A recent First-tier Tribunal decision shows that even where HMRC establishes dishonesty for a civil evasion penalty, there may still be room to challenge the amount of the penalty and the level of mitigation applied.
In Neil Griffin v HMRC, the Tribunal upheld HMRC’s decision to impose a civil evasion penalty following the attempted importation of cigarettes without the appropriate duty being paid. However, the Tribunal reduced the penalty from £2,940 to £1,764, finding that HMRC’s approach to mitigation had been “somewhat harsh”.
For taxpayers, the case is a useful reminder that an appeal is not always all or nothing. Even where the underlying penalty is upheld, HMRC’s treatment of disclosure, cooperation and mitigation may still be open to challenge.
What was the Neil Griffin v HMRC case about?
The appeal concerned a joint Excise and Customs Civil Evasion Penalty of £2,940, made up of an excise penalty of £2,293 and a customs penalty of £647. The penalty related to the importation of 6,000 cigarettes.
The taxpayer had travelled to London Heathrow Airport and was stopped in the green “nothing to declare” channel. He told the Border Force officer that he had tobacco and accepted that it exceeded the permitted allowance. A search found 6,000 cigarettes of mixed brands.
HMRC later issued a penalty on the basis that there had been conduct involving dishonesty in relation to the attempted smuggling of tobacco products without the appropriate duty paid. The taxpayer appealed.
Why did HMRC issue a civil evasion penalty?
HMRC issued the penalty after receiving information from Border Force. It wrote to the taxpayer explaining that it had reason to believe dishonest conduct may have occurred in relation to the attempted smuggling of tobacco products.
- HMRC asked the taxpayer to cooperate and warned that cooperation could significantly reduce any penalty.
- The taxpayer was asked to provide a signed response, explain what had happened, identify who was involved, give details of previous travel and provide any other relevant information.
When HMRC did not receive a reply to the initial enquiry letter or reminder, it issued the penalty without any reduction for cooperation. That decision became a central issue in the appeal.
When can HMRC establish dishonesty for a civil evasion penalty?
The Tribunal confirmed that the burden was on HMRC to show, on the balance of probabilities, that the taxpayer’s conduct involved dishonesty. It applied the test for dishonesty explained by the Supreme Court in Ivey v Genting Casinos (UK) Ltd t/a Crockfords.
- The Tribunal found that HMRC had established dishonesty.
- It noted that the taxpayer was aware of the duty-free limits and that the fact he believed some lower amount of tax had been paid abroad did not assist him.
This is important because a civil evasion penalty does not require a criminal prosecution. HMRC can impose this type of penalty where the statutory conditions are met and dishonesty is established on the civil standard of proof.
Why did the Tribunal reduce the penalty?
Although the Tribunal upheld HMRC’s finding of dishonesty, it disagreed with HMRC’s refusal to allow any mitigation.
- HMRC’s own mitigation approach allowed reductions of up to 80 per cent, with up to 40 per cent for disclosure and up to 40 per cent for cooperation.
- HMRC had awarded no reduction because it considered that the taxpayer had failed to provide a written response.
The Tribunal considered that approach too harsh. It accepted that the taxpayer had acted promptly after returning to the UK, had contacted HMRC, had chased for a response, had attempted to provide information by telephone and had posted a written response. The Tribunal also considered that HMRC’s correspondence could have been confusing.
The Tribunal found that some mitigation should be given for both disclosure and cooperation. It reduced the penalty to 60 per cent of the tax and duty dishonestly evaded, producing a final penalty of £1,764.
What should taxpayers take from this decision?
The decision is useful because it shows that penalty mitigation can be a real issue even where HMRC succeeds on the underlying allegation.
- Taxpayers should not assume that a penalty calculation is correct simply because HMRC has established the conduct giving rise to the penalty. It may still be possible to challenge whether HMRC has properly recognised disclosure, cooperation, delay, communication difficulties or attempts to engage with the enquiry.
- The case also shows the importance of keeping evidence of all contact with HMRC. Emails, call notes, proof of posting, copies of letters and records of attempts to respond may all become important if HMRC later argues that there was no cooperation.
- At the same time, the decision contains an important limitation. The Tribunal noted that inability to pay could not be taken into account when reducing this type of penalty. That means arguments about hardship may not assist unless they are legally relevant to the particular penalty regime.
For taxpayers facing HMRC civil evasion penalties, the practical point is to engage carefully and keep a clear record of every step taken. Where HMRC refuses mitigation, the reasoning should be examined closely. A penalty appeal may not remove the penalty altogether, but it can still produce a meaningful reduction where HMRC has taken too narrow a view of disclosure or cooperation.
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