HMRC's Extra Conditions for Fuel Dealers: When Are They Too Much?

Neutral citation: [2026] UKFTT 00930 (TC) Case Number: TC 09926 FIRST-TIER TRIBUNAL TAX CHAMBER Appeal reference: TC/2024/05891 Royal Courts of Justice Chichester Street Belfast REGISTERED DEALER IN CONTROLLED OILS (RDCO) - Imposition of additional requirements on licence - Some already mandated by force-of-law provisions of Excise Notice 192 - Some record-keeping requirements not reasonable or proportionate - Further review ordered - To that extent only, appeal allowed in part. Heard on: 12 May 2026 Judgment date: 19 June 2026 Before TRIBUNAL JUDGE CHRISTOPHER MCNALL TRIBUNAL MEMBER PATRICIA GORDON Between LFS ENTERPRISES LIMITED Appellant and THE COMMISSIONERS FOR HIS MAJESTY’S REVENUE AND CUSTOMS Respondents Representation: Ronan Lavery KC and Niamh Horscroft BL, instructed by McNamee McDonnell Solicitors, Newry, for the Appellant. Stuart Redpath, an HMRC Litigator of HMRC Legal Group (with written submissions from Sarah Patton, an HMRC Litigator), instructed by General Counsel and the Solicitor to HMRC, for the Respondent. DECISION 1. For the detailed reasons which follow, this appeal is allowed in part.

2. The Appellant is a limited company which, since August 2020, has been approved by HMRC under the Registered Dealers in Controlled Oils ( RDCO ) scheme to sell controlled oils (principally, kerosene and Marked Gas Oil (MGO) = 'red diesel') from sites at three different locations in Northern Ireland.

3. The sites are at Ormeau Road (Belfast); Saintfield Road (Lisburn); and Annaghgad Road (south of Crossmaglen, and very near to the border with the Republic of Ireland).

4. At the relevant periods, the Appellant sold red diesel and kerosene at all three sites. Annaghgad Road sold only those. Saintfield Road also sold diesel and Adblue. Ormeau Road also sold diesel.

5. This is its appeal, made by way of a Notice of Appeal filed on 22 October 2024, against HMRC's decision in August 2024 ( 'the Decision' ), upheld at departmental review in October 2024, to add additional conditions to the Appellant's RDCO approval. The Additional Conditions 6. Those conditions, applicable to all the Appellant's operations, and hence applicable equally to its trading at all three sites, were: (1) To record and keep, for each site, details for all supplies of rebated fuel (and not just sales over 100 litres), namely: (a) "Full name and full postal address of customers (b) Make, model and vehicle registration number of customer vehicle or eligible vehicle (c) Volume of rebated fuel purchased (d) Date/time of each rebated fuel sale (e) Customer's stated use (f) Details of due diligence checks to establish eligibility (g) VAT number, if registered (h) Method of sale drum/running tank (i) Copy of daily sales records which must include monetary values/litres sold per transaction (j) Details of opening and closing stock (in litres) of rebated fuels for each week (k) Copies of all fuel purchase invoices (l) Current selling price." ( 'the Record-keeping Requirement' ) (2) To provide those details to HMRC on a weekly basis (' the Information Requirement' ); (3) To report 'any suspicious transactions, or requests to direct fill a road vehicle, to the HMRC fraud hotline ( 'the Suspicion Requirement' ); together, 'the Additional Conditions' .

7. The Additional Conditions were to have come into effect in August 2024. The Appeal 8. In summary, the appeal is advanced on the following series of grounds: (1) The Decision is 'entirely unreasonable, disproportionate and unjustifiable'; (2) Insofar as the Decision was based on a lack of business records, business records were kept but, without any fault on the part of the appellant, could not be retrieved; (3) The business's operational practice had been explained to HMRC officers on several occasions and had been approved by them; (4) 'Full records' were provided to HMRC on 5 March 2024; (5) Adequate checks are made on persons buying rebated fuel; (6) No fuel is being provided to customers from the Republic of Ireland; or, if it is, it is a lawful supply; (7) Farmers operating cross-border farms are, after Brexit, under the Trade and Co-operation Agreement, allowed to fuel on either side of the border; (8) The imposition of restrictions applicable to bulk sales (ie, sales over 100 litres) on all sales is entirely disproportionate, (i) because there is no demonstrated loss of Revenue; and (ii) because the Appellant is being singled out, especially given that HMRC allows the existence of unmanned sites selling controlled oils; (9) The imposition of blanket conditions across all three sites, failing to take account of their different conditions, is disproportionate and unlawful.

9. These largely repeat the submissions made, on behalf of the Appellant, by his solicitors in an email dated 19 August 2024.

10. The Appellant seeks an order that the Decision should cease to have effect. The law 11. HMRC can, 'at any time for reasonable cause', vary the terms of an RDCO approval: CEMA 1979 section 100 G(5).

12. The Decision is an 'ancillary matter'. Therefore, the Appellant must show us, on the basis of evidence, that the decision to impose the Additional Requirements 'could not reasonably have been arrived at': see FA 1994 section 16(4) . The Appellant must show that 'the grounds on which any such appeal is brought have been established': FA 1994 section 16(6) . The relevant standard is the usual civil standard, namely the balance of probabilities.

13. RDCO is a UK-wide scheme. All RDCO-scheme participants, across the whole of the United Kingdom, "when buying, selling, loading, unloading, delivering, moving or holding controlled oil ... must comply with any conditions or restrictions that the Commissioners may prescribe": Hydrocarbon Oil (Registered Dealers in Controlled Oil) Regulations 2002 (SI 2002/3057) ( 'the 2002 Regulations' ) Reg 8(2)

14. Regulation 9 of the 2002 Regulations provides: "Returns and information 9. —(1) Registered dealers in controlled oil must make returns concerning their dealing in, buying and selling of controlled oil, at such time, in such form and manner, and containing such particulars as the Commissioners prescribe. (2) When such information as the Commissioners, for this purpose, prescribe comes to his attention, a registered dealer in controlled oil must, without delay, notify them of that information in such form and manner as they prescribe."

15. HMRC also rely on the Revenue Traders (Accounts and Records) Regulations 1992 (SI 1992/3150) Regulation 6: "Items and records (including an excise duty account) to be kept and preserved A revenue trader shall keep and preserve such records as the Commissioners may specify for any case or cases, in a notice published by them and not withdrawn by a further notice."

16. The relevant notice is Excise Notice 192 ("Registered Dealers in Controlled Oil") ( 'Notice 192' ).

17. Excise Notice 192 is a public-facing, publicly-available, document. It is periodically updated. Updates are thereby immediately available and visible to all RDCOs on the Internet. Over and above notification by way of publication on the Internet, HMRC publishes a so-called 'Newsletter', circulated to RDCO traders, which informs them of changes. Some of the Paragraphs of Notice 192 expressly have the force of law.

18. Paragraph 5.2 of Excise Notice 192 (" RDCO obligations when supplying controlled oil ") has the force of law.

19. Until 7 November 2024 (ie, at the time of the Decision), it said: "As an RDCO, you must take every reasonable precaution to make sure that your supplies of controlled oil ... are only to persons who will use that oil as permitted by the law. [...]."

20. After 7 November 2024, such persons were stated (for the first time) to include: "a person who will use that oil in an excepted machine in the UK, as permitted by the law, as a condition of allowing the rebate."

21. Notice 192 Paragraph 5.3 (" Your responsibility to supply controlled oil only for legitimate purposes ") does not have the force of law. It is "for guidance only and are (where applicable) HMRC's current view of the law as at the date of publication ... These sections of the notice do not replace or amend the law".

22. From 12 February 2024, Paragraph 5.3 said: "You must take all reasonable precautions to supply controlled oils only for legitimate uses [...] and not to supply [...] marked controlled oils for use in, or supply to, other jurisdictions where their use is not allowed."

23. That latter point was entirely new. It had not appeared in any previous version of Notice 192. The circumstances which led to its inclusion in February 2024 are not known to us (eg, whether it represented HMRC's view as to a change in the law, or whether it was something which had always been HMRC's view, but which HMRC had not previously articulated). That change was extant from 12 February 2024. The February 2024 revision was notified to RDCOs in general (at the very latest) in Newsletter 7 in March 2024, and was specifically notified to the trader on 26 March 2024.

24. Newsletter 7 said: " Supplying rebated fuel for use outside the UK Rebated fuel contains a mix of markers that are only used in the UK. Using it outside the UK is illegal unless it is already in the running tank of an excepted machine when it exits the UK. You must not sell rebated fuel to a customer who intends to use it for a non-permitted purpose in the UK. If you do, you may face penalties and other sanctions"

25. The Table in Paragraph 5.16 of Notice 192 does not have the force of law.

26. It says that if the nature of the supply, as in this case, is "Forecourt or distributor yard or other supplies made through pump or similar dispenser exceeding 100 litres", then the "standard checks" are: "Make sure the customer does not put the oil directly into a road vehicle. Vehicle Registration Number For record-keeping requirements, read the following force of law paragraph".

27. The latter part of Paragraph 5.16 of Notice 192 has the force of law. It says: "For forecourt or distributor yard supplies made by pump or similar dispenser in excess of 100 litres ... you must record the customer's name, name of person entering the details (if different), contact details, transaction date, vehicle registration number, usage of the oil and date the last usage was checked [...]"

28. We acknowledge that the operation of the RDCO regime in Northern Ireland is challenging because Northern Ireland has a land border with a non-UK country, the Republic of Ireland. This means that people are able to cross the UK/ROI border, without any UK-government imposed formalities, checks or inspection, to buy fuel which they can then take back across the border to the Republic of Ireland.

29. In relation to this trader, its Annaghgad Road site is particularly likely to be affected by ROI consumption. Annaghgad Road is extremely close to the UK/ROI border, which is an open border. That site sells only Marked Gas Oil (red diesel) and kerosene. Red diesel can be dispensed either into a running tank and/or into a drum or other container. We were told, and accept, that sales of red diesel at Annaghgad Road are (or were) mainly to farmers from the Republic who arrived to fill not only their running tanks but also drums to fill. Kerosene is widely used for domestic heating in rural areas of the Republic. Kerosene is not dispensed into the running tanks of vehicles but into drums, typically 20-25 litres in size.

30. We are told by HMRC that UK rebated fuels - whether kerosene or MGO - supplied in the UK, cannot be used in the ROI unless they are already in the fuel supply of a vehicle or machine when it crosses the border. That obviously has a particular impact both on sales from Annaghgad Road and its sales of kerosene, which is never put into the running tank of a vehicle, and any sales of red diesel other than into the running tank of a vehicle (eg, into drums).

31. Although HMRC suggest that this restriction has always existed (and, hence, that supplies of this kind have always been unlawful) we are not told the source of this alleged restriction except the reference in HMRC's closing note that the statutory framework under the Hydrocarbon Oil Duties Act 1979 is exhaustive, and that the duty rebate "only applies where fuel is used for specified lawful purposes within the UK", and that cross-border use "has never fallen within the scope of the rebate".

32. Hence, HMRC's position is that, at all times since the enactment of the HODA 1979 (ie, for the past 47 or so years), such sales and supplies have always been unlawful. We asked whether the UK's membership of the European Union and/or the departure of Great Britain (but not Northern Ireland) from the Single Market and Customs Union had any impact on this analysis, and we were told no.

33. The Appellant, through its director Mr Farrell, limits itself to the Delphic comment, in Mr Farrell's witness statement that it is "supposedly illegal to sell to customers using the oil in the south".

34. However, absent express challenge on the point in the Grounds (save, perhaps, for the apparent point about the Trade and Cooperation Agreement between the UK and the EU) we simply have to do the best that we can and proceed on the basis that HMRC's description of the present legal situation is accurate; meaning that the sale in the UK of rebated fuels for use in the Republic, other than in the running-tanks of a vehicle, is prima facie illegal (regardless of the tax and duty situation).

35. There is no evidence before us that supply for cross-border/non UK-use was actually identified as unlawful (or even problematic) until the revised wording of Notice 192 in February 2024, referred to in RDCO Newsletter 7.

36. Although Notice 7 is slightly confusing, because, despite the heading, it does not deal only with supply for use outside the UK, but also supply in the UK for non-permitted purposes in the UK, it is sufficiently clear as to HMRC's position on supply for use outside the UK.

37. That information was communicated well before the Decision which is under appeal; and the Appellant therefore knew of the position, whether or not it had known previously. Record-keeping 38. A notable feature of this appeal is that the Appellant has hardly disclosed any of its business records, whether from the period ante-dating the Decision, or from after it. In the bundle, which is the agreed file of documents for us to consider, there is hardly any evidence at all to show its trading practices, then or now. Mr Farrell's written evidence (in his witness statement) or oral evidence as to the business' records and what the business's practices are carry diminished weight in circumstances where the records showing how the business actually operates in terms of its sales have not been provided to us.

39. We acknowledge that some documents (such as purchase invoices) were provided to HMRC in March 2024, because those are the basis of the tables drawn up by Officer Napier, which - as a form of explanatory document - are in the bundle. But, as we discuss below, these are not sufficient to give HMRC, or us, proper transparency into the operation of this business, 40. RDCO approval is not a right. It confers a privilege on the authorised person to buy and sell rebated fuels. HMRC is thereby entitled to supervise whether that privilege is being used properly.

41. We are satisfied that HMRC had good reason for its concern as to the Appellant's record-keeping, and hence HMRC's ability to monitor the Appellant's compliance with the RDCO regime. We are satisfied that this company was not keeping adequate records to allow those things to be done.

42. We accept Officer Napier's evidence that he had a discussion with Mr Farrell on 2 March 2024. Mr Farrell told HMRC that the appellant kept computerised records which were 'backed up on the cloud', including stock records kept on Excel, On 3 May 2024, HMRC asked Mr Farrell for the trader's stock records from April 2020 to April 2024. On 7 May 2024 Mr Farrell told Officer Napier that those records had not in fact been backed up on the cloud, and were no longer available.

43. We accept Officer Napier's evidence that he was told by a staff member during a visit at Ormeau Road that the staff member would allow the sale of rebated fuel so long as the customer had a drum. HMRC were told, and we so find, that customers "come with their drum" and the employee "authorises the sale", and would not "complete checks".

44. We also accept that the employee told HMRC that he did not know whether the pumps could dispense more than 100 litres. That is a surprising thing to have said given that the then conditions on the trader's RDCO licence which engaged at 100 litres.

45. There was no evidence from the employee as to what had happened or which had been said during that encounter. Mr Farrell was not there, so he was not in a position personally to say what had been said.

46. We are satisfied that Mr Farrell told Officer Napier that the principal customers at Annaghgad Road were coming from the Republic of Ireland to purchase rebated fuel (MGO and kerosene). In his letter of 19 August 2024, Officer Napier told Mr Farrell that such sales were to cease immediately. Stock records 47. The stock records which HMRC required were those set out in the template to its Decision letter; namely, total stock of kerosene and MGO at the start and end of each weekly period.

48. It is correct that there is no express statutory requirement to keep stock records, specifically. But there is a requirement to keep records; and Mr Farrell seems to have recognised that stock records were relevant insofar as he told HMRC in March 2024 that they were kept on Excel, and the suggestion (wrong, it turned out) that they were backed up on the cloud. As such, in March 2024, Mr Farrell did not seem to object, per se, to stock records being provided to HMRC.

49. However, since then, and regardless of Mr Farrell's apparent willingness in March 2024 to provide stock records, the dispute has evolved into one as to whether stock records are in fact a type of record which have to be kept by an RDCO trader at all.

50. We do not consider that HMRC's position that 'records' means 'primary' records (and, therefore, by some species of inference, includes stock records) is helpful.

51. It seems to us that the better analysis is that, read purposively, in the usual way, and in the context of the RDCO scheme, the statutory requirement to keep records means such records as permit HMRC to discharge its statutory obligations of ensuring that the correct amount of tax or duty is paid on rebated fuels and/or that rebated fuels are only sold for permitted uses.

52. In our view, and even if this is read as subject to an additional reasonableness test, those records do include stock records. This is because whilst sales and purchase invoices can (perhaps) be reconciled each with the other, there is no alternative reliable way of assessing whether (for example) the trader's purchase invoices and till receipts are reliable, in the sense that they actually match its stock. This is particularly the case where stock - as here - is held at a number of different sites and/or - again, as here - is moved between sites.

53. We accept Officer Napier's position that his calculations, on the basis of supplier records, was that he could not work out the stock position and/or verify it. Nor can we. He had concerns, which we accept as valid and well-founded, that his calculation of the stock and consideration of the trader's VAT returns and its HO5 returns could not readily be reconciled with Mr Farrell's assertion in March 2024 that he would sell about 300,000 litres of kerosene a month.

54. We agree with the position when it comes to examination of the small scattering of HO5 returns which are in evidence before us. By way of example, the sales of kerosene recorded: (1) In March 2022, 77,770 litres to 1028 domestic customers plus 300 litres other supplies; (2) In April 2022, 69,000 litres to 898 customers ("domestic supplies below de minimis") plus 800 litres other supplies; (3) In December 2022, 81,090 litres to 1120 domestic customers; (4) In January 2023, 123,140 litres to 1586 domestic customers.

55. Those are all paper returns. We have been shown only small sample of online returns. We do not know why either party has been unable to produce an uninterrupted run of returns.

56. In September 2023 (an online return) the total sales of rebated fuels overall (ie, both MGO and kerosene) were only about 190,000 litres.

57. Hence, there is an obvious - and unexplained - discrepancy between what Mr Farrell said, and what the available records show; at least, in relation to kerosene sales. The business - at least, on the face of its HO5 records - was not selling 300,000 litres of kerosene a month. Although this is not the case which he advanced before us, we have considered whether Mr Farrell just made a mistake, but weight has to be given to what he said because he was the person who was running the business.

58. We find that Mr Farrell did tell Officer Napier in March 2024 that "records" were "backed up to the Cloud". At the same time, he also said that stock records were kept in Excel. However, he did not tell Officer Napier that his laptop had broken a few months earlier, and that since then he had been keeping stock records with pen and paper. In any event, we have not been shown any such paper stock records.

59. We also find that Mr Farrell told HMRC in March 2024 that he was checking his stock daily. We do not know much about how those stock records were kept: there is reference to an 'electronic dip', but we do not know how that worked. In response to a question from us, Mr Farrell told us that the dip did not communicate (for example) with an App. The impression is that readings had to be manually taken. We have not been shown anything written down.

60. Since it was not put to Mr Farrell in the course of his cross-examination that he was not being truthful about having ever kept stock records, whether on laptop and/or on paper and/or the fate of them, we proceed on the basis that he did keep such records, as he described to Officer Napier in March 2024: on an Excel spreadsheet, updated once or twice weekly, on a second-hand laptop which (as he told HMRC on 7 May 2024) had failed (although Mr Farrell says in his witness statement that the failure had been "a few months" before March 2024) and which could not be repaired (at least, by the persons he took it to), meaning that the data was, to all practical intents and purposes, irretrievable; and which is now definitely lost for good since he has since 'disposed' of the laptop, so that no efforts can now be made, even at this very late stage, to see whether the data can be retrieved.

61. However, even taken as accurate and truthful, this does not ultimately assist the Appellant, because the obligation of the business was to take such steps as were reasonable to keep its records in a fashion which was not vulnerable to such loss and/or to take reasonable and demonstrable efforts to retrieve the information if lost or damaged. Although Mr Farrell did not seem to have realised - at least, before March 2024 - that the stock records might end up being of such interest to HMRC, this should not have come as a surprise to him. They are (for good reason) records of a conventional kind in most businesses; and good business practice would be to make sure that they were not only kept, but kept in a way which safeguarded them from loss - such as being backed up.

62. Keeping them on a second-hand laptop - and not (as it now appears) backed up on the cloud or an external hard drive or (even) printed off from time to time - did not meet that test. Had any of those things been done, then the failure of the laptop would not have meant loss of the records. But, even if that were wrong, the sole effort made to retrieve the documents seems to us casual or perfunctory (and there is no supporting evidence from the computer shop); and then the machine was (at some unknown time) thrown away, putting any records completely beyond recovery. Moreover, and as already noted, if there were paper stock records, none have been disclosed in these proceedings, and there are none in the evidence before us. 'The booklet'

63. Although Mr Farrell said that some notes of sales and customer details were kept in 'a booklet', we were not shown any such booklet, and so we were not shown any evidence at all about the details being taken. We work and make findings on the basis of available evidence; and are entitled to draw inferences from the absence of evidence, especially where that evidence is of the kind which can be expected to be available. We are not satisfied that there was ever any such 'booklet'. But, even if there was, we cannot make findings as to the adequacy of any information recorded in it unless we have actually seen it.

64. Taking all the above into account, it is clear to us that there is a systemic problem in relation to this trader's record-keeping, and this all can be laid squarely at the door of Mr Farrell. He is the governing mind of the enterprise, across all its sites. He is ultimately responsible for the integrity of the trader's activity, whether or not he is personally present, across all its sites. He is responsible for the conduct - the acts or omissions - of the firm's employees; and he is responsible for their training when shortcomings have been identified, as they have been here.

65. We accept that Officer Napier said that record-keeping was not a prominent feature in his decision-making; but this did not amount to a concession that record-keeping was not a part at all in his decision-making. That is not surprising. No such concession could reasonably be made when the RDCO scheme rests in large measure on the ability of HMRC to monitor its implementation and the activity of those authorised under it. It was reasonable for Officer Napier to have taken this account, both as a free-standing factor, and as a part of his overall approach. For the reasons already explained, we do give weight to the record-keeping element; and we do not consider it to have been inherently unreasonable to require that stock records be kept in a form which could later be produced to HMRC.

66. Moreover, and apart from Mr Farrell's bare assertion, there is no credible evidence that the trader - once shortcomings had been brought to its attention - has done anything at all to modify its trading activity or even to train its employees. That is surprising, to say the least, especially against the backdrop of an existing appeal to this Tribunal, and what the trader says are the potentially existential consequences if its appeal is dismissed. The trader is not doing enough to ensure that it can show that its sales are compliant. Sales to customers from the Republic of Ireland 67. Mr Farrell said in March 2024 that he had been selling red diesel from Annaghgad Road to farmers who 'would bring a few drums to top up their tanks'.

68. As to kerosene, the thrust of Mr Farrell's oral evidence was that he was doing what he realistically could - taking payment in sterling and not Euros; and asking purchasers who were driving vehicles with ROI plates what they were going to do with the kerosene. But he also stressed that he had to work with the fact, on the ground, that many of his customers were not really very receptive to being asked questions as to their identity or their business in buying kerosene in bulk and/or were not enthusiastic about giving information; and, if questioned, were apt to take their business elsewhere - probably to some retailer where they faced less questioning.

69. We assessed this evidence as truthful. But, even if local trading conditions in this part of the United Kingdom are as Mr Farrell described - and we think that