Excise Matters – A Cautionary Tale

To many people the advent of the internet provides wonderful opportunities to research into possible business ventures. The attraction of needing a relatively small cash injection and to work from home can be very appealing. Most people know that the duty rates of alcohol are lower outside the UK and will have read tales of day trippers going to France and bringing back large quantities of alcohol for personal use such as for birthday parties.

Question ‘Well how does the alcohol, most of which are UK brands, get to France in the first place?’

Answer: From the UK.

Any business can commence trading in the sale of alcohol to France. All that is needed to do is to register for VAT and apply for a WOWGR certificate to HM Revenue and Customs (“HMRC”). The term WOWGR stands for Warehousekeepers and Owners of Warehoused Goods Regulations. A certificate obtained under these regulations allows a business to move goods with the payment of duty suspended from one bonded warehouse to another. Thus a business can move, for example, a quantity of beer from the UK to France. Payment of the duty is only due when the goods leave the bond. The average UK excise duty on a container load of beer in the UK is about £22,000.00 and in France about £2,500.00. Therefore if a UK business can find a supplier in the UK and a customer in France and is able to obtain reasonable purchase and selling prices for his products then his business can become quite profitable as, in this scenario, only the French excise duty is payable.

The UK business will in addition have to have in place either a movement guarantee, which for a minimum sum of £20,000.00 he can either obtain authorisation from HMRC, subject to their approval, or use a transport company or UK bond that have their own movement guarantees.

All well and good so far for the entrepreneur. Unfortunately there are risks involved which the average businessman may not realise. There is, due to the large savings in excise duty, criminals who are intent on making sure that the goods do not arrive in France and are diverted back into the UK. There are numerous ways and methods this may happen which are too lengthy to go into in this column.

HMRC resources in tackling excise diversion frauds are extremely stretched and while some fraudsters may be pursed criminally by them, HMRC for the majority of cases, use their civil powers to assess the business or businesses responsible for the movement of the goods. Once HMRC can establish that the designated vehicle has not arrived at the correct destination then HMRC say that the duty point has been created. Road haulage contractors will often sub-contract their work to other road hauliers many of whom may operate from outside the UK. It is not uncommon for hauliers to exchange trailers prior to leaving the UK. HMRC are able to check either with the ferries or the Euro tunnel, the vehicle registration numbers of the Lorries, leaving the UK. Failure for that designated lorry to appear on the manifest will be sufficient for HMRC to raise an assessment for unpaid excise duty against either the WOWGR trader or the haulier or the bond or indeed joint assessments.

HMRC may, if they believe that this happened on more than one occasion, raise assessments for both excise duty and VAT on all the movements undertaken by a business. The debt can very quickly rise to several million pounds. While there are inbuilt review and appeal procedures for these matters, HMRC will often seek to enforce the debt thereby circumventing the appeal process. This is usually obtained by the appointment of a provisional liquidator by the High Court to recover the lost tax. This can result in the recovery of the debt not only being restricted to the assets of the company but also the personal assets of individual directors.

It is important that intending businesses in this trade sector should be aware of the pitfalls. We, at M&R Tax Advisers, can assist businesses by putting systems in place that will reduce these risks. We can represent you in resolving issues which arise with HMRC and in taking forward reviews and Tribunal appeals where required.