The first ‘sugar tax’ showdown: Millennium v HMRC
The courts have recently ruled on Millennium Cash & Carry’s (‘Millennium’) challenge to HMRC’s refusal to grant tax credits under the Soft Drinks Industry Levy (SDIL). Millennium successfully argued that the some of the assessments issued were invalid. This is the first case on the SDIL, and highlights problems with the original drafting that the government might need to remedy at the next budget.
The SDIL took effect in 2018 to incentivise lower sugar recipes for soft drinks. It applies to UK produced or imported soft drinks containing added sugar that are consumed in the UK.
Producers and importers of soft drinks are required to register with HMRC to report and pay the SDIL on the drinks produced or imported into the UK. As the SDIL is intended to tax UK consumption, SDIL credits can be claimed where the levy has been paid but the affected drinks are then exported.
Millennium had claimed credit on exported drinks that it had bought from UK suppliers. However, HMRC refused the credits as Millennium had not paid the SDIL on the goods, which is a condition for claiming the credit. Instead, Millennium’s supplier had paid the SDIL. HMRC raised an assessment for the incorrectly claimed credits totalling circa £127,000.
Millennium accepted that the credits were not valid, but nonetheless challenged HMRC’s assessment for underpaid SDIL. Millennium argued that HMRC did not have the express power to assess, under current legislation, where it determined that there was no entitlement to an SDIL credit. But HMRC argued that it has the power to amend, reject, determine or withdraw claims for credits as the powers are implied within primary legislation.
The court allowed Millennium’s appeal in part. It found that HMRC does have the power to assess for underpaid SDIL. However, any assessment could only increase a taxpayer’s payable figure in an individual period. The legislation does not permit HMRC to revoke credits that are rolled over from previous return periods when there was no payable sum. As a result, the court reduced the amount payable by Millennium from circa £127,000 to £76,000.
We expect that HMRC will seek to change the law so there is no doubt that it has an unencumbered right to assess for underpaid SDIL going forward. However, this decision is an important reminder to check that HMRC assessments are properly raised.