11/09/18 To be or not to be [HMRC Fitted] that is the question

Tuesday, September 11th, 2018

The HMRC Fitted Checks introduced by HMRC with effect from 1 November 2014 stated that it will be a condition of trading that businesses who trade in alcohol undertake reasonable appropriate checks on their customers, suppliers and supply chains and have robust procedures to reduce risks of trading in illicit goods.

Businesses, in order to be approved by HMRC who trade in either duty suspended and/or duty paid alcohol, must satisfy HMRC that:

  • They fulfill certain ‘fit & proper’ criteria. It must be noted that the ‘Fit & Proper criteria apply to the individual; owners, directors or shareholders of businesses;
  • They comply with new record-keeping obligations;
  • They operate appropriate due diligence to avoid being inadvertently involved in an illicit alcohol market and fraudulent supply chains;
  • They will only purchase alcohol from other registered wholesalers through checks conducted upon HMRC’s online register of approved wholesalers.

M&R Tax recently assisted a client who became a victim of the HMRC Fitted criteria. The client’s main business activity was a manufacturer of lubricants for heavy industrial equipment.  The client used the services of a logistics company to import duty suspended hydrocarbon oils.

The logistics company also acted for a number of alcohol traders and stored their duty suspended alcohol.  Following a HMRC excise visit the logistics company advised all of their customers including our client that they could not store duty suspended goods since those companies had not undertaken the necessary ‘Fitted Checks; in accordance with the HMRC legislation.  HMRC had expressed their concern with regard to the logistics company not objectively reviewing their supply chains.

M&R Tax was engaged by the manufacturer of lubricants and advised their client that they would not be able to enter into communication direct with HMRC due to HMRC’s refusal to communicate with third parties.  M&R Tax, therefore, undertook due diligence checks on both the suppliers and the customers of their client.  This information was submitted to the logistics company who were asked if they could forward the information to HMRC.  M&R Tax also made it quite clear to HMRC via the logistics company that the HMRC ‘Fitted Checks’ and due diligence requirements were only applicable to alcohol traders and not hydrocarbon oil manufacturers.

HMRC withdrew their objection to the company being allowed to import duty suspended lubricants once this information was submitted to them.  The logistics company swiftly re-instated our client as a company being allowed to operate duty suspended goods without the need to meet the HMRC Fitted Checks requirement.

It is therefore important to note that the HMRC Fitted Checks do not apply all excise traders both only those operating within the alcohol industry.