we deal with cases fairly and justly and the latter paragraph gives us wide powers of case management. We think that it is implicit in the grounds of appeal in this case that the Appellant is objecting not just to the penalty itself but also, in the event that we affirm the decision to assess a penalty, to the amount of the penalty.

Moreover, there is no unfairness to the Respondents in our adopting this approach and treating the quantum of the penalty as a question which we are required to address because the Respondents clearly understood before the hearing that quantum was a matter which we were going to address. We say that because:

In short, at no point in these proceedings have the Respondents indicated that, in their view, the quantum of the penalty is not a matter which we can address. We therefore consider that, in accordance with paragraphs 2 and 5 of the Tribunal Rules, we should treat the Appellant’s appeal in respect of the penalty in this case as encompassing both an appeal against the penalty itself and an appeal against the quantum of the penalty, with the result that, pursuant to paragraphs 17(2) and 19(2) of Schedule 41, we have the jurisdiction to consider the quantum of the penalty and to substitute for the Respondents’ decision another decision that the Respondents had the power to make.

In addressing that issue:

As such, we think that the maximum reduction for quality of disclosure should be awarded, with the result that the penalty should be reduced to the legislative minimum of 20% of the excise duty in question, which is £7,235.20.

In summary:

Finally, we believe that we would be remiss if we were not to make some observations about the Respondents’ conduct in this matter. In our view, from the outset, that has not met the standards which taxpayers are entitled to expect in relation to dealings with their tax affairs.

Officer Henderson’s initial enquiry letter of 26 March 2021 contained a number of egregious errors, as outlined in paragraph 2(12) above. One of those errors - the fact that an incorrect email address was set out on the top of the letter - meant that the Appellant’s emails to Officer Henderson never arrived. Moreover, that incorrect email address had not been corrected when Officer Henderson wrote to the Appellant on 24 January 2024, even though Officer Henderson had been made aware of the mistake a long time before and had previously apologised for it. We do not understand why that was the case.

Equally surprising to us is the manner in which the Respondents have dealt with the reduction in the penalty for the quality of disclosure. Officer Henderson initially determined that the quality of the Appellant’s disclosure merited a reduction in the penalty which was equal to 70% of the difference between the maximum and minimum penalty figures. That conclusion was adjudged by Officer Noble on review to be too harsh, with the result that the reduction was increased to 85% of the difference between the maximum and minimum penalty figures. However, when Officer Henderson reduced the penalty on 24 January 2024 to take into account the change in the status of the penalty from deliberate but not concealed to non-deliberate, she awarded no reduction whatsoever for the quality of disclosure. Moreover, there was no way that the Appellant or its representative could have realised from the information that was sent to them by Officer Henderson on that date that that was the case.

We do not understand why the conclusions reached by Officer Henderson and Officer Noble in relation to the quality of disclosure at the time when they considered that the Appellant’s act or failure was deliberate but not concealed should not have stood when Officer Henderson subsequently concluded that the act or failure was non-deliberate. As we have said in paragraph 51(4) above, Mr Holt was unable to shed any light on this at the hearing. It seems to us that, at the very least, the revised penalty on 24 January 2024 should have reflected that discount and should therefore have been 21.5% and not 30% of the excise duty in question - 20% plus 15% of the 10% difference between the maximum and minimum penalty figures - to take account of the 85% reduction which the Respondents had previously agreed to be due for the quality of disclosure.

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 Rules. 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.