In February, HM Revenue and Customs published a consultation paper on further measures to help tackle tobacco duty evasion and other excise duty evasion.
Part 6 of the consultation paper discusses imposing a statutory duty of care on landlords where a tobacco offence has been committed. A tobacco offence includes the importation and sale of illicit tobacco, which is tobacco that has been imported without the proper declarations being made or duty paid.
The consultation suggests that while tobacco offences have reduced, HMRC believes that landlords or landowners are aware of a tobacco offence being committed but turn a blind eye to this to ensure their rental income is maintained. HMRC seems to take the view that by turning a blind eye the landlord or landowner is complicit in the offence. This is a surprising position in that it is not normally an offence to ignore the illegal activity of somebody else.
Consequently, HMRC propose a 3-fold approach to the issue:
- Requesting that landlords add a clause to their standard leases which expressly prohibits illegal activities in their properties;
- Legislating to impose a duty of care on landlords and owners of property or land in respect of illicit tobacco; and
- Introducing a new civil penalty for non-compliance by landlords and landowners with a requirement to take reasonable steps to ensure that the property or land is not used to evade tax.
The duty of care on landlords and landowners will only arise once they have or should have had knowledge of the tax evasion. There will be a defence for landlords and landowners facing any such civil penalties if they can demonstrate that they took reasonable steps to prevent future wrongdoings in their property or had no reasonable means of knowing of it. Such active steps might include:
- An express clause in the tenancy agreement making it clear that any tobacco offence will lead to the termination of the tenancy;
- Periodic checks of the property and requesting details of the tenant’s business;
- Taking legal action to evict the tenant; and
- Contacting HMRC or Trading Standards if landlords and landowners become aware of any tobacco offence.
The list of reasonable steps expected of a landlord and landowner is not exhaustive and it is possible that the burden placed on them will be a lot more extensive than this paper suggests. Unfortunately, at this stage all we can do is wait and see what the obligations will be and whether they apply to commercial landlords only or are intended to apply to residential landlords as well.