A Reminder That Customs Notices Are Not Law

27 February 2012

The tax Tribunal of Forth Wines v HMRC ruled that HMRC approach to an application for Simplified Import VAT Arrangements (SIVA) was wrong.

Most businesses that import on a regular basis use a duty deferment account to pay any customs duties and import VAT. These arrangements:

• Provide cash-flow savings by enabling you to pay customs duties and import VAT on the 10th day of the month following import
• Make it easier to clear goods

• Provide a useful record against which to reconcile your importsThe downside to these deferment arrangements is that it is necessary for the importer to obtain a guarantee from its bank to pay any amounts of duty or import VAT if the business is unable to do so and this facility comes at a cost.

SIVA allows an importer to reduce its importing costs by only having to obtain a security for the duty on its deferment account and not the larger VAT amount.

The HMRC officer focussed on a set of published criteria in Customs Notice 101 to assess Forth Wines application for SIVA, which provided that the applicant must have:

1. been registered for 3 years
2. a good compliance history for VAT
3. a good payment history with the department
4. sufficient financial means to meet any amount deferred under SIVA
5. a good HMRC offence record (Serious offences will result in automatic expulsion)
6. a 12-month record if (sic) international trade operations
7. a good Compliance record for International Trade

Forth Wines had purchased the business as a going concern less than three years prior to its application for SIVA and so the HMRC Officer refused the application on point (1). The officer refused to consider other evidence as to any potential risk as being irrelevant.

SIVA is permitted under s121A of the VAT Regulations 1995 and provides that the need for any security may be waived if there is no risk to its payment. The underlying law does not list the above criteria used by HMRC.

The Tribunal found HMRC was wrong on just carrying out a tick box exercise to determine whether all the criteria in its notice had been met. It should instead have looked at the underlying risk. The qualifying criteria set out in Customs Notice are not law but only guiding principles and so they should not be construed narrowly or strictly.

Lessons Learned:
• This case is only one example of where HMRC published guidelines in its public notice and then interprets its guidance as having force of law. We would always recommend identifying the legal reference for any decision and looking at the conditions or obligations set out in those provisions
HMRC has a tendency to gold plate legal provisions and deny importers benefits provided by law

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