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SIBA Quarterly Journal March 2014

Alcohol Wholesalers to Police Illicit Trade in Government Crackdown

As part of the raft of new legislation designed to take effect from 2016, the UK Government is to turn the spotlight on wholesalers of alcohol in an attempt to reduce the illicit trade in alcohol products.

Corporate and commercial partner James Allison of Napthens solicitors advises numerous clients in the industry, including SIBA members.  For this article he has invited Tim Hayes, a regulatory barrister to discuss the impact of the forthcoming legislation.

Tim works closely with the Napthens’ team to advise businesses on a range of regulatory issues.  As a specialist in his field, he acts for a number of alcohol retailers including Aldi and The Co-op.  He writes:

According to the HMRC in 2012/2013 an estimated £1.2 billion was lost to the Revenue as a result of the illicit trade of alcohol, despite them seizing 12.7 million litres of products.

As part of the Finance Bill 2015, new measures will be introduced including a registration scheme for wholesalers.  Although it is not envisaged that an obligation to register would take place until 2016 and the full compliance requirements of the scheme take effect until 2017, it appears that the Government is keen to start their clamp down as soon as possible, as they are seeking to introduce measures this year that require alcohol traders ‘to take reasonable steps’ to ensure their suppliers AND customers are legitimate.

Reasonable steps

The spotlight will be turned on to wholesalers of alcohol who will be expected to conduct detailed due diligence should the proposals become law.

In their attempt to make it harder for organised crime to operate, HMRC propose imposing a registration scheme (open to public access) to make it more difficult for fraudulent wholesalers to gain a financial guarantee and to introduce a ‘fit and proper person’ test for wholesalers and their supply chain.

However, by far the most stringent proposals are those which focus on the due diligence required by wholesalers and retailers (including retail to retail, hotels, theatres, pubs, clubs, restaurants etc.) This would create a vast increase in paperwork as wholesalers would be expected to ask and demonstrate that:

·         they had confirmed their supply chain had paid duty

·         their supplies of alcohol made commercial sense

·         there was a legitimate market for the goods they are supplying

·         they had verified the VAT details of their supply chain

·         they had copies of letters of introduction and had personally met a senior  representative of their supplier

If these measures appear stringent and akin to the anti-money laundering due diligence expected of law firms and banks, you may be closer than you think; in part of their consultation document HMRC also suggested that wholesalers check their suppliers out on Google Earth, Companies House or with BT.

As matters stand the scheme is yet to be finalised. However, the consultation period has ended, so until a further opportunity to express your views presents itself I’m afraid you will just have to sit tight and have a stiff drink…..

Napthens will of course, keep SIBA members updated on the implications of the legislation and what it will mean on a practical level for businesses, as things progress.

It is worth noting that this legislation is the out-turn of the Duty Fraud Inquiry to which SIBA made significant contribution. Whilst onerous, the new regulation will support legitimate traders in their ability to trade, reduce instances of brewers avoiding paying duty and has removed the threat of duty stamps for beer – for now!