VPDS198000 - Vaping Products Duty and Vaping Duty Stamps: Penalties, offences and sanctions: Examples of penalty/civil sanction scenarios

Example – Ben is a manufacturer of vaping products and is approved accordingly. He has sent out stamped and scanned finished products to a customer but has failed to pay the duty by the due date due to cashflow issues within the business.
Sanctions – Ben will not be liable to a penalty under schedule 41 Finance Act 2008 as the duty was deemed to be deferred at the time the excise wrongdoing (handling goods subject to unpaid excise duty) took place. He will be liable to a duty geared penalty under section 9 Finance Act 1994, which is calculated with reference to the unpaid duty as well as a penalty under schedule 26 of FA21 for failure to pay tax. It may also be possible to call on any guarantee if one is held to cover the duty that has not been paid. It would also be reasonable to review the approvals to establish if Ben is still fit and proper to be approved.

Example – Ben is a manufacturer of vaping products and is approved accordingly. He has sent out vaping product from his premises which has been stamped and duty paid, but due to an oversight no scanning event took place at the time the stamps were affixed (where scanning is required immediately), nor when the goods were removed from his approved premises. An audit of his manufacturing records shows that this has happened to 50,000 units in the last month only.
Sanctions – a vaping product is only deemed to be stamped when both the stamp has been applied to the retail packaging, and it has been scanned at the appropriate time. This effectively means that the vaping products have been sent out from his premises unstamped. The only sanction that would be applicable here is an escalating penalty under section 125 FA26; as this is a first offence and due to the number of units involved, the penalty would be set at £10,000.

Example – Ben has been identified as manufacturing vaping products from a premises without being approved to do so. He has told HMRC officers that he meant to register, but the pressure of the manufacturing business meant that he never got around to doing so. A review of his sales invoices shows that he has sold 20,000 units in the last 3 months with no duty paid to HMRC.
Sanctions – There are several sanctions that are applicable under this scenario:

  • failure to notify penalty under schedule 41 of FA08
  • excise wrongdoing penalty under schedule 41 of FA 08 (though this will interact with the FTN penalty as per guidance in the Compliance Handbook)
  • duty geared penalty for failing to pay the excise duty under section 9 FA94
  • fixed penalty under section 9 of FA94, by virtue of section 127(2)(a) FA26
  • any vaping product which is deemed to have been manufactured is liable to forfeiture under section 128 FA26
  • as Ben has been concerned with selling/otherwise dealing in unstamped products, then he is also liable to an escalating penalty under section 125 FA26. As this is a first offence, and considering the number of units sold, the penalty would be £10,000

Example – Ben is approved as an excise warehousekeeper and affixes and scans duty stamps on behalf of third parties. During a compliance audit, it is identified that he has weak controls over the duty stamps and the whereabouts of 1000 stamps cannot be identified. Ben accepts HMRC’s finding that these stamps have been irretrievably lost.
Sanctions – Ben is liable to a penalty under section 126 FA26 at the amount of 5 times the duty rate per lost stamp.

Example – Ben is approved as a duty representative for an overseas manufacturer in China. Owing to circumstances beyond the UK representative’s control, a quantity of the duty stamps have been lost in transit due to a natural disaster. These stamps were cosigned direct from the appointed supplier to the overseas manufacturer.
Sanctions – A penalty would be due under section 126 FA26, however there is no penalty liability in this situation as he has not caused the loss.

Example – Ben owns a retail convenience store on a high street. During an HMRC revenue inspection, 250 units of vaping product are identified as having no duty stamp affixed when they should have been. This is Ben’s first detection of this nature.
Sanctions – Ben will be liable to an escalating penalty of £5,000 as a first offence involving 100 to 299 units under section 122 125 FA 26. All the unstamped products are liable to forfeiture and can be seized. Additionally, under section 128(2) FA26 any stamped product found on his premises could also liable to forfeiture and can be seized. As the unstamped vaping product is not duty paid, Ben is also liable to an excise wrongdoing penalty under schedule 41 of FA 08 for handling goods subject to unpaid excise duty.

Example – Ben owns a retail premises and during a revenue inspection a quantity of unused duty stamps are detected on the premises. Ben has admitted that he had obtained these from an undisclosed source and was applying them to otherwise unstamped product in order to make them appear genuine. He has admitted that he has done this to around 350 units over the last few weeks.
Sanctions – Several sanctions can be applied in this case:

  • ben will be liable to an escalating penalty of £7,500 as this is a first offence involving 350 units
  • being in possession of duty stamps without being duly approved is an offence under section 128 FA 26 for which he can be prosecuted. If the criminal offence route is taken, then the stamps are liable to forfeiture
  • Section 122(3) FA 26 states that a duty stamp may not be transferred between an approved stamp holder and another person. The stamps are therefore liable to forfeiture under section 128(3)(b)(ii) FA 26, and Ben has rendered himself liable to a penalty under section 9 FA94 by virtue of section 127 FA26
  • there is also an excise wrongdoing penalty to be considered for handling goods subject to unpaid excise duty under schedule 41 FA08

In all the examples above, an assessment to excise duty can be raised where there is an outstanding amount which is due to HMRC.

It is also important to note that the above scenarios also include criminal offences, and this should be borne in mind when penalty sanctions are being considered.

Remember as well that where a section 9 FA 94 penalty is charged alongside a behavioural penalty, the 2 must interact as per the Compliance Handbook guidance.

(This content has been withheld because of exemptions in the Freedom of Information Act 2000)