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Duty refund hit by seven-year hitch
September 2007
Mike Hodge, International Trade Today
In the last edition, I made several comments relating to the fact that HMRC needed to get its act together regarding the treatment of businesses engaged in international trade.
I have made the point previously that there are other countries in the EU where the tax authorities have a much less jaundiced view of business and that it would not surprise me at all to see a trade exodus.
I finished the article mentioned with the Max Bygraves promise ‘I wanna tell you a story’ and that is exactly what I’m going to do.
I am also going to write to Paul Gray, the executive chairman of HMRC, because he needs to be aware of this case – and I’m sure there are many others. We, as taxpayers, have been told we are ‘the customers of HMRC’. This is, as you have heard me say time and time again, is utter nonsense. Customers have a choice, taxpayers don’t. We have no choice, so we are taxpayers. QED.
Anyway, this particularly sorry tale goes back to about the year 2000 but let me tell you a bit about the company first. It is a well-established importer that once upon a time operated Import Period Entry. How many readers of International Trade Today remember that? (In fact, whilst I think of it, whatever happened to The Blueprint? Maybe the road map has been lost).
So, to go on…the company now operates CFSP together with a Customs warehouse. It is a good, reliable trader with an unblemished revenue history, and would be an ideal candidate for approval under the Authorised Economic Operator scheme. Its average annual Customs Duty bill is around £100,000 and VAT, £500,000. It operates under a product code list of some 5,000 items and a range of 180 tariff headings.
Within the nature of its business, it has additional costs such as artwork and design undertaken in non-EU countries and there are also assists such as tools, moulds and dies. So, on an annual basis, these costs are all identified and scheduled; the average rate of duty is calculated using the CFSP system and a letter was sent to its local officer (when it had one) with a calculation of the duty and VAT due.
A C18 Post Clearance Demand Note was duly issued (together with the standard ‘pay up now or the bailiff will be calling’) and that was that. The business always found it slightly odd that the C18 was issued with such an unpleasant letter but ‘taxpayers’ should expect this sort of treatment. We are not customers.
The company’s suppliers in the Far East (of which there were maybe 40) were all totally independent – there were no ‘related party’ transactions. On regular visits to the Far East, the company’s buyers negotiated a retrospective 1.5 per cent discount with all the suppliers – it wasn’t a quantity discount as such but it was a discount that was sorted at the end of each trading year.
Effectively, the company was paying 101.5 per cent for the cost of its goods and at the end of each trading year it received the 1.5 per cent credit.
By the same token that the business paid the duty and VAT on the additional costs, it sought a refund of duty on the ‘credit’ notes and approached Customs & Excise (as it was then) for a refund of duty only to be sent packing. I’m not sure what the reason for refusal was as there was no correspondence available by the time I became involved. That was early in 2004, when I advised the company that a reclaim certainly was allowable within EU law.
The company re-submitted its claims for 2000, 2001 and 2003 and sent the C285 into the local Customs & Excise office. It is not clear what verification work, if any, was carried out by Customs but the papers found their way down to the National Duty Repayment Centre (NDRC) at Dover, which asked for copies of every single declaration – about 50,000 of them!
In September 2004, I contacted the local officer in an attempt to find out why the refund claim had stalled but I was advised that the NDRC was responsible for processing the claim. My next move then was to approach the Valuation Policy Section in Southend as this deadlock was a matter of pure policy. This avenue drew an entirely unhelpful blank as I was referred back to the local officer, who was taking no responsibility at all.
At no stage had anyone in the Department made a decision so it was impossible to ask for a Review. More time elapsed whilst letters were written but no useful responses received. There was even a meeting at the NDRC in the summer of 2005 and, despite the fact that more letters were exchanged, there was still no action.
In one of the letters from HMRC (as it had now become), an officer wrote, ‘I have taken into consideration your comments regarding the price paid or payable for the goods. However, other rules then apply (within EC Regulation 2913/92) where discounts are received.’ I asked for the exact reference in the Customs Code but, not surprisingly, did not receive a response.
At long last, in January 2006, the importer received a letter that carried the inviting phrase that, if we didn’t agree with the decision (to reject most of the claim), we could ask for a Departmental Review. Hooray! Now, there will be some sanity as the Review team concentrates on what the law actually says – doesn’t it?
In March 2006, a four-page letter with numerous enclosures and attachments was sent to the Review team. The basic argument was outlined – all the suppliers were arm’s length and the duty value in such circumstances is based on the price paid or payable. It really was a simple matter. A read of the Customs Code makes it crystal clear – or should do.
The Review officer referred in the main to Notice 252 (January 2002 version) and paragraph 30.3 thereof, which, if anyone wants to check it, cites related party transactions and retrospective price adjustments in those circumstances! I just wondered what on earth I could now write to get someone to read the law.
Many businesses would, by now, have given up the ghost but we decided that a visit to the VAT & Duties Tribunal would be the place to sort this out. More correspondence duly followed and we were asked for ‘further and better particulars’, which might have been funny if it wasn’t for the fact that I was into my third lever-arch file on this one case.
The involvement of the Solicitor’s Office did bring some sanity to bear because, suddenly, someone actually read the law and had to agree that the claim was valid.
That was in November 2006 – and, at last, we’d won, hadn’t we? No! The Solicitor now decided that the claim had to be in a certain format – and that meant copies of all declarations had to be provided. As Victor Meldrew most famously said, ‘I don’t believe it’! The Customs Solicitor had been asked to look at the valuation basis of the claim and had now come up with an entirely different reason for disallowing the refund.
Still, there was not going to be any giving up. More correspondence went back and forwards with the result that we managed to have some meetings with HMRC staff, who, at last, carried out some verification checks and signed off the C285 repayment claim.
The business received their refund towards the end of July 2007 – more than seven years after the saga originally started and more than three years after the claim was first lodged.
This is a truly dreadful example of HMRC’s appalling incompetence. The whole thing could, and should, have been sorted out way back in 2004. The total claim was for £40,000 – anyone would have thought it was for millions.
My problem is trying to get Paul Gray (a) to understand this and (b) to do something about it.
I think I am doomed to failure but it won’t stop me having a go. I will let you know what response I get!
