B&M Retail Limited v The Commissioners for HMRC

Procedural fairness generally requires a party wishing to challenge material evidence to put the substance of that challenge to the witness in cross-examination. The rule in Browne v Dunn applies in proceedings before the First-tier Tribunal, although its application depends on the overall fairness of the trial. A tribunal may not rely materially on unchallenged matters which could have been put to the witness and might have elicited clarification or further evidence. For a penalty under paragraph 4 of Schedule 41 to the Finance Act 2008, the reasonable-excuse question is whether the taxpayer reasonably acquired goods when duty was outstanding. The statute does not require proof that further due diligence would have prevented the acquisition. A material procedural error requires the decision to be set aside and may require remittal where material factual uncertainty prevents the appellate tribunal from remaking the decision.

B&M appealed against the First-tier Tribunal’s decision upholding a penalty of £1,172,340.94 under paragraph 4 of Schedule 41 to the Finance Act 2008. B&M argued that the FTT had rejected or failed to accept unchallenged evidence concerning the due diligence it could have undertaken, and had failed to identify a causal connection between further checks and the acquisition of the goods.

The Upper Tribunal considered the rule in Browne v Dunn, the statutory reasonable-excuse defence, and whether it could remake the decision. A further issue concerned uncertainty about which of two supplier forms had been completed by B&M or by the supplier.

1. Appeal allowed in part and FTT decision set aside. The FTT had committed a material error of law by relying, at least in part, on matters that had not been put to B&M’s witnesses. The matters concerned the steps B&M could have taken to verify payment of duty and were central to the reasonable-excuse issue.
2. The rule in Browne v Dunn, as explained in [2023] UKSC 48, generally requires material evidence which is to be rejected or challenged to be put to the witness. The rule is flexible and turns on overall fairness. It applies to proceedings before the FTT. Here, the relevant matters were neither obscure nor difficult, could reasonably have been raised in cross-examination, and might have prompted evidence reinforcing or undermining B&M’s position. The cases relied on by HMRC were distinguishable because they concerned legal submissions, opinions on legal issues, or circumstances in which the relevant evidence had in substance been challenged.
3. The second ground of appeal failed. Paragraphs 4 and 20 of Schedule 41 did not require B&M to show that any further due-diligence step would or might have caused it not to acquire the goods. The statutory question was whether B&M had a reasonable excuse for acquiring goods when duty was outstanding. The purpose of the penalty regime included requiring traders to take responsibility for satisfying themselves that duty had been paid.
4. The Upper Tribunal declined to remake the decision. There was material uncertainty about whether the Supplier Take On Procedures form and the New Account Form were to be completed by B&M or by the supplier, and whether they had in fact been completed. The case was remitted to a differently constituted FTT. The FTT was directed to reconsider those factual matters and the reasonable-excuse issue. Its primary findings of fact otherwise stood, but it was not to take account of the matters identified as having been relied on without procedural fairness.

• Upper Tribunal (Tax and Chancery Chamber): the First-tier Tribunal’s decision upholding the penalty was set aside for material procedural unfairness and the matter was remitted to a differently constituted FTT.
• First-tier Tribunal: decision released on 10 January 2023; concluded that B&M lacked a reasonable excuse and upheld the penalty of £1,172,340.94.