Kevin Leonard Murphy v The Commissioners for HMRC

This appeals concerns a civil evasion penalty in the sum of £975 (“the Penalty”), issued on 24 June 2020, pursuant to Ss. 8(1) of the Finance Act (‘FA’) 1994 and 25(1) FA 2003, as a result of the Appellant’s allegedly dishonest attempt to evade customs and excise duties on 3 February 2019.

We were provided with a Hearing Bundle of 417 pages.

We heard oral evidence from the Appellant, Officer Entwistle and Officer Dunwoody. All witnesses were cross-examined and answered our questions. We are satisfied that all of the witnesses were doing their best to assist the Tribunal.

On the basis of all of the evidence, we make the following findings of fact on the balance of probabilities.

The Appellant told us that he suffers from PTSD caused by a life-changing accident that resulted in him being in a coma for 3-days. Following the accident, the Appellant’s mother gave him money for a holiday. HMRC did not challenge this evidence.

In January 2019, the Appellant went on holiday to Cambodia. At the time, the Appellant was a heavy smoker, smoking 40 cigarettes a day. Whilst on holiday, the Appellant decided to spend half of the money he had left at the end of the holiday on cigarettes, which were 9p per pack in Cambodia, and save the other half to pay the duty. He bought 5,208 AKA King Size cigarettes (“the Cigarettes”). He did not do any research as to the amount of duty payable. He (mistakenly) thought that the duty, like the price of the cigarettes, would be low and that he would be making a saving. On one occasion the Appellant had brought hand rolled tobacco home from a holiday for a friend, but this was the first time that he had brought cigarettes home.

On his return, the Appellant travelled from Phnom Penn to Bangkok to Abu Dhabi to Manchester. On arrival at Manchester Airport, he collected his suitcase and waited for his Nike sportsbag containing the cigarettes (“the Bag”). It was the Appellant’s intention to collect the Bag, go to the red channel, declare the Cigarettes and pay the duty. However, the Bag did not arrive. The Appellant went to the desk near the carousel to report the Bag missing. He was asked to wait whilst the Bag was located. He waited for 10-15 minutes. He was then told that the Bag was in Abu Dhabi. He provided his name and address. He was not asked what was in the Bag. He did not declare the cigarettes, which were not in his possession at the time, before leaving the airport.

It is HMRC’s case that it is standard practice for a customs declaration form (“BOR 1422”) to be completed in respect of missing luggage. HMRC contends that the Appellant completed a BOR 1422. The Appellant denies this. We accept that Officer Dunwoody saw a BOR 1422 which she used to link the Bag to the Appellant. Officer Dunwoody explained that on a BOR 1422 a traveller can declare, by ticking a ‘Yes’ box or a ‘No’ box, if they are carrying goods in excess of their allowances. Where the ‘Yes’ box is ticked, there is space overleaf to provide the details of the goods. Where the ‘No’ box is ticked, the BOR 1422 is held by the handling agents. However, Officer Dunwoody could not recall, due to the passage of time, if either the ‘Yes’ box, ‘No’ box or neither box was ticked on the BOR 1422 allegedly completed by the Appellant. Further, Officer Dunwoody’s evidence was that the BOR 1422 was signed by the Appellant. We have carefully considered this evidence and conclude that Officer Dunwoody is mistaken on the point. We have balanced the Appellant’s very clear evidence that he did not complete a BOR 1422 against Officer Dunwoody’s incomplete recollection of events, noting that there was no explanation for Officer Dunwoody’s ability to recall the signature but not to recall which declaration boxes had been signed. Unfortunately, the BOR 1422 seen by Officer Dunwoody was not provided to the Tribunal because it is no longer in HMRC’s possession or control. Accordingly, we were unable to consider the document ourselves. In all of the circumstances, we prefer the evidence of the Appellant on this point. Whilst we are satisfied that a BOR 1422 was completed with the Appellant’s name, address and a description of the Bag, we are not satisfied that the form was completed by the Appellant, signed by the Appellant or contained any customs declaration either way.

For the avoidance of doubt, in her closing speech Ms Birtles attempted to read to the Tribunal the wording of a BOR 1422. No application had been made to adduce this evidence. In fact, the evidence had closed and both Officers Dunwoody and Entwistle had left. We explained to Ms Birtles that she could not give evidence, even if it was a public document. Also, it was unclear if this was a current version of the BOR 1422 or the version in force in February 2019. The evidential gap created by the missing BOR 1422 was apparent from the outset of the hearing, with both the Tribunal and the Appellant enquiring as to the document’s whereabouts. If HMRC wanted to refer to and rely on a specimen BOR 1422 then an application should have been made at the start of the hearing. It wasn’t. We considered it prejudicial and contrary to Rule 2 of The Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009 (“the Rules”) to allow HMRC, at this stage and without any or any adequate explanation, to refer to and rely on an unknown BOR 1422.

On 3 February 2019, the Bag arrived at Manchester airport from Bangkok via Abu Dhabi and was presented to Border Force for examination. Officer Dunwoody searched the bag and discovered the Cigarettes, which exceeded the personal allowance for a person travelling outside the EU.

The Cigarettes were seized. A BOR156 – Seizure Information Notice, BOR 162 – Warning Letter, Notice 1 and Notice 12a were placed inside the Bag. The Bag was returned to the Appellant who became aware of the documents located inside. The Appellant telephoned the number on the letters asking to pay the duty and collect the Cigarettes. He was told that the Cigarettes had been destroyed. The Appellant did not appeal against the seizure of the cigarettes. He did not think there was any point as the Cigarettes had been destroyed.

On 29 January 2020, the Post Detection Audit Team wrote to the Appellant notifying him of their intention to investigate his conduct surrounding the (attempted) smuggling of tobacco into the UK, with a view to establishing whether his conduct was dishonest and therefore whether it was appropriate to issue a penalty. The Appellant was invited to make any disclosures he wished to.

On 3 February 2020, the Appellant telephoned and spoke to Officer Roberts. HMRC rely on an attendance note in respect of this call. The Appellant disputes the accuracy of that attendance note. In particular, he denies saying that ‘he never brings back more than his 200 allowance.’ We are satisfied that the Appellant did not say this as the incident in question was the first time that the Appellant had brought cigarettes back from a holiday. However, he accepts stating that he never filled out any paperwork regarding the Bag. He was given a telephone number to call regarding the Bag. He did not get an opportunity to declare the goods as he intended. Following the seizure, the Cigarettes had been destroyed and he never appealed the seizure as he thought this was a waste of time.

On 12 February 2020, the Appellant was issued a reminder letter seeking a response to the 29 January 2020 letter by 28 February 2020 (“the Reminder Letter”). We note that in fact the Appellant had responded to the 29 January 2020 letter by telephone on 3 February 2020. The reminder letter stated that the Appellant may be liable to pay £1,951 or more. At this point and for the first time, the Appellant googled the amount of duty payable on the Cigarettes. He was surprised at the answer.

On 19 February 2020, the Appellant telephoned and spoke to Officer Crozier. The Appellant referred to the Reminder Letter and asserted that he had responded to that letter by telephone on 3 February 2020. Officer Crozier explained that, as he should have been told but wasn’t, the Appellant had to respond in writing, but could not respond via email.

On 24 February 2020, HMRC received the Appellant’s letter dated 20 February 2020. In the letter, the Appellant confirmed that:

On 24 June 2020, Officer Entwistle wrote to the Appellant advising that HMRC considered his actions dishonest and the Penalty had been imposed, consisting of a customs civil evasion penalty in the sum of £209 and an excise civil evasion penalty in the sum of £766. The amount of duty evaded was £1,951. HMRC allowed a reduction of 50% for the Appellant’s disclosure and co-operation.

On 26 June 2020, the Appellant telephoned and spoke with Officer Roberts. The Appellant, who was upset, disagreed with the Penalty as he never got the opportunity to declare the Cigarettes and pay the duty which he fully intended to do. The Appellant indicated that he would appeal to the Tribunal.

On 21 July 2020, the Appellant issued the Notice of Appeal.

There was no dispute that the following provisions are those relevant to this appeal.

Excise Duty:

Section 8 FA 1994 provides:

Section 8 FA 1994 was repealed by paragraph 21(d)(i) of Schedule 40 of the Finance Act 2008 with the exception of the dishonesty penalty, which was preserved by The Finance Act 2008, Schedule 41 (Appointed Day and Transitional Provisions) Order 2009.

Customs Duty:

Sections 25(1) and 29(1)(a) FA 2003 provide as follows:

S.31 (1) (a) FA 2003 provides a 20-year time limit for a penalty under s.25 (1) FA 2003, albeit in accordance with s.31 (2) FA 2003 “ A demand notice may not be given more than 2 years after there has come to the knowledge of the Commissioners evidence of facts sufficient in the opinion of the Commissioners to justify the giving of the demand notice.. In this case, the Penalty was issued on 24 June 2020 which is less than 2 years after 3 February 2019. There are no time limits specified in the FA 1994. Accordingly, the Penalty is in time.

The Travellers’ Allowance Order 1994 provides limits for the importation of relevant goods from third countries (effectively a non-EU country). As set out above, the limit for tobacco products is 200 cigarettes or 250 grams of smoking tobacco.

In Ivey v Genting Casinos (UK) Ltd t/a Crockfords [2017] UKSC 67, the Supreme Court held that the test of dishonesty is a two-stage test considering subjective and objective elements, at [74]:

In Royal Brunei Airlines Sdn Bhd v Tan [1995] 3 All ER 97, Lord Nicholls stated, at [106]:

The burden of proof in establishing 'conduct involving dishonesty' lies with HMRC, see s16 (6) of FA 1994 in respect of excise duty and s33(7)(a) of FA 2003 in respect of customs duty and import VAT. The standard of proof is the civil standard of the balance of probabilities, Bintu Binette Krubally N'diaye [2015] UKFTT 380.

In summary, the Appellant’s position is that he never got the opportunity to declare the goods and pay the duty which he fully intended to do. He is particularly aggrieved at being, as he sees it, found guilty of smuggling without a trial, albeit this is not a criminal matter. He also feels bullied by HMRC.

HMRC contend that the Appellant dishonestly attempted to evade import VAT, excise and customs duties, and, accordingly, the Penalty is due. HMRC refer to and rely on the following points:

We have considered all of the evidence, both oral and documentary, along with the parties helpful submissions.

S.8 FA 1994 and s.25 FA 2003 provide that, in any case where any person engages in any conduct for the purpose of evading duty and that person’s conduct involves dishonesty (whether or not such as to give rise to any criminal liability), then that person shall be liable to a penalty of an amount equal to the amount of the duties evaded or sought to be evaded. Accordingly, the gateway to a penalty under both s.8 FA 1994 and s.25 FA 2003 is dishonesty. Therefore, the question for us is whether or not the Appellant’s conduct was dishonest. In determining this question we must apply the test in Ivey v Genting.

We are satisfied that the Appellant’s actions were not dishonest. In reaching this decision we refer to and rely on the following primary points.

It was always the Appellant’s intention to declare the Cigarettes and pay the duty. He has been consistent on this point since his letter of 20 February 2020. Specifically, he intended to collect the Bag, enter the Red Channel, declare the Cigarettes and pay the duty. He had saved half of his money in order to pay the duty. We accept that this was the first time that he had brought cigarettes back from holiday and that he was simply mistaken as to amount of duty payable. The fact that he was mistaken as to the amount of the duty does not negate his intention.

The Bag was mishandled and, consequently, was unavailable for collection on his arrival. He reported the Bag missing. He provided his details. He did not complete a BOR 1422. He did not make any dishonest declaration on a BOR 1422, for example he did not tick the ‘No’ box on a BOR 1422. He was not asked if he had goods to declare in the Bag. On exiting the Airport, he was entitled to use the Green Channel as he was not carrying any excise goods. HMRC did not provide any evidence of signs at Manchester Airport informing the Appellant of the steps to take to declare goods in mishandled bags. We find that there were no such signs. He left the Airport without the Cigarettes believing that he would declare the Cigarettes and pay the duty on their arrival. This is supported by his telephone call the day after receiving the Bag back, asking to pay the duty and collect the Cigarettes.

In all of the circumstances, the subjective test of dishonesty in Ivey is not satisfied.

In Blake v The Commissioners for His Majesty’s Revenue & Customs [2023] UKFTT 284 TC (“Blake”) Judge Hyde considered the case of William Reed v The Commissioners for Her Majesty’s Revenue & Customs [2018] UKFTT 0749 (“Reed”). In Reed, Mr Reed was caught importing cigarettes in his hand luggage as he walked through the green channel. However, he had also abandoned. on the luggage carousel, a suitcase containing 10,000 cigarettes which had split open. The Tribunal was satisfied that Mr Reed’s conduct involved dishonesty. At paragraphs 84-86 of Reed, the Tribunal said:

The facts in Blake were not dissimilar to Reed. Mr Blake also intended to bring the cigarettes through the green channel. However, he was stopped by Border Force before entering the Green Channel. Notably, at the point he was stopped he could still have decided to declare the goods. The Tribunal in Blake respectfully disagreed with Reed. At paragraph 76 of Blake, the Tribunal said:

We are not bound by either Reed or Blake. We agree with Judge Hyde’s points at Blake §77. However, in contrast with both Reed and Blake, in this case the Appellant did not intend to evade duty. He always intended to declare the Cigarettes and pay the duty. He was not asked about the contents of the Bag when reporting it missing. He did not complete a BOR 1422 and, consequently, did not make any dishonest declaration. At the point of leaving the airport, he was not carrying the Cigarettes, which remained in Abu Dhabi. On receipt of the Bag minus the Cigarettes, the Appellant telephoned to pay the duty and collect the Cigarettes. In Blake, Mr Blake was carrying the excise goods in question, in the baggage reclaim area. His conduct was held not to be dishonest because, in essence, he was deprived of the opportunity of declaring the goods by being confronted before entering the green channel. On the facts of this appeal, we consider that the Appellant was similarly deprived of the opportunity of declaring the Cigarettes prior to their seizure.

In all the circumstances, we do not consider that the Appellant’s conduct was dishonest by the objective standards of ordinary decent people. Therefore, the condition for imposing the Penalty, namely ‘conduct involving dishonesty’, has not be met and the appeal is allowed. We also wish to express a note of concern with paragraph 31 of HMRC’s Statement of Case stating “As a person who has been found to have exceeded their personal allowance it is HMRC’s standard practice to seize the goods concerned and issue a penalty.” The issuing of a penalty is not a matter of standard practice. It is dependent upon establishing ‘conduct involving dishonesty’ which requires careful consideration prior to issuing a penalty.

For the avoidance of doubt, if we are wrong and the Appellant’s conduct was dishonest, we consider that the 50% reduction given by HMRC is reasonable considering the disclosure and co-operation provided by the Appellant.

The appeal is allowed.

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.