Regulatory Compliance Disputes could Increase in the Alcohol Trade

Significant Regulatory Changes Affecting Alcohol Traders Could Increase Regulatory Compliance Disputes. 

At NDP one of our specialisms is the area of regulatory disputes, where we often defend clients who are in regulatory compliance disputes.

This article looks at the likelihood of an increase in such disputes as HMRC are about to dramatically change the scope of regulation of the alcohol trade with regulations taking effect from 01 April 2017, when Alcohol Traders will now have to be registered.

The reason for this change in regulations and associated compliance is that the Government has long been concerned about fraudulent tax losses within wholesale alcohol supply chains where it is thought that the amounts lost to inward diversion fraud could amount to £1.5bn annually.

The Problem – Non-Compliance with the Regulations is Fraud

The Exchequer loses up to £1.5bn annually to inward diversion fraud. This is essentially the release onto the UK domestic market of ‘duty unpaid’ alcohol products. This fraud is widespread and highly organised often involving multiple parts of the supply chain.

The difference between ‘duty paid’ and ‘duty unpaid’ products can be significant. The release of ‘duty unpaid’ alcohol products presents a significant price advantage to the fraudster and the illicit profits to be made are large.

This trade – essentially regulatory non-compliance – erodes tax revenues and puts law abiding traders at a huge disadvantage in the market place.

HMRC’s Efforts to Tackle the Regulatory Compliance Problem So Far

The most significant step taken to date by HMRC to improve regulatory compliance was the implementation of the Excise Movement and Control System (EMCS), an EU-wide computer system that’s used to record duty suspended movements of excise goods taking place within the EU.

EMCS captures and processes information about the movements on-line, validates the data entered and allows real time notification of the dispatch and receipt of duty suspended excise goods.

It allows the exchange of secure online messages containing specific consignment and movement information between EU trading partners.

Approval must be obtained from HMRC to receive or dispatch excise goods in duty suspension, in which you will need to use EMCS if the duty suspended goods are moving:

● between the UK and another EU member state (or vice versa)

● within the UK only, unless the goods are energy products or the movement is one that meets the criteria for simplified procedures to be used instead.

The New Law: Alcohol Wholesaler Registration Scheme

The new law is to be implemented by way of a change to the Alcoholic Liquor Duties Act 1979 (‘ALDA’). Section 6A of that Act is to be amended to usher in the new regime. Further, the Wholesaling of Controlled Liquor Regulations 2015 will come into force in April 2017.

These regulations contain the detail of the approval and registration requirements that are at the heart of the new regime.

The Scheme will regulate – and by definition require regulatory compliance in – the ‘wholesaling of controlled liquor’ and other ‘controlled activities’. In practical terms this means:

1. Selling ‘controlled liquor’ wholesale,

2. Offering or exposing controlled liquor for wholesale,

3. Arranging in the course of a trade or business for controlled liquor to be sold wholesale.

It is important to note that there are no de minimis limits. Therefore, all business to business vendors of ‘duty paid’ alcohol will have to be authorised and registered pursuant to the Scheme.

The new regime is not intended to capture sales from retailers to the public. The legislation also provides an ‘incidental sale’ defence for those retailers that have made a wholesale sale without the requisite knowledge or intention.

The Application process follows the ‘fit and proper’ test and can be made via the HMRC

Importantly, it is thought that up to 20,000 businesses will be affected through regulatory non-compliance to this change in the law with severe penalties for breaches.

New Criminal Offence – Trade Buyers. Penalties for Breach Could be Severe

When the Scheme comes into force in April 2017 it will be a criminal offence for a ‘Trade Buyer’ to purchase ‘duty paid’ alcohol from unapproved wholesalers. A ‘Trade Buyer’ is ‘someone who purchases alcohol from a wholesaler to either sell on to trade, or to sell to private individuals, ie a retailer’.

The penalties for this breach will be custodial sentences, fines, seizure of goods and potential removals of licence.

What to do and How We Can Help if You Are Involved in a Regulatory Compliance Dispute

If as many businesses are affected by this new scheme as is expected, then there is likely to be a considerable increase in associated regulatory compliance disputes. The most obvious point to make, therefore, is that enhanced due diligence and record keeping will be necessary. Traders must be absolutely sure who they are dealing with and what their status is.

In the event that an application for approval is rejected, or conditions are attached to any such approval or that penalties are applied, then Traders will have a right to appeal to the First Tier Tax Tribunal. It is essential in those circumstances that lawyers with significant experience of taxation disputes are instructed.

The regulatory dispute team at NDP is experienced in defending clients involved in regulatory compliance disputes, with Stephen Chinnery as our key adviser on tax disputes. If you are facing such problems, contact us or call us on 0121 200 7040, for a free initial no obligation chat.

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