Lithuanian Beer Ltd v The Commissioners for HMRC

For the special one-year limitation period for an excise-duty assessment, HMRC must have actual knowledge of evidence of facts sufficient to justify the assessment. It is not enough that an officer knows that relevant documents exist or could obtain the necessary evidence by taking further steps. The officer must have examined and understood what the evidence reveals about the facts. The limitation period begins when the contents of the final sufficient evidence are actually known. The taxpayer bears the burden of showing that the assessment was made out of time.

Lithuanian Beer Limited appealed to the Court of Appeal from the Upper Tribunal (Tax and Chancery Chamber) [2017] UKUT 0245 (TCC), which had dismissed its appeal from the First-tier Tribunal. HMRC had assessed underpaid excise duty on flavoured ciders imported between December 2007 and January 2011. The dispute concerned whether the assessment, issued on 14 November 2011 under section 12(1) of the Finance Act 1994, was out of time under section 12(4)(b).

The tribunals found that an HMRC officer’s identification of relevant documents during a visit on 2 November 2010 did not amount to knowledge of their contents. The central issue was whether the one-year period began when the documents were identified or only when their contents were examined and understood. The Upper Tribunal also gave an alternative ground concerning later cross-checking, which generated a separate procedural-fairness issue.

1. Appeal dismissed. The Court of Appeal upheld the tribunals’ conclusion that the assessment was not shown to be out of time.
2. Section 12(4)(b) of the Finance Act 1994 requires actual knowledge by an appropriate HMRC agent of evidence of facts sufficient, in the Commissioners’ opinion, to justify the assessment. Constructive knowledge is insufficient.
3. The statutory phrase must be read as a whole. Knowledge that relevant evidence exists, or that documents may assist an investigation, is not knowledge of the evidence of facts contained in them. The evidence must have been read and digested so that the officer knows what it reveals about the facts and that it is capable of supporting the assessment.
4. The correct approach, following the guidance in Pegasus Birds Ltd v Customs & Excise Commissioners [1999] STC 95, approved on appeal [2000] STC 91, is to identify the facts which the assessing officer considered justified the assessment and determine when the last piece of evidence of sufficient weight was communicated in a way that made its contents actually known. An earlier failure to assess can be challenged only on Wednesbury or analogous public law principles.
5. Section 12(4)(b) operates narrowly alongside the ordinary limitation period in section 12(4)(a). It protects taxpayers where HMRC knew the evidential building blocks and what they revealed, but failed to act promptly. On the facts, Mr Ansah had identified potentially relevant material on 2 November 2010 but had not acquired knowledge of the evidence contained in the certificates of conformity by 14 November 2010.
6. Ground (2) was unnecessary to the result. The court indicated that it would have accepted that the Upper Tribunal acted procedurally unfairly by deciding its alternative point without inviting submissions, and that the First-tier Tribunal had given sound reasons why the later spreadsheet and cross-checking exercise were not critical.

• Court of Appeal (Civil Division): appeal dismissed.
• Upper Tribunal (Tax and Chancery Chamber) [2017] UKUT 0245 (TCC): appeal from the First-tier Tribunal dismissed, including the conclusion that the section 12(4)(b) limitation period had not expired.
• First-tier Tribunal: appeal against HMRC’s assessment dismissed.