The requirement to register will also apply to retailers who supply wine and other alcoholic drinks to trade customers such as hotels, pubs and restaurants, whether they see it as the core part of their business or not.
There will be no exception for retailers just because wholesaling is, say, only 5%, 10% or 20% of their business.
However, there will be an exemption, says HM Revenue & Customs, “for retailers whose wholesale sales are purely incidental to the sales made by virtue of their retail licence – that is, any wholesaling that is not part of the business model, and occasional in nature”.
It’s yet unclear what the full scope of “incidental” means but it will include instances where, say, someone buys six cases of wine, you think they’re an ordinary customer buying for a party, but it turns out they’re selling it in the café they’ve just opened down the road.
An HMRC spokesman told OLN: “The incidental sales exemption is designed to exclude from the requirement to register businesses holding a retail licence who, in the course of their day-to-day retail business, happen to make a wholesale sale – for example, a corner shop or supermarket who makes a sale to another business through the checkout or till where it would be unreasonable for them to know the intention of their customer.
“However, if a retailer knows they are going to sell alcohol to other businesses, advertises they will supply or offers for sale to other businesses, then they are caught by the scheme.”
HMRC says it will publish guidance on how the scheme will operate and the full requirements and process for application next month, though some retailer- wholesalers have begun to receive sign-up notices.
The introduction of the scheme represents a major lobbying success for the Federation of Wholesale Distributors, which sees it as a major weapon in the fight against alcohol duty fraud – which costs an estimated £1.3 billion in lost tax revenue a year. It certainly seems to carry most potential benefit for FWD members who are principally big names such as Booker, Blakemore, Musgrave, Palmer & Harvey and Today’s.
The government initially announced last autumn that it would be introducing the scheme but the decision was ratified as one of the less headline-grabbing sections of last month’s Budget announcement and the timetable for implementation has subsequently been fleshed out.
FWD chief executive James Bielby welcomed the news that the scheme was edging nearer as “a major step towards identifying rogue operators and removing them from the market”. He added: “We have worked hard to bring this issue to the government’s attention. This will make sure alcohol is distributed by law-abiding suppliers, wholesalers and retailers. The clock is ticking for alcohol duty cheats.”
The clock may be ticking for alcohol duty cheats, but it’s also winding down for legitimate traders who need to apply to join the scheme. Shops that aren’t required to join the scheme because they don’t supply wholesale customers also have to be ready for the start of the scheme in 2017 because the legislation puts obligations on them too.
Principally, they will have to ensure that anyone they buy alcohol from after April 1 of that year is registered with the scheme, which they’ll be expected to do by checking an online database of members. If they trade with someone who’s not on the database after that date, they’ll be implicated in an illegitimate supply chain and be liable to penalties.
The registration rules will not apply where retailers are sourcing directly from overseas, so supermarkets and independent wine merchants will still be able to ship wines direct from growers.
Where stock is being bought in the UK, there will be a requirement for shops to make ongoing regular checks after the scheme has started to ensure that all alcohol suppliers are on the register and deemed by HMRC to be fit and proper people to do business with.
After applications close, and before the scheme comes into operation, HMRC will inspect all wholesaler applicants to ensure they pass its “fit and proper” test. Checks include obvious ones such as having no previous involvement in illicit trading and more onerous criteria around “commercial viability and credibility”.
The FWD is advising its members to start reviewing their supply chains now to be certain they are sourcing only legitimate stocks of alcohol.
When it carries out its inspections, HMRC will be looking for evidence that wholesalers have carried out
assessments of the risks of alcohol duty fraud within the supply chain, good record keeping and that checks have been made on the financial health of companies they buy from and the provenance of inward goods.
Some retailers who don’t have any wholesale business see it as more red tape for little benefit. “I can see the thinking,” says Barry Howarth, co-owner of drinks retailer Lancaster Wine Co, “but I don’t see how it’s going to help much. There are probably better ways of doing it and it’s going to mean another load of paperwork.”
For both rogue wholesalers and retailers who deal with them the penalties will be a fine and/or imprisonment of up to 12 months if heard in a magistrates’ court (six months in Northern Ireland) or seven years if the case is serious enough to go to a jury trial.
The tariff will be reduced where the offending parties either did not act deliberately and/or made no attempt to conceal what they did.
With such stiff sanctions for non-compliance, it’s imperative that drinks traders are prepared for what’s to come, but awareness of the plan seems relatively low.
Latitude Wine & Liquor Merchants in Leeds will be obliged to register because of its large number of wholesale accounts in the city. Owner Chris Hill said he’d heard of plans to introduce a scheme but didn’t know that it would be necessary to apply this year.
“Obviously we’ll comply because we have to,” he said, “but it does seem to be an unnecessary level of control. Everything we buy comes through a bonded warehouse and there should be enough checks on whether duty has been paid already in the system.
“We’ve been here eight years and in that time we’ve only had one visit from a weights and measures inspector, so it seems there aren’t enough people on the ground to make the current checks. It seems to be box-ticking political action rather than anything we’re going to gain from.”
But John Mitchell, at Mitchells Wines in Sheffield, said he had received a holding letter from HMRC, advising him that he would receive another telling him when to act ahead of the autumn application process. “Wholesale is about a third of our business so we will have to register and only deal with registered companies,” said Mitchell. “I’ll be ready to act when the time comes.”
But he was sceptical about the impact it might have.
“I know of places where it’s possible to buy beer at £6 a case, which can only be because it’s dodgy – but they will probably find a way to get a registration one way or another,” he said.
Ted Sandbach, managing director of Oxford Wine, was more optimistic. “Hopefully it will outlaw people who are avoiding tax and stop fly-by-nights who come and go and do a lot of damage to the trade. Broadly, I’m behind it, but I’m not a fan of bureaucracy and I just hope it doesn’t turn out to be a bureaucratic nightmare.”