The case was prepared and presented by Alan Powell (below) for Alan Powell Associates Ltd, an excise duties consultancy. Powell explained that "the case confirms that petrol retailers are entitled to defer excise duty on fuel delivered to them from bonded terminals with nil security. Furthermore and the crux of this matter HMRC must grant such approval where the need to defer duty on fuel is demonstrated by the retailer".
PRA chairman Brian Madderson, who gave evidence at the hearing, said: "The decision also shines light on practices in the sector which have always been to the detriment of retailers and which the PRA has complained about many times to HMRC and other government bodies."
Powell explained that deferring the duty on fuel provides a number of significant benefits, which include:
credit on the duty payable to HMRC extended to the full length (up to 31 days) for the retailer; and
elimination of charges held by suppliers against some of Brobot's properties as a condition of a shorter period of credit.
He said: "The ability to buy fuel under duty deferment arrangements would also help to eliminate most of the conditions that lead to apparent stock losses on each and every delivery of fuel from suppliers. In reality, these losses occur due to HMRC's neglect to enforce its own law and policies.
"The problem in this case and reason for the appeal was that Brobot had been given approval by HMRC to defer the duty without security under what is called the Excise Payment security System EPSS but has been refused the final part of the requirement which is the Deferment Account Number (DAN).
"HMRC had refused to issue the DAN unless (and until) Brobot had an agreement with a supplier to be supplied with fuel under the deferment scheme. Brobot pointed out that this requirement was unreasonable because they could not negotiate a supply deal without having a DAN and were placed in a 'chicken and egg' situation."
In evidence Brobot director Eddie Bright told the tribunal judge he suffered stock losses due to vapour recovery and other delivery issues which he estimated at more than £120,000 a year. The judge recorded in his decision: "Mr Bright (managing director) considered that Brobot could mitigate these losses if they were approved by HMRC to defer duty. They would then be able to purchase fuel in bond at the storage terminal, prior to the fuel passing the duty point on being loaded onto road tankers. This would mean in particular that:
"(a) Brobot would become the person liable to account to HMRC for excise duty on the fuel (rather than the original supplier). The supplier would no longer have the risk of having to pay the duty notwithstanding a default by its retailer customer. As a result, Brobot would no longer have to provide a charge over their properties to suppliers, and they may be able to negotiate longer credit terms; and
"(b) Any refund of duty on fuel recovered under vapour recovery systems would be refunded to Brobot."
The judge found that Brobot was solid and credible and that the application was genuine. He said: "We find that Brobot's application for deferment approval was not speculative. We find that they had good reasons for wanting to be able to purchase fuel on a duty deferred basis. In this regard we find that the evidence as to the stock losses that they suffered, the credit terms of their suppliers (including the security that suppliers required over their assets) are all relevant."
Powell explained: "The judge decided that it is reasonable for HMRC not to approve applicants to defer duty unless there is a need for such deferment. However, where the appellant clearly had a need for the DAN and had already been approved for EPSS nil security, it would be unreasonable to withhold approval of the DAN."
Eddie Bright praised the work by Alan Powell, and said: "We now have to wait to see if HMRC decides to appeal the tribunal decision for which they have a time scale to lodge within six weeks.
"If not I see the next step as Brobot being issued with a DAN which will allow me to enter supply negotiations on a duty deferred basis. That will be the start of changes in our industry as we will be entitled to receive the vapour scheme benefit reducing our losses.
"It's still early days, but the signs are that our success should be the thin end of the wedge in changing the way fuel duty is levied on dealers, so let's see where it goes."
Powell said that the options for an appeal by HMRC were limited because they could only appeal on a point of law and they could not raise any new issues. In the absence of an appeal Powell has half a dozen other dealers who are in a similar position to Brobot and he says the ruling provides them with a precedent. They can now request they are given a DAN and if they can prove a need HMRC will have to grant them one. No doubt many other retailers will now also want to apply for duty deferment.
Powell concluded: "We are concerned at how HMRC and the Treasury behaved with regard to the treatment of deferment for retailers. In preparing for the appeal, we found that HMRC had significantly altered its requirements for applications to defer duty only after petrol retailers had started to make applications for DANs.
"These changes were, we believe, at the behest of the Treasury and were not notified to the various excise industries in breach of protocol. In June, I met with HMRC Policy officials to set out my concerns that the 'sleight of hand' changes to the approval process affect alcohol and tobacco businesses as well as petrol retailers. We will have to remain vigilant."
Need for more duty points
PRA chairman Brian Madderson (left) said he expected many retailers would want to make use of the opportunities of duty deferral, following this judgment.
He said: "The ability to defer duty will have significant ramifications for cash-flow and the removal of the need for bank guarantees will free-up capital so dealers can invest in their businesses. It will also defuse the issue of vapour recovery."
However, he pointed out that duty deferral will not be available to all dealers. It can only be claimed where deliveries come direct from a refinery or a sea-board refinery which has a duty point. Duty will already have been paid on fuel delivered from inland terminals so deferral will not be possible.
Madderson said it was likely attention would now switch to this issue with the PRA campaigning for HMRC to move duty points to inland terminals.