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Rapid Response Team: 0800 559 3500
Switchboard: +44 (0)203 947 1539
Rapid Response Team: 0800 559 3500
Switchboard: +44 (0)203 947 1539

Understanding HMRC Tax and VAT Investigations: A Sobering Thought

Author: Azizur Rahman  12 August 2013
5 min read

The amount of untaxed beer seized by the authorities has increased massively in recent years…..making it more important than ever that anyone involved in the drinks industry has a clear head if they want to avoid a legal hangover.

Beer, it seems, is one of those commodities that never seems to fall out of fashion. Most people like a drink. So it’s perhaps no surprise that the tax man has seen the sale of beer as a party it is well worth him crashing.

Figures released recently showed that the amount of untaxed beer seized by HM Revenue and Customs (HMRC) officers has almost doubled in the past four years. The 2012-13 fiscal year saw 9.37 million litres taken by HMRC. It’s a figure that will have created significant legal headaches for some people and it makes far stronger reading than the figure of 5.78 million litres for 2008-09.

Not surprisingly, the British Beer and Pub Association has commended HMRC for taking the battle to those involved in beer duty fraud. The Association’s Chief Executive Brigid Simmonds said: “Brewers are working well with customs officials and we are always looking at ways of working more closely with HMRC, sharing information on the supply chain to help them crack down on the problem. Increased seizures with more effective and targeted action definitely show the benefits of this approach.’’ For the Association, the benefits of increased seizure are clear: it makes it less likely that their members will lose business due to them being undercut on price by people selling beer where no duty has been paid. For HMRC, the seizures are a headline-grabbing way of recouping money that should already have found its way to the Treasury. It said last year that it believed that a tenth of all UK beer sales were illicit. That claim was followed by calls for duty stamps on beer by the Federation of Wholesale Distributors.

It seems as if the police and local trading standards officers are also happy to team up with HMRC as it seeks out non-duty paid alcohol, as well as tobacco. In June, three men were jailed for their role in a £4.7M alcohol fraud involving thousands of litres of spirits, the destruction of export duty stamps and counterfeit labelling. Similarly, an HMRC operation led to another two men being jailed for importing wine from Italy while failing to pay more than £5M in duty and VAT. HMRC knows that there is money to be gained through such operations and so they are likely to continue running them. It is estimated that Britain accounts for 40% of the entire beer duty bill of the EU, with it collecting five times as much beer duty as Germany, which is the biggest European beer market. This may be part of the reason that many have come to view alcohol and cigarettes as attractive commodities for duty fraud. Until 2007, many such people would have preferred the likes of mobile phones and designer clothes when operating duty and VAT evasion operations. These goods would have been imported VAT free from EU countries, sold on at prices that included the VAT and the sellers would then absent themselves without paying the VAT they received when selling the goods. An intricate chain of companies, deals and import-export arrangements would often be put in place to ensure they were successful in their aim of receiving VAT on goods but never paying it to HMRC –Missing Trader Intra Community (MTIC) Fraud. But since 2007, VAT has been levied on the purchase – rather than the sale - of high value goods such as mobile phones; making it harder to carry out such frauds using this “reverse charge’’ method .

This may be why there appears to be a crackdown going on with alcohol and cigarettes. There may now be more people using these commodities as a vehicle for duty and VAT evasion. Alternatively, that may not be the case – yet HMRC may have decided to pay such products more than usual attention on the assumption that there will be more attempts to use these products in fraud. But whatever the reason behind the increase in beer seizures, anyone involved in such business has to be extra vigilant for signs of wrongdoing – fully aware of the danger signs and what they should be doing to avoid becoming involved in anything illegal. If a person does find him or herself under investigation, they have to contact lawyers who are fraud case specialists in fraud cases. Such specialists can use the required expertise to analyse the evidence, conduct negotiations with the authorities and make sure the best interests of the person under investigation are represented in the most suitable manner.

Such interests are not simply the issue of whether a person was knowingly or unknowingly involved in VAT and duty evasion. Any investigation of such matters can lead to someone losing some or all of their assets if a Judge finds that they are the proceeds of crime. The Proceeds of Crime Act 2002 (POCA) gives the authorities the power to issue a restraint order to freeze assets which may then later be confiscated. Such an order imposes an obligation on the subject of it to declare all they own. From that point, the authorities will put a case together outlining how much of this inventory of possessions they believe to be the proceeds of crime – making them, they will argue, open to confiscation. A restraint order can be issued against someone at any time once an investigation has begun. The first a person may know that they are the subject of an order may well be when they are served with it or find their cashpoint card does not work. Orders can be applied for by the Crown ex parte – in a private hearing between prosecution and the Judge in chambers – meaning the subject of it can be the last to know that one has been granted.

In 2011, the Court of Appeal ruled in the duty evasion and alcohol importation case of Windsor and Hare VCPS (2011) that the prosecution had applied for the restraint order in a hurried fashion that did not give the Judge enough time to fully understand the case. As a result, the order was quashed, with the key ground for quashing it being the insufficient evidence put before the judge. Under POCA, a restraint order can only be issued if there is a reasonable cause to believe that the alleged offender has benefitted from his criminal conduct. This legal point gives an experienced fraud solicitor adequate scope for defending a client’s assets if, as in VAT and duty evasion cases, the prosecution’s case is based on suspicion and implication rather than hard evidence. But perhaps the best way that anyone involved in tobacco or alcohol imports and exports can avoid prosecution (and subsequent loss of assets) is through sound compliance.

Putting it in its simplest terms, compliance is about making sure you’ve got your house in order in terms of the law. Are you complying with all aspects of UK – and, where applicable, other countries’ – law in relation to the conduct of your business? For example, a retailer of alcohol or tobacco in the UK knows it is illegal to sell such things to children. But when it comes to the import and export of such items, the legal situation is much more involved. Have the appropriate duties been paid to the relevant authorities? Are the drinks or tobacco you are importing the legitimate article or counterfeit? Have they been sourced through legal channels or is there a suspicion they may be stolen goods? What do you know about your trading partners, agents or third parties acting on your behalf? All these are questions that will need clear answers should the authorities come investigating. Such answers will also need to be backed up with clear, incontrovertible proof.

Compliance may seem to some like the pedantic dotting of the i’s and crossing of the t’s. But such behaviour will not seem pedantic if the authorities have reason suspect wrongdoing. Alcohol and tobacco have always attracted undesirable types looking to make a quick buck from a deal, regardless of the consequences. The right legal expert can help anyone in such markets avoid the obvious and less obvious pitfalls, ensure they are functioning legally with legitimate partners and goods and, perhaps most crucially, introduce the best working practices.

In that way, anyone in the drinks industry will know they are operating legally and will be able to prove it to anyone who comes asking questions. Which is well worth raising a glass to.

Azizur Rahman C 09369

Azizur Rahman

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Aziz Rahman is Senior Partner at Rahman Ravelli and its founder. His ability to coordinate national, international and multi-agency defences has led to success in some of the most significant corporate crime cases of this century and top rankings in international legal guides. He is recognised worldwide as one of the most capable legal experts regarding top-level, high-value commercial and financial disputes.

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