TC09657 - [2025] UKFTT 01208 (TC)

The debtor issue arises here in very unusual circumstances. The Appeals are being heard together and, therefore, if the Tribunal finds that an Appellant to whom a C18 was addressed is not the declarant/debtor, but that another Appellant is, it is potentially able to do something about it, in that the Tribunal will have before it the entity to whom the amount should have been notified and FA 1994 would appear to give the Tribunal wide powers in relation to the liability of that person. That must be an unusual circumstance. HMRC were quite clear that, if a debtor successfully appealed a notification of a debt because it was not the declarant/debtor and it was the only party to the appeal, nothing in FA 1994 would enable the Tribunal to fix liability on a correct declarant/debtor which was not involved in the proceedings. That must be right; under section 16(5) FA 1994, the Tribunal has power to do certain things “on an appeal under this section” and that cannot extend to empowering it to act in relation to persons not involved in the appeal.

It might be thought strange that their appeals being heard together exposes the Appellants to a worse outcome than if they were being heard separately. We will come back to this point, but first we need to look at two features of the way the Code works which might suggest that the Tribunal does not have jurisdiction to increase the customs duty liability of any Appellant in the way HMRC suggest.

First, it is fundamental to the operation of the Code that separate customs debts arise in relation to individual importations. Article 201 provides that a customs debt is incurred on importation and the debtor is the declarant. Article 217 requires “each and every amount of import duty resulting from a customs debt” to be calculated and entered into the records, and Article 221 requires that amount to be notified. The Appellants are not each appealing a single composite customs duty notification/assessment, but rather each is appealing several notifications each of which relates to a particular amount of duty referable to a particular importation.

If HMRC are right and section 16(5) allows the Tribunal to substitute its own decision in the way they assert and it went on to do so, the Tribunal would be making an Appellant liable for customs duty on an importation in relation to which that Appellant had not brought an appeal. Moreover, so far as that Appellant is concerned, it would not be substituting its decision for one made (in relation to that Appellant and that importation) by HMRC but would be making a decision in relation to that Appellant and that importation for the first time. The Tribunal’s power to vary a decision of HMRC or substitute its own decision can only be exercised “on an appeal” and I am far from satisfied that, if Appellant A is appealing notification 1, the Tribunal would be acting “on an appeal” if it decided that, whatever the outcome of that appeal, Appellant A was liable on notification 2 (which Appellant A had never appealed because notification 2 was made to Appellant B, who was appealing that decision). I do not think that the answer to this question changes just because the appeals of Appellant A and Appellant B are being heard together.

The next issue to consider is the procedure set out in the Code for notifying amounts of customs duty to debtors. I do not agree with HMRC’s argument that the requirement for prior entry into the accounts or notification can be dispensed with (or that entry into the accounts can be addressed by writing up the accounts after a Tribunal decision). Firstly, in Molenbergnatie the ECJ was very clear (at [46]-[49]) that “Article 221(1) of the Customs Code requires the amount of import or export duty to be entered in the accounts before it is communicated to the debtor.” The ECJ also held that that on expiry of the period prescribed by Article 221(3) of the Code the debt is time-barred and, consequently, extinguished. At [39] it explained:

“It is beyond question that expiry of the three-year period laid down in Article 221(3) of the Customs Code, for the customs authorities to notify the debtor of the amount of the customs debt, is a bar on the right of those authorities to recover the debt, unless it is as a result of an act that could give rise to criminal court proceedings that the customs authorities were unable to determine the exact amount legally due. However, the provision at issue at the same time enacts a rule governing the customs debt itself, and thus establishes a rule on limitation in respect of the debt.”

Secondly, Article 220 lists three circumstances where, despite the authorities becoming aware that no entry was made in the accounts as respects an amount of duty resulting from a customs debt or the amount entered was too low, an entry into the accounts “shall not occur”. At this point Article 220 is providing the trader with valuable safeguards, but those protections only work if a debt needs to be written up in the accounts before it can be notified.

As Molenbergnatie makes clear, the concepts of writing up an amount in the accounts and notifying the debtor are very important features of the customs duty regime and contain important protections for the debtor. The notification requirement is effectively a limitation period; if a debt has not been correctly notified by the end of the prescribed period, it is “time-barred and consequently extinguished”. As recorded at [157], HMRC’s submission is that it would be absurd to require a notification to an Appellant if the Tribunal decided it was liable as the Appellant is perfectly well aware of HMRC’s position. That ignores the point that the requirements to write up an amount in the accounts and notify the debtor provide protections (most importantly a limitation period). Simply saying that the debtor is now aware of HMRC’s case is not a good answer to a failure by HMRC to notify the debtor in line with the requirements of the Code.

This also addresses the points HMRC raised (recorded at [159]-[161]) about the appeal procedures in different Member States. The requirement (or lack of requirement) for notification has got nothing to do with the appeal procedures in particular Member States. It is a fundamental requirement of universal application: if the amount of a customs debt is not properly notified to the declarant/debtor by the end of the prescribed period, it is “time-barred and consequently extinguished”.

I agree with the Appellants that it would be very surprising if the result of a debtor bringing an appeal in relation to a particular amount of duty which has been notified to it is that those safeguards cease to exist as regards other amounts of duty which have not been notified to it and the court or tribunal hearing its appeal could impose a liability on it for other amounts of duty in circumstances where the authorities could not notify the amounts themselves.

If we look at the (I imagine much more common) situation of a debtor appealing against a notified amount where only the amount of duty due in relation to a single import is in point, the court or tribunal could declare that the amount notified was too low. In such a case, the authority would enter the shortfall in the accounts and notify it to the debtor provided nothing in Article 220 stopped it entering the amount in the accounts and the authority was in time to notify the amount. Because the time limit is extended where an appeal is on foot, the only situation where the authority is likely to be out of time is where it notified the amount sufficiently close to the end of the three-year notification period that the period had expired before the debtor gave notice of appeal. Pausing here, I agree with the Appellants that this suspension of the time-period for notifying amounts of customs duty whilst an appeal is live is a powerful indicator that a decision of a court or tribunal that a (or a greater) amount of duty is due is not sufficient and the general requirements of the Code, that the amount of a customs debt must be reflected in the accounts and notified, do not fall away just because a debtor has brought an appeal.

I agree with the Appellants that the Code provides a carefully constructed procedure for notifying customs duty debts arising on an importation. Although the debtor is the declarant, the Code makes it very clear that payment is only due once the debt has been notified and notification must be preceded by an entry of the debt into the accounts. As we have seen, these are not unimportant procedural details. Although the Code does not circumscribe the procedures member states can introduce to deal with appeals, those procedures cannot take away basic protections such as the limitation period the Code affords; see the discussion of Unitrading above, where we noted that Unitrading makes it clear that the latitude Article 245 allocates to Member States is limited by the requirement that the rules they adopt do not make the exercise of rights conferred by Community law impossible or excessively difficult in practice. Clearly, a procedural regime which takes away basic protections (such as a limitation period) afforded by the Code is going to stumble on that requirement.

However unusual the fact pattern here might be, that is not a reason for departing from the requirement in the Code, that the amount of a customs debt must be correctly notified to the declarant/debtor before the end of the limitation period.

HMRC referred me to the decision of the Court of Appeal in BUPA Purchasing Ltd v HMRC (“BUPA”), [2007] EWCA Civ 542, where the Court of Appeal rejected an argument that section 84(5) of the Value Added Tax Act 1994 was limited to computational errors and did not apply where there was a different legal or factual basis for the assessment. Arden LJ rejected that argument on the basis that there was no justification for such an approach in the legislation, which was clearly seeking to ensure that the taxable person accounts for the correct amount of tax. Section 84(5) provided that:

“(5)

Where, on an appeal against a decision with respect to any of the matters mentioned in section 83(1)(p) or (rb) –

(a)

it is found that the amount specified in the assessment is less than it ought to have been, and

(b)

the tribunal gives a direction specifying the correct amount,

the assessment shall have effect as an assessment of the amount specified in the direction, and that amount shall be deemed to have been notified to the appellant.”

Ms McArdle submits that the Court of Appeal, considering statutory powers analogous to section 16(5) FA 1994, considered it inappropriate to impose a limitation preventing the sum to be paid by the taxpayer from being increased, where that resulted in the correct sum being paid, in the absence of express language imposing such a limitation. There is no good reason why the same reasoning ought not to apply in this case. She also referred me to the general approach (endorsed by the Supreme Court in Tower MCashback LLP 1 v HMRC [2011] UKSC 19) that “There is a venerable principle of tax law to the general effect that there is a public interest in taxpayers paying the correct amount of tax”.

I agree with Ms McArdle’s comments completely. There is clearly a public interest in taxpayers paying the correct amount of tax, and there was no good reason to restrict the operation of section 84(5) in BUPA in the way the taxpayer suggested. However, even in purely domestic tax appeals, the correct amount of tax includes not only the substantively correct amount but also the procedurally correct amount, and taxpayers will regularly challenge not only whether HMRC have correctly assessed their liability to tax but also whether the assessment is procedurally correct (Was it raised in time? Has the officer made a discovery? Etc). Our equivalent of the UK requirements which can make an assessment procedurally incorrect is the Code so far as it requires an amount to be recorded in the accounts and notified to a debtor and the effective limitation period it imposes. The Code is a directly applicable EU regulation and, to the extent section 16(5) FA 1994 gives the Tribunal power to do what HMRC suggest here (which I am not at all sure it does – see [169] above), the Tribunal’s powers under section 16(5) FA 1994 are subject to the provisions of the Code.

My answer to the debtor issue is that:

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 the date on which a decision which disposes of all issues in these proceedings 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.