Dealing in Dutiable Goods? Are Your Due Diligence Procedures Up to Snuff?


In a salutary warning to all traders who deal in alcohol or other dutiable goods, a tax tribunal has emphasised their heavy duty to carry out extensive due diligence, not only on their immediate suppliers but on their entire supply chains.

The case involved a retailer who sold a wide range of goods, including alcohol. HM Revenue and Customs (HMRC) officers who visited its premises were unable to confirm that UK duty had been paid on thousands of bottles of wine and beer in its stock. The goods were seized and seven-figure duty assessments were issued against the retailer. It also received a penalty assessment of about £1.17 million.

In challenging the penalty, the retailer contended that it had a reasonable excuse. It had for years conducted business with the supplier from which it obtained the goods and there was no indication that the supplier was a rogue trader. It had performed detailed due diligence checks before taking on the supplier which provided a formal warranty that duty had been paid on the goods. The retailer contended that it could have done no more to ensure that the goods were duty paid.

Ruling on the matter, the First-tier Tribunal (FTT) noted that the retailer had not intentionally participated in a defaulting supply chain. However, its duty to perform due diligence checks extended beyond the supplier. It was also required to check the propriety of the supplier’s own supply chain and to seek confirmation that the supplier itself operated adequate due diligence procedures.

The retailer’s longstanding trading relationship with the supplier did not excuse it from the obligation to check that duty had been paid on each individual supply of goods. It placed too much reliance on the supplier’s assurances and, overall, its due diligence procedures were insufficient to enable it reasonably to conclude that the goods were duty paid.

The FTT detected no special circumstances that would justify waiving or reducing the penalty, which was neither unfair nor disproportionate. Save for a modest cut in the penalty to take account of a mathematical error, the retailer’s appeal was dismissed.

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