HMRC estimate that the illicit alcohol market costs the taxpayer an estimated £1.3bn each year.  The most prevalent form of alcohol fraud involves the smuggling or diversion of alcoholic drinks into the UK in large commercial quantities, duty unpaid.  HMRC identified the wholesale sector as major point where illicit alcohol is diverted into retail supply chains, often intermingled with legitimate alcohol.

In early 2015 HMRC published proposals regarding the Alcohol Wholesaler Registration Scheme (‘AWRS’).  The provision was set out in the Finance Bill 2015 and a new section was added to the Alcoholic Liquor Duties Act 1979.

From 1 April 2017, trade buyers who buy alcohol from UK wholesalers need to make sure that these wholesalers are approved by HMRC.  The scheme involves the introduction of a central register for both new and existing businesses

Businesses, in order to be approved by HMRC under AWRS, must satisfy HMRC that:

  • They fulfil certain ‘fit & proper’ criteria. It must be noted that the ‘Fit & Proper criteria apples to 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.

AWRS complements the regulatory systems under place which limit trade in duty suspended point under the Warehousekeepers and Owners of Warehoused Goods Regulations 1999 which is more commonly known as ‘WOWGR’.

As of 31 March 2017, HMRC received 7,431 AWRS applications in total, of which 7,280 had been processes.  Of the processed applications 5,998 had been approved (outright or with conditions); 534 were refused and 748 were withdrawn by the applicants.  Of the 534 refusals, 422 were to existing traders.

There are a number of options open to a business whose AWRS application has been refused:

  1. Seek an internal HMRC review. An applicant has 30 days to seek a review. HMRC have 45 days to complete their review:
  2. Submit an appeal direct to the First Tier Tax Tribunal following an unsuccessful review;
  3. Submit an appeal direct to the First Tier Tax Tribunal without seeking a HMRC internal review.

It must be remembered that the First Tier Tax Tribunal (‘FTT’) only has the power to interfere with a decision where they are satisfied that HMRC could not reasonably have arrived at.  The burden of satisfying the FTT lies with Appellant.  HMRC’s decision must take into account all relevant matters, must not take into account irrelevant matters, must be taken with an open mind; must not be one that no reasonable person could have arrived at and must comply with the European Convention of Human Rights.

In the event the FTT find that HMRC could not reasonably have arrived at their decision, then the FTT powers are simply to direct that the decision is to cease to have effect with the result that the Appellant’s registration is reinstated or to require HMRC to conduct a further review of the decision in accordance with the directions they make.  The FTT do not have the power to remake the decision, or substitute a decision of its own.

It is not surprising to understand that some existing businesses faced with immediate closure following HMRC’s AWRS refusals have sought alternative legal remedies to challenge either HMRC’s decision to refuse AWRS or to challenge the HMRC ‘minded to’ letters to refuse AWRS registration, the latter which is used by HMRC as a precursor or ‘warning’ letter for businesses that their AWRS application is unlikely to be approved.

The effect of any HMRC decision to refuse a person as not ‘Fit & Proper’ is very draconian since the failure can then be applied to other associated businesses with common directorships and to other HMRC excise approvals such as WOWGR or bonded warehouse approval.

We believe that a number of businesses, at least 15, faced with the closure of their business have sought Judicial Reviews in the Administrative Courts.  Many, if not all of those companies, seeking Judicial Reviews have obtained privacy orders from the Courts to prevent their business names being disclosed since this could have catastrophic consequences to their businesses.

The effect of the Judicial Reviews made by businesses is that HMRC have allowed companies temporary AWRS approval while the Court cases are heard. Further information about the success of these appeals should come to light in 2018 once the appeal decisions are released.