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HMRC internal manual

Hydrocarbon Oils Strategy

Post detection audit and assessment: Annex: assessment case studies: case study 5 and case study 6 of 6

Case history

Following a detection at a recycling depot on 03-08-2006 during which fuel from a DAF tipper (which was tipping clay and soil into a land fill) site was sampled, tested and later found to be positive for Euromarker and to have a Sulphur Level in excess of 600 parts per million.

The RFTU subsequently detected laundered Irish (ROI) Gas Oil in a 30,000 litre capacity underground tank in the contractors’ yard, and in 8 tipper trucks belonging to the contractor on 07-11-2006.

The contractor was suspected of being an end user of ‘smuggled’ laundered fuel.


An audit of the businesses legitimate fuel purchases was carried out, which produced a sizeable shortfall and which resulted in an assessment for £149,362 being issued.

The legal basis notified to the trader was that, as there had been a contravention of Section 12 of HODA 1979, ( mis-use of marked Gas Oil ) they were liable to an assessment under Section 13(1A) of HODA.

The duty on the shortfall was charged on the difference between ULSD and MGO in the UK, ie ‘Red Diesel’.

Issues identified by the Review

The Information presented to the Review Officer, inferred that the fuel was ROI Laundered fuel which was considered to have been smuggled into the UK from the ROI.

There were 8 Government Chemist reports which all showed that there was no trace of Solvent RED in the fuel, only solvent Blue 79, ( one example showed a rate of 0.41 Kg/Million litres with a sulphur content of 540 parts per million) which is indicative of fuel from the ROI.

The Review Officer’s decision

The Review Officer concluded that since the fuel in question was not UK rebated Gas Oil ‘Red Diesel’, that Sections 12(2) and 13(1A) of HODA did not apply, as the fuel had not been subject to a rebate in the UK.

This view was supported by the Oils Policy Team, following the Review Officer’s submission of an enquiry to them regarding this case, as the fuel found in the contractors’ possession appeared to have been imported into the UK without payment of duty (ie it was ‘smuggled’).

As we cannot assess ‘smuggled’ fuel under the provisions of Section 13(1A) of HODA, the Review Officer concluded that the assessment for £149,362 should be withdrawn.

Outcome of the Review

The Assessing Officer withdrew the original assessment made under HODA Section 13(1A), but questioned whether they could issue a new assessment on the fuel, treating this as ‘smuggled’ and issuing the new assessment under Section 12(1A) of the Finance Act 1994.

It is possible to assess for duty on oil which has been illegally imported.

Note: The fact that the smuggled fuel (ROI ‘Green’ MGO ) has been laundered does not affect its liability to be assessed for the duty which was due at import.

  • The Duty charge is given by Section 6 of HODA 1979.
  • The Duty point is established by Regulation 4(1) of the Excise Goods (Holding, Movement, Warehousing and REDS) Regulations 2.
  • The power to assess is given in the Finance Act 1994 Section 12(1A).
  • The person liable is the ‘importer’ * under Regulation 5(1) of the Excise Goods (Holding, Movement, Warehousing and REDS) Regulations 1992.

The definition of an ‘importer’ is given in Section 1 of CEMA. This definition is quite broad and may be applied to either the person in possession of the goods or who has an interest in the goods while they remain out of charge.

So that in this particular case the contractor may be assessed, as they were in possession of the smuggled laundered ROI fuel, and had an interest in this fuel while it remained out of charge.

Consideration of the ‘one year rule’

The Assessing Officer contacted the Oils Team to enquire whether they could issue an assessment, where the original detection had been on 07-11-06, and where the use of this date as the relevant date for starting the clock under the one year rule, would mean that any new assessment issued would be now be out of time.

The Assessing Officer having read and considered the guidance given in  EAIG12000 - Excise Assessments Interim Guidance: contents believed that in this particular case, the date of detection was not the relevant start date for the one year rule, arguing that the actual date for the start of the ‘one year rule’ for any new assessment was 24-09-07, because it was only on this date that evidence of the facts, sufficient to justify the making of the assessment, came to their knowledge.

You cannot make an assessment at any time after:

Finance Act 1994 Sections 12(4)(b) and 12A(4)(b)

’.. the end of the period of one year beginning with the day on which evidence of the facts, sufficient in the opinion of the Commissioners to justify the making of the assessment, comes to their knowledge’.

EAIG12200 - Evidence of fact: meaning of comes to their knowledge states that:

‘The words “comes to their knowledge” are crucial. Only the Assessing Officer can say when the necessary evidence was obtained, that is when the facts became known’.

It also quotes an excerpt of the ruling by Potts J in the case of The Post Office, QB May 1995 [1995] STC 749:

‘… evidence of facts [should be construed as] evidence of facts giving rise to a particular assessment. This is not the same as the date on which the Customs (HMRC) should have been aware that there was an under declaration of tax, ie the date on which the Customs (HMRC) could be said to be fixed with constructive knowledge of an error in the taxpayers returns’.

EAIG12300 - Evidence of fact: meaning of sufficient states that:

‘The clock starts ticking under the one year rule when the last piece of material evidence comes to the attention of the Commissioners which justifies the raising of the particular assessment in question’.

EAIG12300 - Evidence of fact: meaning of sufficient states that:

‘The clock starts to tick when you have received the last piece of information that enabled you to make the assessment’.

The Assessing Officer contended that in this case this had occurred on 24-09-07. That they possessed information that the contractor’s business possessed a number of vehicles beyond those detected on the day of detection. That they had repeatedly asked the contractor for confirmation about the status of their vehicles, eg confirmation of ownership, odometer readings, usage etc, and that this information had a crucial bearing on the contractor’s fuel requirements for the period of the audit.

This information was only provided to the Officer via the trader’s accountant on 24-09-07, and it was only then that the Assessing Officer felt that they possessed evidence of the facts sufficient to justify the making of the assessment.

On this basis the Assessing Officer was advised that a new assessment could be issued to the contractor using Section 12(1A) of the Finance Act 1994, re-calculating the original to take into account the reduction of the audit period and the further information that the trader’s accountant had provided in relation to evidence of fuel purchases on 24-09-07.

Lessons which can be learntIt is important that:

  • We ensure that the correct legal bases are used when issuing an excise assessment.
  • We know that assessments for the duty due at import on ‘smuggled’ oil should not be raised under Section 13(1A) of HODA 1979 but under Section 12(1A) of the Finance Act 1994 instead.
  • We are aware that the withdrawal of an assessment does not preclude the issue of a new or amended assessment later - provided that this is based on the correct legal bases and is issued within the ‘one year rule’.
  • We know that the relevant date for the ‘one year rule’ is that when the last piece of material evidence comes to the attention of the Commissioners which justifies the raising of the particular assessment.
  • We are aware that the application of the ‘one year rule’ does not prevent the issue of a ‘protective assessment’ (which can be amended or withdrawn) before all the necessary evidence has been obtained.

For further information on the issue of Excise Assessments, the legal bases for issuing assessments and on the timescales involved, please see the guidance given in EAIG - Excise Assessments Interim Guidance.

Case study 6 - NI use of sulphur testing

This case involved a van which was stopped and the fuel tested by RFTU in Northern Ireland. The fuel in the van’s running tank was found to be clear in appearance but had markers present. A sulphur test showed high levels of sulphur -TEST RESULT A

An examination of the van revealed a (central heating) tank in the back of the van which contained almost 1,000 litres of clear oil which was tested and found to have markers present and also a high sulphur content -TEST RESULT B

The van owner phoned his wife to pick him up after the van and tank were seized. Her car was also tested and the fuel was found to be clear in colour but found to have markers present. Again the sulphur content was high but not as high as the van and tank - TEST RESULT C

The LE officers visited the home premises where a storage tank with a nozzle was tested. The tank was almost empty but enough fuel was drawn from the residue to undertake a test -TEST RESULT D

Coumarin 4% 8% 3% 8%
Quinizarin 0% 0% 0% 0%
Solvent Red 0% 0% 0% 6%
Solvent Yellow 2% 12% 0% 0%
Solvent Blue 4% 11% 3% 4%
Total 10% 31% 6% 18%
SG   0.832 0.832 0.833
Sulphur 1051ppm 1049ppm 631ppm 927ppm

Interpretation of results

Test sample A - Laundered UK Kerosene and ROI Gas Oil

Sulphur level very high and total markers adding up to 10%. If we take the gas oil and kerosene having the maximum permitted sulphur level under UK and EU law as 2,000ppm and the maximum permitted sulphur level for ULSD as 50ppm then mathematically the maximum sulphur level if mixed at 90%ULSD and 10% laundered would be:

(10 x 2000) 20,000 + (90 X 50) 4,500 = 24,500/100 = 245 ppm.

This is nowhere near the actual sulphur level of 1,051ppm which strongly indicates that the fuel was laundered. The laundering process reducing not only the dyes but also the chemical markers and in Result A the markers have been reduced by 90%.

Test sample B - Laundered UK Kerosene and ROI Gas Oil

Sulphur level very high again and calculating the theoretical maximum sulphur level using the above method = 654ppm where the actual figure is 1,049 ppm. It is clear that there is more than 31% laundered fuel in this oil sample.

Test sample C - Laundered UK Kerosene and ROI Gas Oil

This sample shows a large reduction of markers and reduced sulphur level (631ppm). The explanation for this is that after the van was seized the owner phoned his wife to pick him up in her car which she topped up with fuel bought at Sainsburys with ULSD. This had the effect of reducing the average sulphur content by a third.

Test sample D - Laundered UK Kerosene, UK Gas Oil, and ROI Gas oil

This sample was drawn from an almost empty storage tank at the trader’s home and it is the only sample which had UK Gas Oil present. Again the sulphur level is high and the laundering process has not only reduced the markers by 82% but completely removed the Quinizarin.

The van owner admitted that he had bought oil from this source before and the audit estimated that there was a shortfall of legitimate purchases of 8,763 litres.

An assessment was issued on this quantity on what is believed to be all laundered fuel. The assessment was at the full rate of derv duty. However an allowance was given for the UK Gas Oil which represented 6/18 ie a third of the make up of the laundered oil mixture. One load of oil contained 1,000 litres and therefore an allowance of 333 litres of the gas oil duty was applied.