20 May 2020
Use of duty stamps for bottle and container refills of duty-paid spirits
There is industry scepticism about the need for, or effectiveness of, UK spirits duty stamps. Alan Powell is aware that many in HMCE/HMRC have felt the same way, including the very branch charged with delivering the scheme. In the light of this and of submissions from industry, the scheme must be reviewed to determine whether it is fit for purpose, or is required at all.
Because there is confusion and lack of clarity, Alan has written to HMRC Policy requesting precise explanation of the legal requirements for the re-filling of retail containers, a practice that is growing due to environmental imperative, and which is allowed in law subject to certain conditions and restrictions. Unsurprisingly the law is unclear, hence the aforementioned request to HMRC.
When used containers can be re-filled and stamped
Regulation 38 of the Duty Stamps Regulations 2006 (DSR) states:
38.—(1) Subject to paragraphs (2) and (3), stamped retail containers must not be refilled with alcoholic liquor.
(2) A person who bottles alcoholic liquor on which excise duty has been paid may refill a stamped retail container supplied by the person to whose order the alcoholic liquor is being supplied provided that—
(a) excise duty has been paid on the alcoholic liquor with which the container is refilled,
(b) he affixes a new type A stamp to the container and complies with regulation 23 when he does so.
(3) A private individual may refill a stamped retail container with alcoholic liquor—
(a) from another stamped retail container, or
(b )from a retail container that is not required to be stamped.
Sub paragraph (2) is most relevant to revenue traders (not being private individuals). This states that a “person who bottles” duty paid alcoholic liquor may refill a (previously) stamped container provided the duty has been paid on the alcohol and a type A stamp is affixed in accordance with regulation 23 (normal rules for affixing such stamps).
As a preliminary observation, the regulation refers to a person who “bottles” duty-paid alcohol, then refers to “containers”. There appears to be no definition of a bottle or bottler within the relevant law, just “containers”, which can be any container (including pouches, it must be presumed). This appears to be slipshod and inattentive drafting of the law.
The law does clearly state that the container which had previously been used and stamped, can be re-used (i.e. re-filled with duty-paid spirits) provided that this in compliance with regulation 23.
There appears to be no requirement in law to remove or obliterate the “previous” duty stamp.
It would be logical, therefore, to “overstamp” the previous stamp, which might conflict with the Alcoholic Liquor Duties Act 1979 (ALDA) section 9, which includes penalties for, inter alia, “over-labelling”. The most relevant provision would seem to be ALDA s9(5) ie where any label or item is affixed in such a way as to cover up all or part of a stamp affixed to, or incorporated in a label affixed to a container except where the label or item is so affixed in accordance with the regulations (DSR).
The situation would seem to be that an authorized person may re-fill previously used and stamped bottles/containers provided that new Type A stamp is affixed in compliance with DSR regulation 23, i.e. the duty stamp can be affixed anywhere except the base, the stopper or any label affixed to the container. There is no reference to not over-stamping a previous stamp, so presumably this is permitted (over-stamping, including, pragmatically, over-stamping a “label stamp” ((type B)) and without any non-compliance with s9(5) of ALDA). However, multiple duty stamps affixed to the same bottle would appear peculiar and suspicious.
Therefore, the best course of action would be to eliminate entirely the misconceived and unnecessary duty stamps scheme.
24 March 2020
HMRC agrees temporary simplified relief of excise duty for alcohol in the production of hand sanitizer re Covid 19
As proposed urgently by the BDA, for the duration of the Covid 19 emergency, HMRC has now agreed to interpret UK excise warehousing law as permitting spirits to be relieved of duty simply by mixing a hand sanitizer to WHO formulations. This is effective for the duration of the Covid 19 emergency. HMRC’s policy statement, issued 23 March 2020 states
Distillers/rectifiers/compounders that operate in an excise warehouse with duty unpaid ethanol can produce hand sanitiser using the WHO formulation and this will be classed as denaturing in warehouse under the excise warehousing legislation. This is outside the denatured alcohol regime and the DFS regime. There is no need for the distiller/rectifier/compounder to be additionally authorised. The usual process in warehouse is to give 2 days notice and for HMRC to authorise the denaturing method. These requirements are relaxed as long as the WHO formulation is used. All companies will need to do is keep a record for audit purposes.
The measure is exactly that submitted to HMRC on 16 March 2020 by Alan Powell, founder and co-ordinator of the BDA . No law was required to be changed, just reasonable exercise of statutory discretion by HMRC to policy and procedures of Notice 197.
Where duty has been paid in such manufacture, the BDA would expect a retrospective drawback to apply to neutralize the tax as if the goods have been voided of duty by the “denaturing” in warehouse.
21 March 2020
Distillers - Risk of excise duty penalties for production of non-standard hand sanitizer using “bonded” alcohol e.g. WHO formulation
Alan Powell of the BDA hopes HMRC will formally assent to the ad hoc manufacture of denatured alcohol in non-standard grades for production of hand sanitizers without a charge of excise duty. Strict application of the law on such ad hoc production could lead to an assessment to the excise duty, plus a penalty of 100% of that duty and the 100% penalty applicable to anybody holding hand sanitizer that had not been formally duty-remitted, subject to certain defences. Distillers who have simply been making ad hoc hand sanitizer would be first in line for an assessment. The legal structure is summarized below.
UK law applies an excise duty charge to spirits (section 5 of the Alcoholic Liquor Duties Act 1979) of £28.74 per litre of pure alcohol. However, when the spirits are used for non-drinking purposes, there are a number of duty reliefs and schemes enacted to remit the duty. In the case of making hand sanitizer, the excise duty can be remitted in full when a person (business) is firstly authorized by HMRC to formally denature the alcohol, ie, that person can receive the spirits without payment of duty from a “bond” and add prescribed materials to (a) chemically mark; and (b) denature the spirits (ie to render the spirits unsuitable as a beverage). At this stage, the duty is remitted and the denatured alcohol can be supplied to another person authorized by HMRC to receive and use it in manufacture. The entire process needs to be formally considered and authorized by HMRC. If this procedure is not followed, a duty point for the spirits will be created by the first “breach” of the regulatory process, which would mean the distiller would be liable to the excise duty. HMRC has committed to fast-track applications to formally denature and distribute denatured alcohol but the process is unwieldy and not appropriate for smaller scale urgent production and supply.
Alan has lobbied HMRC Policy to allow distillers to simply permit the spirits to be relieved of duty by another route in law. Under the Excise Warehousing (Etc) Regulations 1988 (to which “distillers/rectifiers in warehouse” are subject), the spirits may be denatured to any standard as a means of disposing of unwanted spirits and the duty charge expunged. We believe in these exceptional circumstances, distillers could make a hand sanitizer “directly” from spirits in their warehouse and such that manufacture comprises a form of “denaturing” so that the duty charge can be voided. The denatured alcohol could then supply the product without any duty burden or further bureaucracy. HMRC has said this will be considered as an option for warehousekeepers but the situation is urgent and we are still awaiting a reply.
If HMRC does not agree to this procedure, which we believe is provided for under their express discretionary legal powers, they will be faced with a situation whereby they will have to decide whether to assess distillers for the duty on “non-standard” production of denatured alcohol and apply what are called “wrong doing penalties” per schedule 41 to the Finance Act 2008.
The BDA is aware that a good many distillers have already produced non-standard grades of denatured alcohol/hand sanitizer to the WHO formula, so the horse has already bolted and HMRC may as well face it and simply allow such production under those procedures and without any sanctions being applied. Moreover, and given the “loosening up” of other tax matters by the Chancellor, it would be perverse of HMRC not to apply full discretion to permit the production and distribution of non-standard hand sanitizers in this extreme situation.
Nevertheless, distillers need to be aware of the law and risks of producing ad hoc hand sanitizers. Alan Powell is preparing defences to assessments and penalties in readiness. He hopes this will not be necessary and further hopes to hear from HMRC Policy early next week.
If you have any questions or uncertainty, please contact the British Distillers Alliance https://www.britishdistillersalliance.com/contact
17 March 2020
Use of alcohol for hand sanitizer re Covid 19
Following enquiries from industry and the press, The BDA wrote to HMRC 16 March 2020 about the liability of excise duty on spirits used (diverted) to the ad hoc manufacture of hand sanitizer. The BDA suggested that such use could be treated as qualifying for duty relief within the existing statutory framework (albeit with maximum discretionary flexibility). HMRC is working on a policy and will respond shortly (possibly by Wednesday 18 March 2020).
18 August 2019
British Distillers Alliance adds weight to campaign for UK spirits duty freeze
The British Distillers Alliance (BDA) supports the campaign of the newly-formed UK Spirits Alliance to lobby for a freeze in the UK rate of spirits duty as a priority, with a strategic objective of reform of the alcohol duty structure for fairer tax treatment of spirits.
The UK Spirits Alliance has been launched in response to the boom in the UK’s iconic national drinks – including whisky and gin – with new craft distilleries opening in every part of the UK, innovative new products responding to changing consumer demands, and a wider spirits ecosystem that supports premium mixers and the pubs, bars and restaurants at the heart of communities across the country.
The BDA has 150 full members producing artisanal spirits of all types with an associate membership of over 50 businesses that support this dynamic and innovative sector.
17 May 2019
NEW DEFRA SPIRITS REGULATION
DEFRA has today (17/5/19) circulated the new spirits drinks regulation 2019/787 which will repeal 110/2008 on 25 May 2021. This follows representations from the British Distillers Alliance to DEFRA last May. There are some important changes, especially for “craft producers".
Distillation – there is a technical definition of distillation which includes vacuum distillation and methods used by British Distillers Alliance members (Article 4(6)).
Beer spirits - a new category of spirits made from beer
Gin - (no real change but, well, it should be a juniper-flavoured drink ...)
London Gin – the reference to re-distillation using “traditional stills” has been removed
This is a quick alert – please read the regulation
21 APRIL 2019
HMRC losing or misplacing applications for formal approval
The British Distillers Alliance has learned that all, or significant portions, of new distillery and excise warehouse applications are being 'lost' or misplaced by HMRC.
Alan Powell, founder and co-ordinator of the BDA says “Over the past weeks we have received a growing number of reports from members and other businesses that HMRC has been losing application forms between receipt and processing. Several weeks after submitting applications, businesses have been informed they must re-submit all or part of their documentation. In addition, the BDA has learned of HMRC failing to respond to applications within the service level agreement (45 working days).
Powell adds “in another twist, when seeking warehouse approval, HMRC requires site plans to be submitted in triplicate with boundaries for the premises to be “bonded” clearly marked. This is usually done by marking the boundary in red ink. HMRC seems not to be using all these copies and instead is scanning the documents in monochrome and not marking the boundary, so the boundary line on the plan is indistinguishable when the scanned copies are used by visiting officers.”
The BDA has reported these problems to HMRC as a matter for urgent attention.
Powell adds “There is likely to be immense pressure on officials due to Brexit, combined with the inundation of applications from new distillers or those seeking to expand or alter already-approved sites. Accordingly, in many cases we have given advice to members as to how to make such applications or obtain reports from HMRC on their progress”.
The BDA advises it is best practice to send hard copy applications by courier or guaranteed delivery, because HMRC never acknowledges applications.
27 JANUARY 2019
Spirits production and supply - VAT rules
This aspect of spirits production, supply and sales keeps arising in questions to the BDA, so we hope to clarify the VAT rules as simply as possible.
Distilling and warehousing spirits
If you are a distiller and produce spirits which will be entered into the warehousing regime, you have created a new product so there is no value for VAT to be declared on the W5 payment warrant if the spirits are released from warehouse for consumption (i.e. are duty paid). When you supply your goods, please see below.
Rectifiers/compounders in warehouse
For VAT, the supply VAT (i.e. on the neutral spirits you will receive) is suspended under warehousing/duty-suspension; the VAT is due on the last supply in warehouse. However, if you create a new product (change the character) of goods in warehouse, the VAT is extinguished and there is no VAT to account for on the W5 duty payment warrant. You enter nil as the value for VAT. This is explained in Notice 197 and Notice 702/10: https://www.gov.uk/guidance/vat-and-tax-warehousing-notice-70210
See paragraphs 2.3 and 2.4. This also relates to paragraph 6. List of processes that change the character of goods held in a tax warehouse, which includes rectifying and compounding.
Supplies to customers
When you sell (supply) product on a duty-paid basis, you charge the VAT on the total value of the goods in the invoice to your customer who in turn will deduct the VAT as input tax on their VAT return. If you supply goods under duty-suspension to a customer, you do not charge VAT.