HMRC threatened with legal action over Israeli settlement trade

A non-profit legal group has threatened to sue HM Revenue and Customs (HMRC) for allegedly allowing Israeli settlement trade to enter the UK tariff-free.

Agricultural goods from Israeli settlements, in areas like the West Bank, have entered the UK in violation of trade rules, according to a letter sent by law firm Leigh Day, representing the Global Echo Litigation Center.

Some products entering the UK were labelled Israeli but in fact came from occupied Palestinian territory, according to the July correspondence, seen exclusively by Sky News.

Settlement imports are supposed to be subject to tariffs, while Israeli products get preferential tax treatment and mostly enter the UK levy-free.

There had been a "failure" by HMRC to determine the true origin of UK imports, the letter read, citing Global Echo's four-year investigation, which suggests "current processes adopted by HMRC to verify the origin of Israeli products are flawed".

This has meant settlement products "unlawfully benefitted" from preferential tax treatment, the letter continued.

It outlined five companies, identified from 357 invoice declarations, which the non-profit said regularly source agricultural products from settlements but declare the origin as Israel.

This is done either by mixing settlement agriculture with Israeli products, by using a settlement postcode but saying the country is Israel, or using a "sham" proxy address within Israel, Global Echo said.

The letter also gives an example of what it says is a company listing its corporate headquarters as the origin of the goods, rather than a particular agricultural location, as required by trade rules.

Specific months when a producer's items were shipped to and arrived in the UK last year are given in the letter.

Aside from the five companies listed, Global Echo said it obtained documentary evidence suggesting a "widespread, systemic issue of origin obfuscation occurring across Europe and specific instances of misleading statements of origin occurring in the UK".

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A June report from the organisation said one in six shipments it investigated contained agricultural products originating in settlements in occupied Palestine and the Syrian Golan Heights, at least 42% of which had been mislabelled as Israeli-grown.

What's it asking for?

As a result of the details outlined in the letter, Global Echo has called on HMRC to view imports said to come from Israel as high risk, which would require HMRC to "take reasonable steps" to ensure compliance.

It asks HMRC to put in place arrangements to closely scrutinise future claims from exporters of entitlement to preferential treatment based on items originating in Israel and review verification processes to ensure risk and intelligence-based enforcement for all Israeli agricultural imports.

What does HMRC say?

But the tax agency's response said the Global Echo's letter is not a formal written notice before starting court proceedings, according to an HMRC reply also obtained by Sky News.

It also said no specific HMRC decision was identified which would be subject to a legal challenge by Global Echo, and providing the kind of information sought by the non-profit would involve, to the extent it existed, the disclosure of confidential taxpayer information.

An HMRC spokesperson said: "We do not comment on potential litigation nor on the tax or customs affairs of individual customers."

What are settlements?

Israeli settlements have long been opposed by the UK government, which believes them to be a breach of international law and a threat to a two-state solution between Israel and Palestine.

Settlements have rapidly expanded in recent years, with more planned by the Israeli government.

Israel officially recognises and administers some settlements.

Palestinians face increasing attacks and, in the past weeks, have had homes besieged.

It's in this context that the government is expected this month to announce a ban on imports from and exports to the outposts.

(c) Sky News 2026: HMRC threatened with legal action over Israeli settlement trade