KERRIE BRENNAN v THE COMMISSIONERS FOR HIS MAJESTY’S REVENUE AND CUSTOMS [2025] UKUT 00310 (TCC) [2025] UKUT 00310 (TCC)

UPPER TRIBUNAL
TAX AND CHANCERY CHAMBER
[2025] UKUT 00310 (TCC)Case No UT/2024/000143
Between
KERRIE BRENNANAppellantTHE COMMISSIONERS FOR HIS MAJESTY’S REVENUE AND CUSTOMSRespondent
Before
JUDGE SWAMI RAGHAVANJUDGE NICHOLAS ALEKSANDERDate 18 September 2025Category: Tax
[1]This is an appeal against a decision of the FTT published as Kerrie Brennan v HMRC [2024] UKFTT 1011 (TC) (“FTT Decision”).[2]The appellant, who operated a business hiring out storage units, made arrangements for the delivery of a shipment of large bins on wheels (euro bins). Her name was on the transport documentation as consignee for the delivery of the euro bins although she neither ordered the bins nor paid for them. The bins were found to contain 4444kg of tobacco. HMRC imposed an excise duty assessment for £1,206,142 and a wrongdoing penalty (revised down from a “deliberate” basis to a “non-deliberate” basis of £277,412), which the FTT subsequently upheld in HMRC’s favour.[3]With the permission of the FTT, the appellant now appeals to the Upper Tribunal against the FTT Decision. As clarified in the oral submissions of the appellant made by Mr McNamee, the appeal is grounded, in summary, on two points of law, the first in respect of the excise duty assessment and the second in relation to the penalty:(1) As regards the assessment, the appellant argues the definition of “holding” allows for a defence of lack of knowledge / constructive knowledge in cases where holding is not based on physical possession. This is based on the Court of Appeal’s decision in R v Taylor and Wood [2013] EWCA Crim 1151 which, the appellant argues, continues to mean that “innocent agents” cannot be regarded as “holding” the goods (where they do not have physical possession of them). It is submitted that that aspect of the Court of Appeal’s decision was not affected by the CJEU’s decision in HMRC v WR (Case C- 279/19) as the CJEU’s decision, had in accordance with the terms with the reference made by the Court of Appeal in HMRC v Perfect [2019] EWCA Civ 465 (“Perfect 2019 CA”) only dealt with situations where the person had physical possession of the goods.(2) As regards the wrongdoing penalty, the appellant argues that where a person has no actual or constructive knowledge of the third party evasion of duty, the case-law requires that a tribunal conclude that the person had a reasonable excuse. This is based on the terms in which the Court of Appeal in HMRC v Perfect [2022] EWCA Civ 330 (“Perfect 2022 CA”) had agreed with the Upper Tribunal’s decision in that litigation (the Upper Tribunal’s decision having accepted the taxpayer there did have a reasonable excuse on the basis the taxpayer lacked the relevant actual or constructive knowledge).[4]For the reasons which follow we reject both of these points and dismiss the appeal[5]The appellant had also raised a procedural irregularity ground before the FTT (that the FTT erred in law in allowing HMRC to depart from its Statement of Case and argue their case on a different basis). Mr McNamee correctly acknowledged that permission had not been granted in respect of that ground by the FTT and no further application had been made in relation to the ground before the Upper Tribunal. He therefore did not pursue the ground. LAW IN RELATION TO EXCISE ASSESSMENT[6]As regards the appellant’s liability to the assessment, the disputed issue turns on the interpretation of the Excise Goods (Holding, Movement and Duty Point) Regulations 2010 (HMDP) which implemented Directive 2008/118/EC (“the Excise Directive”) (laying down general arrangements for the harmonisation of Excise Duty across the EU).[7]The particular question concerns the meaning of “holding” in Regulation 13(2)(b). That provides that the person liable to pay the duty includes, at 13(2)(b), the person “holding the goods intended for delivery”. 2[8]As Mr Watkinson’s skeleton helpfully pointed out, HMDP remains in force in Northern Ireland by virtue of The Excise Duties (Northern Ireland Miscellaneous Modifications and Amendments) (EU) Regulations 2020.[9]As regards the relevant case-law in relation to “holding”, we focus in this section on the case-law with respect to actual and constructive knowledge as explained in the various appeal litigation in Perfect which, following a reference from the Court of Appeal, gave rise to the CJEU’s decision in WR. That also concerned the issue of “holding” under Regulation 13(2)(b). We also outline the Upper Tribunal’s discussion of the impact of the Perfect litigation in Agniezka Hartleb t/a Hartleb Transport v HMRC [2024] UKUT34 (TCC). It is convenient to address Taylor and Wood, the decision which is central to the appellant’s case, in our discussion section below.[10]The facts of Perfect concerned a delivery driver (a one person haulage contractor) who had been assessed to excise duty in relation to goods in his possession but where the FTT had found he did not know or have reason to suspect that the excise goods in his possession were chargeable (the goods had not been covered by valid documents proving that the movement had taken place under a duty suspension arrangement). Considering the case-law as it stood on the meaning of “holding” was unclear as regards the extent to which it contemplated strict liability, the issue was referred by the Court of Appeal in Perfect 2019 CA to the CJEU. The questions raised on the reference included whether: “a person who [was] in physical possession of excise goods at a point when those goods became chargeable to excise duty….[was] liable for that excise duty pursuant to Article 33(3) of the Excise Directive”.[11]The CJEU’s decision (WR) on that reference, held that, on a literal interpretation of the Excise Directive, the term “holds” refers to a person in physical possession and that there was nothing in the Excise Directive wording to indicate that the status of holding depended on whether the person was aware of, or their reasonable awareness that excise duty was chargeable under the provision ([24][25]). That was borne about by the general scheme of the directive in relation to which the CJEU drew out the following points:(1) Contrasting wording elsewhere (Article 8(1)(a)(ii) of the Excise Directive) where awareness was specifically referred, it was noted that where the legislature intended an intentional element to be taken into account for liability that it had made express provision ([28] and [29]).(2) Limiting liability to those who were aware or ought reasonably to be aware would not be consistent with the Directive’s objectives which included the prevention of possible tax evasion, avoidance and abuse([31]).(3) There was a wide category of persons liable. This was to ensure that so far as possible duty was collected. However to impose an awareness /reasonable awareness condition would make it difficult, in practice, to collect that duty from the person with whom the competent authority was in direct contact and who was in many situations the only person from whom the authorities could demand payment ([32] – [34]).(4) That did not mean a person who had become chargeable might not still be able to seek contribution or indemnity against another person who was liable ([35]).[12]The CJEU therefore answered the question in the affirmative; the person in physical possession was liable even if they were not aware the goods were subject to excise duty.[13]Subsequent to the CJEU’s determination of the reference, a point arose before the referring court, the Court of Appeal, regarding the precedential status of the CJEU’s decision in domestic law given that the UK had by that time withdrawn from the EU (Perfect 2019 CA). 3 It was held however that because the reference to the CJEU was made before the end of 2020, even though the CJEU decision was after that date the Court of Appeal still considered itself bound. In a passage (the terms of which the appellant emphasises as a summary of the limited impact of WR) the Court of Appeal explained (at [22]), “….we are bound by the CJEU’s judgment of 10 June 2021 to hold, as was anyway this Court’s inclination in 2019, that article 33 of the 2008 Directive and, hence, also regulation 13 of the 2010 Regulations:
“must be interpreted as meaning that a person who transports, on behalf of others, excise goods to another Member State, and who is in physical possession of those goods at the moment when they have become chargeable to the corresponding excise duty, is liable for that excise duty, under that provision, even if that person has no right to or interest in those goods and is not aware that they are subject to excise duty or, if so aware, is not aware that they have become chargeable to the corresponding excise duty””
[14]The Court of Appeal accordingly found the driver, Mr Perfect, liable. The fact he had been found by the fact-finding tribunal to have neither actual nor constructive knowledge of the duty unpaid excise goods could not exempt him from liability to excise duty.[15]Hartleb concerned an appellant, Ms Hartleb, who owned a transport firm in Poland providing two lorries and a driver for transporting goods. One of her drivers was stopped in Dover where Border Force discovered duty unpaid cigarettes. One of the grounds regarding whether the FTT had erred was whether the FTT had been wrong to conclude that Ms Hartleb was “holding the goods” for the purposes of Reg 13(2)(b) of HMDP despite not having physical possession of them ([31]). The question arose as to whether the appellant was “holding” where she was in de facto and legal control of the excise goods but where physical possession was with her employee ([47]). Ms Hartleb relied on [36] of WR where the CJEU had referred to the person transporting goods on behalf of others “and who is in physical possession…” (a feature of WR that was acknowledged by the Court of Appeal in Perfect 2022 CA at [22]).[16]The Upper Tribunal in Hartleb noted both the need to interpret regulations in the context of the Excise Directive and the Directive’s objective, and also the need to interpret EU legislation in context ([52] and [53]).[17]As to that purpose, it noted from WR [33] the intention of the EU legislature to lay down a broad definition of persons liable to pay excise duty on goods released for consumption in order to ensure, so far as possible, that duty is collected and also the statements in Perfect 2019 CA and Perfect 2022 CA that the Directive’s underlying policy was the obligation of Member States to ensure “duty is paid on goods found to have been released for consumption” ([57] – [58]).[18]The Upper Tribunal also noted that in WR physical possession was not in issue and therefore not discussed in much depth ([43]) but that it was in Dawson’s Wales Ltd v HMRC [2019] UKUT 296 (TCC) where the question before the Upper Tribunal was whether a person who had de facto or legal control but not physical possession could “hold”. On appeal to the Court of Appeal in Dawson’s Wales Ltd v HMRC [2023] EWCA Civ 332 the Court had endorsed three of the four factors suggested by the Upper Tribunal in that case as relevant: physical possession was relevant and also factors regarding the timing of release, and location at time of release. However (taking into account the parties’ agreement) the Court of Appeal did not comment on a further factor concerning legal and de facto control (the identity of the person with de facto or legal control, how it was said they had control and the basis on which control was exercised). 4[19]The UT in Hartleb nevertheless found (at [78]) all four of the Dawson’s UT factors “to be a useful guide in determining who to regard as holder “in circumstances where physical possession and de facto and/or legal control are separated” (noting that “the second factor [the factor relating to legal and de facto control] must now be seen in the context of Perfect and WR”). In relation to physical possession, the UT in Hartleb considered that was not necessarily sufficient to constitute “holding” and that a more detailed consideration of the facts was needed ([81] and [82]).[20]Applying the above Dawson’s UT factors to Ms Hartleb’s case, the UT in Hartleb considered: physical possession was with her employee, de facto and legal control was with Ms Hartleb as she was able to determine where goods were transported to by directing her employee driver, and that the other factors did not, on the facts, point in any particular direction. The Upper Tribunal concluded Ms Hartleb was “holding” even though she did not have physical possession.[21]It is also relevant, given the issue before us, to note the following. In the Upper Tribunal permission decision of 29 October 2018 which had led to Ms Hartleb’s UT appeal (which permission decision was given without the benefit of Perfect 2019 CA, WR, and Perfect 2022 CA), the UT had indicated two sub-issues were to be determined regarding: 1) Whether carelessness was sufficient to support a finding of constructive knowledge as a matter of law, and (2) Whether the FTT was wrong to find that the Appellant’s employee’s knowledge should be attributed to it if he was acting outside the course of his employment when transporting the cigarettes. In respect of these, the UT in Hartleb explained that they did not deal with either sub-issue concerning knowledge because it considered (at [115]) (and referring to Perfect 2022 CA at [22]) they had been “rendered academic in this context following the decision in WR and the CJEU’s conclusion there [was] no knowledge requirement in Article 33 or Reg 13”. BACKGROUND AND FTT DECISION[22]We set out the factual findings made by the FTT briefly given no challenge is brought against these. The FTT explained (at [2] and [3]) the circumstances of the seizure and how on 20 April Border Force discovered a total of 4444.15kg of tobacco (estimated market value of £2.2 -£2.7m) in a shipment of “euro bins” (large bins on wheels) following a routine check of shipping containers which had been shipped from Rotterdam to Belfast. The paperwork included invoices detailing the euro bins purporting to be from a company in Germany. These were later found to be fake. The CMR stated the goods were being collected for delivery by the appellant.[23]The FTT set out that the appellant gave oral evidence and had also provided a witness statement. That stated she operated a distribution storage business through a company called Cruz Deliveries Ltd (“Cruz”), that the business hired out storage units, one of which was hired by a Mr Jamie McKeown who had requested that Cruz arrange a delivery of a shipment to him at the business’s address. The appellant raised various arguments regarding the involvement of Cruz, Mr McKeown and a Mr Brendan Morgan which the FTT rejected. It found there was “no audit trail to show that [Cruz] was the entity that had arranged shipment” and that it was in fact arranged by the appellant. It found that her explanation as to why the papers were in her name (rather than of the company) “did not convince the Tribunal”. Regarding Mr Morgan, the FTT noted no evidence had been produced concerning him and found that the appellant had not shown that he had any involvement with the shipment. The FTT also noted that it did not appear that Mr McKeown had been holding the tobacco at the excise duty point ([93]). The FTT noted the appellant’s acceptance that she had not undertaken any due diligence about him and had not checked whether duty had been paid. 5[24]Having set out the evidence and each parties’ submissions in some detail the FTT gave brief reasons for dismissing the appeal finding as follows (at [85]):
“The Tribunal considers the Appellant was "holding" the rolling tobacco in accordance with the definition of the Upper Tribunal in Hartleb. It was not necessary for the Appellant to have actual physical possession of the tobacco. She had both de fact [sic] and/or legal control of the tobacco. As all the paperwork showed her name and address, she was the only person who could give directions concerning the delivery of the tobacco.”
[25]Upholding the excise assessment and wrongdoing penalty, the FTT found that the appellant: “95… neither ordered the goods nor paid for them but as she made all the arrangements for the shipment she came within the definition of "holding" or in the alternative "making the delivery".[96]The Appellant was "holding" or in the alternative "making the delivery" of the rolling tobacco for the purposes of Regulation 13 of the HMDP Regulations and is therefore liable for the excise assessment. She is also liable for the non-deliberate excise wrongdoing penalty under paragraph 6B)c) of Schedule 41 as she has no reasonable excuse.” PARTIES’ SUBMISSIONS IN OUTLINE[26]The appellant’s overarching ground was that the FTT erred in its interpretation of the relevant case law and legislation. The written grounds were not altogether clear however following Mr McNamee’s oral submissions it was clarified that the appellant’s case rested on the proposition that the Court of Appeal’s decision in R v Taylor and Wood [2013] EWCA Crim 1151, remains binding case-law for a legal principle that a person who lacked the relevant actual or constructive knowledge regarding the duty paid status of the goods could not be regarded as “holding” the goods by virtue of any legal and de facto control of the goods in situations where they lacked physical possession of the goods. Insofar as the case-law on the meaning of “holding”, following the litigation in Perfect, connoted strict liability (in other words that the actual or constructive knowledge of the person said to be holding was irrelevant), then that, in Mr McNamee’s submission, was confined only to cases where the person had physical possession. The FTT’s error was thus in failing to appreciate that someone who was an “innocent agent” (in other words not having the relevant actual or constructive knowledge) could only be liable if they were in actual physical possession of the goods at the duty point.[27]HMRC disagree the FTT erred in law. Mr Watkinson’s submissions, in outline, were that the FTT was not bound to follow Taylor and Wood (which had approached the definition of “holding” according to domestic authority, an approach that was disapproved of by the Court of Appeal in Dawson’s). Moreover, Taylor and Wood did not in any event stand for the proposition relied upon by the appellant. The CJEU’s decision in WR had confirmed that knowledge of the goods being subject to excise duty or knowledge that the duty on them had not been paid was irrelevant to whether the person was “holding” the goods. That was also the approach taken in Hartleb which the FTT had correctly applied, finding that on the particular facts before it the appellant’s legal and de facto control, despite her lack of physical possession, meant that she was “holding”. DISCUSSION ON ASSESSMENT GROUND[28]We start by outlining the relevant detail of Taylor and Wood given its centrality to the appellant’s ground that the case remains seminal to the definition of “holding”. The defendants there (Messrs Taylor and Wood) had pleaded guilty to being knowingly concerned in the fraudulent evasion of duty payable on the import of cigarettes. In the context of the confiscation proceedings which followed the issue arose as to whether they had obtained a pecuniary 6 advantage to the extent of the unpaid duty which in turn depended on whether they were each a person “liable to pay the duty” under Regulation 13 HMPDP and hence whether the defendants were “holding” the cigarettes. The second issue, if the answer to the first issue was yes, was whether the basis of liability was compatible with the bases set out in the Excise Directive. The issue of liability raised the question of whether certain other persons involved in the circumstances surrounding the importation were liable. Given some of the appellant’s arguments here rest on an analogy with such other persons (in particular the road haulier Yeardley below) we briefly set those out. The other persons’ roles were helpfully summarised by the Court of Appeal in Perfect 2019 CA (at [32]) as follows:
“Taylor approached Wood, who carried on legitimate business as a freight forwarder, to collect counterfeit cigarettes from an enterprise in Belgium under the pretence that the load consisted of pallets of textiles. Wood instructed a road haulier called Yeardley to pick up the goods from Belgium and bring them to this country. No one at Yeardley knew the true nature of the goods being collected. Yeardley instructed a Dutch firm of road hauliers called Heijboer to collect the goods. In giving the judgment of the Court of Appeal, Kenneth Parker J described Yeardley and Heijboer as "innocent agents" who were unaware of the criminal enterprise.”
[29]On the first issue Kenneth Parker J explained: ““Holding” is not defined in the Finance Act or in the Regulations, and there appears to be no authority on its meaning. It is plain that it denotes some concept of possession of the goods. Possession is incapable of precise definition; its meaning varies according to the nature of the issue in which the question of possession is raised (a good example being Re Atlantic Computer Systems plc [1990] BCC 899, CA). But it can broadly be described as control, directly or through another, of the asset, with the intention of asserting such control against others, whether temporarily or permanently: see, for example, Goode on Commercial Law, Fourth Edition, p 46. In a case of bailment, the bailee has actual, or physical, possession and the bailor constructive possession. In other words, if the bailee holds possession not for any interest of his own but exclusively as bailee at will, legal possession will be shared by bailor and bailee.[30]In this case Heijboer had physical possession of the cigarettes at the excise duty point, but Heijboer was acting as no more than the agent of the primary carrier, Yeardley. Yeardley was, therefore, in law the bailee of the cigarettes at the excise duty point and, not apparently having any interest of its own in the goods, shared legal possession with the person having the right to exercise control over the goods, as explained above. If Yeardley had known, or perhaps even ought to have known, that it had physical possession of the cigarettes at the excise duty point, its possession might have been sufficient to constitute a “holding” of the cigarettes at that point. However, Yeardley had no such knowledge, actual or constructive, and was entirely an innocent agent. That important fact then turns the focus on the person or persons who were exercising control over the cigarettes at the excise duty point. There is no doubt that Wood (through Events) was such a person. Wood, as a matter of fact, under the contract with Yeardley gave instructions throughout the transportation to the carrier. Wood was correctly shown on Yeardley’s invoice to be Yeardley’s client and the consignee of the goods that were being transported. Under the Convention, as a matter of law, Wood (through Events) had the legal right of control over the goods. It is also known that Taylor (through TG) was acting together with Wood in exercising control over the cigarettes throughout the transportation. TG was 7 shown on the CMR to be the consignee, a designation which represented accurately, if incompletely, the true state of affairs. There is no good reason to distinguish the position, in this context, of the two appellants.[31]There is nothing, furthermore, in this interpretation and application of Regulation 13(1) to the facts of this case that would be inimical to the purposes of the Finance Act. To seek to impose liability to pay duty on either Heijboer or Yeardley, who, as bailees, had actual possession of the cigarettes at the excise duty point but who were no more than innocent agents, would raise serious questions of compatibility with the objectives of the legislation. Imposing liability on the appellants raises no such questions, because they were the persons who, at the excise duty point, were exercising de facto and legal control over the cigarettes. In short, responsibility for the goods carries responsibility for paying the duty.”[30]On the second issue, Kenneth Parker J held that, for the same reason above in relation to Regulation 13:
“…a person who has de facto and legal control of the goods at the excise duty point should be liable to pay the duty. That conclusion is all the more compelling where the person in actual physical possession does not know, and has no reason to know, the (hidden) nature of the goods being transported as part of a fraudulent enterprise to which he is not a party. To seek to impose liability on entirely innocent agents such as Heijboer or Yeardley, rather than upon the appellants, would no more promote the objectives of the Directive than those of the Regulations.”
[31]From the above, Mr McNamee argues that the case establishes the principle that someone who is an innocent agent (in other words someone who is used by criminals and has no actual or constructive knowledge of the criminal enterprise) cannot be regarded as “holding” the goods. Mr McNamee further submits that on the facts the appellant’s case was clearly highly analogous to Yeardley in that Yeardley was a legitimate shipping agent who was unwittingly used by criminal wrongdoers to facilitate the movement of tobacco.[32]Moreover, as mentioned, he argues this principle has survived the CJEU’s decision in WR regarding strict liability as that only concerned strict liability where the person was in physical possession. That was not the appellant’s case. He highlights the Court of Appeal when making the reference to the CJEU, was careful to confine the question of strict liability to cases of physical possession and that the Court of Appeal’s subsequent summary of what WR had decided in Perfect 2022 CA (see [13]) similarly confined the strict liability to cases involving physical possession.[33]It is necessary, in our view, to carefully examine the reasoning in WR to see whether the strict liability envisaged in relation to “holding” is restricted only to cases where the person has physical possession of the goods. In agreement with HMRC, we do not consider the principles established by the case are so restricted.[34]The particular reasons the CJEU noted are set out above at [11] above.[35]In our judgment all of these reasons would apply just as much in relation to cases where the person was “holding” but on a basis that did not involve physical possession (numbering follows that in at [11]):(1) If a knowledge requirement were intended in respect of holding by virtue of legal or de facto control it would have been expected the Excise Directive would specify that. There is no reason to suppose this point would not apply equally to explain why a knowledge requirement was not intended for cases that involved “holding” other than through physical possession. (The provision the CJEU noted which did specifically refer 8 to intentional elements (Article 33(3)) was not for instance confined to cases of physical possession but referred to “any person who participated in the irregular departure of those goods from the duty suspension arrangement”).(2) The rationale underpinning strict liability in terms of prevention of tax evasion, avoidance and abuse would apply just as much (and arguably even more given that by definition the person would have had to have had control over the goods) to someone not in possession of the goods but who was in legal or de facto control of them.(3) The difficulties for competent authorities regarding the imposition of an additional requirement in practice would apply equally to someone who had been identified as in legal or de facto control.(4) Someone who was in legal or de facto control of the goods was no less able than a person in physical possession of the goods to seek contribution or indemnity against another person who was liable.[36]In his reply Mr McNamee also suggested there was not the same policy rationale for strict liability where the facts concerned a case that did not involve duty suspension documentation, or someone involved in the transport of excise goods. It should be noted however that the Court of Appeal in Perfect 2019 CA had effectively broached this issue in the second question it posed in its referral (as to whether it made in any difference if the person did not know the goods they were in possession of were excise goods). The CJEU (at [21]) stated it was appropriate to answer the two questions together. Although its conclusion was expressed in terms of “ a person who, transports, on behalf of others, excise goods” it did not, having had the question raised squarely before it, give any indication a different analysis would apply if the person did not know the goods were excise goods. Insofar as the CJEU was saying that it did not matter that a road haulier did not know, nor could have known the goods were duty chargeable, the same logic would apply to someone holding the goods by virtue of the legal and de facto control they had of the goods because they had arranged the transport of them.[37]Mr McNamee is correct the Court of Appeal’s decision was drafted with particular reference to physical possession, but it is plain that does not prevent the principle the CJEU discerned from applying more widely outside of that particular context. The question that arises is whether the factual difference advanced as a means of distinction is a legally relevant distinction. There is nothing to suggest from the terms of the judgment, or the underlying policy rationales expressed there, that physical possession is such a relevant point of distinction. It does not therefore matter whether the appellant’s situation was analogous to that of Yeardley in Taylor and Wood because, post-WR, even if that assumption were made, any lack of actual or constructive knowledge on the appellant’s part would be irrelevant to the question of whether she was “holding” the goods.[38]We thus agree with the conclusion implicit in Hartleb but not expressly discussed that a person’s knowledge was not relevant to whether they were “holding” even in cases where the person did not have physical possession.[39]The FTT was accordingly correct to apply Hartleb and there was no error in it not having regard to Ms Brennan’s actual or constructive awareness when concluding that she was “holding” the goods for the purposes of the HMDP regulations.[40]The above is sufficient to determine that the appellant’s ground in relation to the assessment lacks merit and should be dismissed. We will make some brief observations on the other points raised by HMRC’s response.[41]Regarding Mr Watkinson’s point that Taylor and Wood was not even authority for the proposition relied on by the appellant, his essential point was that there was nothing in the 9 Court of Appeal’s reasoning on legal / de facto control which incorporated “guilty knowledge” into that part of the definition. We do not consider this is the right case to express a further view on the point. As Mr Watkinson also acknowledged the meaning of legal control and de facto control could arise in many legal contexts in other fields. We should make it clear that in dismissing the ground above our reasoning is confined to the context of “holding” in the HMDP regulations: the point being that in circumstances where legal and de facto control gives rise to “holding” that is not undermined if the person does not have the relevant actual or constructive knowledge.[42]As regards submissions that Taylor and Wood was overruled by the Court of Appeal in Dawson’s, we note that was a decision where, upon reviewing the authorities, the Court considered the part of the test suggested in Taylor and Wood regarding a person having legal or de facto control of duty unpaid excise goods also needing to “[intend] to assert that control against others”. The Court of Appeal’s first point in Dawson’s was that reference to intention was not part of the ratio of decision in Taylor and Wood but the court went on to observe that (having reviewed the litigation in Perfect including the CJEU’s decision in WR and Perfect 2022 CA) that if it were wrong in that view then Taylor and Wood was overruled to that extent. Any overruling was therefore expressed on an obiter basis.[43]Mr Watkinson pointed out that if subjective intention was (as the Court of Appeal clearly thought) not part of the test then it was difficult to see how knowledge would be. We see the force in that. However given the straightforward application of the principle in WR as applied by the Court of Appeal in Perfect 2022 CA (that actual or constructive knowledge is not relevant to “holding”) we do not think it is necessary to reach a concluded view on whether the Court of Appeal in Dawson’s overruled Taylor and Wood (to the extent that latter case stood for the appellant’s proposition on the continuing relevance of knowledge). It should also be noted that in Dawson’s the taxpayer did not take issue with a factor suggested by the Upper Tribunal in that case regarding the identity of the person alleged to have de facto or legal control over goods and how that person is said to have control. The Court of Appeal was careful not express any view on such factors as regards whether someone was “holding”. That being the case we do not think the decision can be read as establishing any propositions regarding someone who “holds” on a basis that does not involve physical possession.[44]It should also be recognised that, to the extent the appellant’s case is predicated on the appellant being an “innocent agent”, then it is not clear to us that the FTT made such findings one way or the other on that. That was in line with its legal approach whereby it did not consider Ms Brennan’s actual or constructive knowledge to be relevant (correctly as we have found) to the question of “holding”. THE PENALTY GROUND Law[45]The excise duty penalty which the FTT upheld was imposed under Schedule 41 of the Finance Act 2008 (“FA2008”) . Paragraph 4 of that provides, so far as relevant, to the issue before us that: “(1) A penalty is payable by a person (P) where–(a) after the excise duty point for any goods which are chargeable with a duty of excise, P acquires possession of the goods or is concerned in carrying, removing, depositing, keeping or otherwise dealing with the goods, and(b) at the time when P acquires possession of the goods or is so concerned, a payment of duty on the goods is outstanding and has not been deferred. …” 10[46]Under paragraph 6B the penalty payable under various paragraphs including a paragraph 4 penalty is:
“(a) for a deliberate and concealed act or failure, 100% of the potential lost revenue, (b) for a deliberate but not concealed act or failure, 70% of the potential lost revenue, and (c) for any other case, 30% of the potential lost revenue.”
[47]Paragraph 20 of Schedule 41 FA2008 sets out that liability to a penalty under various paragraphs which include paragraph 4 does not arise in relation to an act which is not deliberate if the recipient of the penalty satisfies the Tribunal that there is a reasonable excuse for the act or failure. FTT Decision[48]As mentioned above, the FTT concluded the appellant was liable for the excise wrongdoing penalty as she had no reasonable excuse. The relevant sub-paragraph under paragraph 6B of Schedule was specified to be c) (HMRC did not ultimately pursue a penalty based on a deliberate act or failure whether concealed or unconcealed).[49]The FTT did not give any reasoning for its conclusion on reasonable excuse in the discussion section of its judgment but it recorded HMRC’s submissions in relation to that in detail and must in our view be taken to have agreed with them. HMRC’s case before the FTT was that to have a reasonable excuse the appellant had to have demonstrated that she had taken all reasonable steps to ensure that duty had been paid on the goods and that she had undertaken due diligence regarding the transaction. She had failed to do that because in summary she had not taken steps to check what was being shipped in spite of never having worked with Mr McKeown before or having shipped goods from the German company alleged to have sent the goods in what was her first international shipment. She also had forwarded the falsified paperwork to the freight agent without taking steps to check its authenticity. HMRC’s submission was that she “had not taken any, let alone reasonable steps”. Ground of appeal in relation to the penalty[50]Following clarification given in Mr McNamee’s oral submissions the appellant maintains the FTT erred in law in failing to recognise and apply the following legal propositions. The first was that the question of liability for Schedule 41 penalties did not even arise in the situation where the taxpayer was an innocent agent; by which he meant that they lack actual or constructive knowledge of the criminal wrongdoing of a third party. The second was that under the case-law, such lack of knowledge was required to be found by an FTT to constitute a reasonable excuse. (Although as put orally, that latter point was not clearly reflected in the written grounds in relation to which the FTT had given permission, Mr Watkinson did not object to it being raised to the extent it was a new point, and was content to give HMRC’s response in relation to it orally). We address each issue in turn. Lack of actual or constructive knowledge precludes liability arising[51]Mr McNamee rightly did not press this in oral submissions and we can deal with this briefly. We agree with HMRC there is nothing in the statutory scheme which means HMRC would not be able impose liability (putting aside any question of reasonable excuse) on the basis of the person’s lack of actual or constructive knowledge. There is no requirement mentioned as to knowledge; the scheme is that there is liability once the statutory conditions are met except where the taxpayer can show a reasonable excuse. In General Transport SpA v HMRC [2019] UKUT 4 (TC) the taxpayer similarly argued in relation to the Schedule 41 paragraph 4 penalty imposed there that the taxpayer, a goods transportation business, could not 11 be liable for the penalty on the basis it lacked “guilty knowledge” (i.e. knowledge of the fact that there were non duty-paid goods in the shipped container in circumstances where there had been a deliberate attempt to evade duty by a third party)(at [73]). In rejecting that argument, the Upper Tribunal explained (at [85]):
“the wording of paragraph 4(1) Schedule 41 is clear: it contains no requirement that the taxpayer should have knowledge (actual or constructive) of the fact that a third party had deliberately evaded the payment of duty. Instead, paragraph 20 Schedule 41 provides for a “reasonable excuse” defence provided that the taxpayer can satisfy either HMRC or the Tribunal that the defence has been made out. Therefore, reading the two provisions together, a taxpayer who falls within paragraph 4(1) is only liable to a penalty if there is no “reasonable excuse”
Lack of actual or constructive knowledge means the FTT must find there was a reasonable excuse[52]In respect of the second proposition, Mr McNamee relies on the litigation in Perfect where a remade decision by the Upper Tribunal dismissing the penalty appeal on the basis of a reasonable excuse was upheld by the Court of Appeal in Perfect 2022 CA.[53]The FTT in Perfect had in fact dismissed the penalty on the basis it had dismissed the assessment. The Court of Appeal noted (at [49]) how it was later agreed that that assumption was wrong and went on to explain how the UT had remade the penalty decision in the taxpayer’s favour on a different basis (that the finding the driver was an innocent agent provided ample basis for concluding that there was a reasonable excuse for the act or failure involved).[54]The UT decision HMRC v Perfect [2017] UKUT 0476 (TCC) had concluded at [70] that: “on the facts of this case, noting the FTT’s findings of fact, we conclude Mr Perfect did have a reasonable excuse for having acquired possession of the goods or otherwise dealing in them”.[55]The UT accepted ([72] and [73]) the FTT was in error in allowing the penalty appeal on the basis it did (that the penalty was dependent on the assessment) but found it only necessary to set aside the decision and did not consider it necessary to make any further findings of fact because the FTT findings were sufficient. At [74] it concluded:
“…that the appellant has demonstrated a reasonable excuse for his act (namely the act of carrying the goods or keeping or otherwise dealing with them). It was that act which triggered the penalty under paragraph 4, Schedule 41. His reasonable excuse was that he was innocent of any wrongdoing and lacked any knowledge, actual or constructive, of the criminal enterprise to smuggle excise goods.”
[56]On HMRC’s appeal to the Court of Appeal, the court concluded at [73] that the UT’s decision on the penalty was “plainly correct” explaining:
“The facts as found by the FtT included: (1) that Mr Perfect had no interest of his own in the goods, was not part of any conspiracy, and had simply followed instructions; (2) that the only information that he had was to be found in the documentation he collected when he picked up the goods; (3) the documentation appeared to be consistent with the movement of goods subject to a valid duty-suspended arrangement; and 12 (4) Mr Perfect had no means of checking whether the ARC on the documentation had been used or not. In our judgment, those facts as found by the FtT entitled the Upper Tribunal to conclude that Mr Perfect was an innocent agent. In the light of those findings, the Upper Tribunal was plainly entitled to conclude that his action in bringing into this country goods on which duty had not been paid was plainly not ‘deliberate’ within the meaning of para 20 of Sch 41 to the 2008 Act and, furthermore, was plainly capable of giving rise to a reasonable excuse under that paragraph.”
[57]Mr McNamee argues from the above that as a matter of legal principle, where it is established, as set out by the Upper Tribunal in Perfect above (and endorsed by the Court of Appeal) that a person is an innocent agent (being as the Upper Tribunal described someone who lacked actual or constructive knowledge of the criminal enterprise) then the person ought to be regarded by the tribunal as having a reasonable excuse and therefore not liable for the penalty.[58]Mr Watkinson’s submission was that there was no principle that required the tribunal to find there was a reasonable excuse. He emphasised the fact sensitive nature of the issue of whether someone had a reasonable excuse. Against that backdrop a court or tribunal seeking to lay down any general propositions of law as to what did or did not constitute a reasonable excuse would have been careful to state that explicitly. He highlighted the Court of Appeal’s reference to the particular factual findings the Court of Appeal relied on (which did not correspond to the appellant’s case) and the Court of Appeal’s language of these being “capable” of giving rise to a reasonable excuse.[59]We agree with Mr Watkinson. In our judgment the Court of Appeal’s endorsement of the Upper Tribunal’s decision was premised on the particular factual matrix it referred to and cannot be read as advancing a broader proposition that, as a matter of legal principle, a lack of actual or constructive knowledge of the criminal enterprise will inevitably require a fact- finding tribunal to conclude the person had a reasonable excuse. The Upper Tribunal’s reasoning must be read in the light of the findings highlighted by the Court of Appeal but in any event if the Upper Tribunal had meant to say that lack of actual or constructive knowledge would always found a reasonable excuse we agree they would have said so in clear terms. We note that the Upper Tribunal in General Transport SpA) similarly observed in a passage [85] that:
“A taxpayer who did not know and could not reasonably be expected to know that a third party had deliberately evaded duty may well be able to establish the “reasonable excuse” defence.”
[60]The fact the Upper Tribunal in General Transport SpA (who had the benefit of Perfect UT) considered such knowledge “may well” establish (rather than had to establish) a reasonable excuse is consistent with it being recognised that the establishment of reasonable excuse was dependent on the particular facts and circumstances of the case.[61]The FTT therefore made no error of law, as submitted, in failing to interpret the law as requiring (rather than allowing) a reasonable excuse to be found where there was a lack of actual or constructive knowledge of the criminal enterprise. We therefore reject the appellant’s ground of appeal against the penalty. We note in any case that even if it were correct that a reasonable excuse were required to be established if a person lacked such knowledge then this would not avail the appellant because such findings as the FTT can be taken to have made were that the appellant had not made any of the enquiries that might have been expected in the circumstances. There was thus no factual basis in the FTT Decision to necessarily assume the appellant did in fact lack the requisite knowledge. 13[62]Finally, to the extent there was any reliance by the appellant on the suggestion that HMRC’s Statement of Case had mentioned that the appellant was an “innocent agent”, Mr Watkinson was right to point out that HMRC’s reduction of the penalty amount, arising as a result of the penalty’s basis changing from “deliberate” to non-deliberate, clearly did not equate to an acceptance on HMRC’s part that the appellant was an “innocent agent” in the relevant sense. It would have said nothing about for instance any lack of constructive knowledge. CONCLUSION[63]The appellant’s appeal is dismissed. JUDGE SWAMI RAGHAVAN JUDGE NICHOLAS ALEKSANDER Release date: 18 September 2025

Cited in 1 later judgment