ABC Ltd and X&Y Ltd v HMRC
The decision of the Court of Appeal in X&Y is one that ought to be welcomed by alcohol wholesalers, particularly those who have struggled to persuade HMRC that they ought to be allowed to trade pending appeal of HMRC’s decisions against them which can have the effect of putting them out of business.
In April 2016 a new regulatory scheme was introduced requiring wholesalers of duty paid alcohol to be registered and approved by HMRC before trading or continuing to trade in the wholesale of alcohol. The test for approval was inserted into the Alcoholic Liquor Duties Act 1979 (“ALDA”) by s54 Finance Act 2015 and is – at s88C – that “the Commissioners may approve a person under this section to carry on a controlled activity only if they are satisfied that the person is a fit and proper person to carry on the activity”. The section permits HMRC to impose conditions and restrictions as HMRC see fit and permits HMRC to revoke or vary the terms of approval at any time. The aim of the alcohol wholesalers’ registration scheme (‘AWRS’) was and is to combat excise duty evasion and a wholesaler – as of 1 April 2017- commits a criminal offence if they purchase or sell wholesale alcohol without being admitted to the scheme.
Where HMRC refuse to admit a wholesaler to the scheme a right of appeal lies to the First-tier Tribunal (Tax Chamber) (“FTT”) but complications arise as to how the wholesaler may carry on his business while the appeal waits to be heard. HMRC take the position that unless and until approval is granted the wholesaler may not trade, which has an obvious and severe consequence for the wholesaler’s continuing business; appeals to the FTT may take months to be heard and if temporary approval is not granted – preserving the status quo – the wait for the appeal may prove fatal to the wholesaler’s business.
The issue came before the Court of Appeal in ABC Ltd & Others v HMRC  EWCA Civ 956. The claimants were required to be registered because they were wholesalers of alcohol who had applied to HMRC to be registered and approved under AWRS. HMRC declined to approve the claimants, asserting that they did not pass the ‘fit and proper’ test. The claimants were given only a month to continue to trade. The claimants appealed those decisions to the FTT and asked that HMRC allow them to continue to trade until the conclusion of the appeal to the FTT, arguing that unless some temporary arrangement was put in place the companies would be put out of business pending their appeals, and that that would be contrary to the property rights of companies protected by Article 1 Protocol 1 ECHR. HMRC considered that it had no power to grant temporary approval, as opposed to allowing a period to wind down a wholesale business. The claimants issued proceedings in the High Court for judicial review and for injunctive relief until the conclusion of either the judicial review proceedings or the FTT appeals, the High Court refused permission for judicial review and for interim injunctive relief and the claimants appealed to the Court of Appeal.
On appeal the claimants argued that:
- HMRC had a power under s9(1) Commissioners of Revenue and Customs Act 2005 (“CRCA”) to give temporary approval pending the outcome of an appeal to the FTT,
- Alternatively HMRC had a power under s88C ALDA to give time limited approval pending the outcome of an appeal to the FTT,
- The High Court had power to grant an injunction to protect the claimants’ ECHR rights and to ensure the effectiveness of the FTT appeals.
HMRC argued that:
- If the Commissioners were to act in the manner suggested by the claimants under s 9(1) CRCA 2005 that would be contrary to the statutory scheme. Having concluded that a person was not fit and proper to wholesale alcohol HMRC would be asserting publically – by granting temporary approval – that they were fit and proper.
- Although the s88C time limited approval route was theoretically open it was impractical to suggest that temporary approval could be given were a finding of unfitness had been made.
The Court had to consider two issues:
- Does HMRC have the power to permit a wholesaler (found not to be fit and proper) to continue to trade pending an appeal?
- What powers does the High Court have to grant interim relief to enable a wholesaler to continue trading pending an appeal to the FTT.
In respect of the argument under s9(1) CRCA 2005 the Court of Appeal held (as the High Court had held and as HMRC argued) that it would be contrary to the statutory scheme for HMRC to pretend that the persons concerned are fit and proper by approving them until the appeal process was over. It asked rhetorically how could HMRC conclude that it was necessary or expedient in connection with their function of determining applications for approval, to grant approval to a person under the Scheme who they had just determined was not fit and proper? However, the Court held that s88 ALDA as amended did provide a mechanism which would enable HMRC to conclude that a person was fit and proper for a limited time only and subject to conditions imposed by HMRC which might mitigate the perceived risks in allowing a continuing of the wholesale trade. It was, in effect, s88C (3) that gave HMRC power to allow the wholesaler the month’s continuance in trade, the month that had already been granted.
The Court quashed HMRC’s decision to refuse to consider temporary approval pending appeal and remitted the matter back to HMRC for reconsideration.
The Court held that the High Court does have jurisdiction to grant injunctive interim relief, and that the injunctive relief need not be ancillary to a claim for judicial review. The possibility that an appeal to the FTT might happen after the appellant was forced out of business – rendering the appeal academic and thus capable of giving rise to a violation of civil rights protected by Article 6(1) ECHR – was key to the judgment. However, occasions on which such an injunction will be granted will be rare; it follows that an injunction will not be granted simply where the applicant can show he has an appeal with a realistic chance of success and that the appellant will have to go beyond arguing that HMRC’s decision was unreasonable, to showing that it was in fact unlawful.
The way forward for wholesalers
A refusal by HMRC to approve a wholesaler need not now mean that the wholesaler must cease trading. Wholesalers and their representatives should be alive to making a request for temporary approval under s88C (3) ALDA, to ask HMRC to set out in writing the reasons for the decision to refuse approval and to suggest conditions that could properly meet HMRC’s concerns.
It is clear from the judgment that a wholesaler seeking injunctive relief will need first to seek temporary approval from HMRC asking that an interim licence to trade be approved. Any appeal to the FTT ought to be coupled with a request that the FTT to expedite the appeal, and that request should be pursued both by letter and telephone. If those attempts fail only then may the wholesaler apply for injunctive relief.
Any such application must include:
- Compelling evidence – beyond simply a statement from the director of the business and including a statement from an independent professional analysing documentary financial evidence – as to the fiscal consequences of delay in the appeal.
- A detailed explanation of why HMRC’s decision to refuse approval to the scheme was unreasonable.
- Detailed evidence of the attempts made to secure an expedited appeal to the FTT and the reasons why those attempts failed.