Section 54: Wholesaling of Controlled Liquor
Summary
1.This section inserts Part 6A into the Alcoholic Liquor Duties Act (ALDA) 1979 to introduce new legislation requiring wholesalers of alcohol, sold at or after the duty point, to be registered to trade by HM Revenue & Customs (HMRC). The requirement for a person obliged to apply to be registered as an alcohol wholesaler comes into effect from 1 January 2016. The window for applications will run from 1 October to 31 December 2015.
Details of the Section
Definitions
2.This section contains various definitions of terms which are used in Part 6A such as “controlled liquor”, “wholesale”, “excluded sales” etc.
3.Subsections (2) and (3) define when a sale is a sale of “controlled liquor” and when it is sold “wholesale”. The sale of the alcohol must be to a buyer carrying on a trade or business for sale in the course of that business. Controlled liquor is not sold wholesale if it is an incidental sale, a group sale or an excluded sale.
4.Subsections (4) and (5) define an incidental sale as a wholesale sale made by an authorised retailer that is incidental to its retail sales. An authorised retail sale is one that is made in accordance with the requirements under a retailer’s alcohol licence or similar authorisation.
5.Subsection (6) defines “group sales” as sales that take place between a seller and a buyer who are both corporate bodies themselves and are members of the same group.
6.Subsection (7) allows for HMRC to prescribe by or under regulations for certain sales to be “excluded sales”.
7.Subsection (8) defines “controlled activity” as selling, offering or exposing for sale or arranging to sell alcohol wholesale.
8.Subsection (9) defines a “UK person” as someone who for the purposes of VAT is UK based, i.e. has a business establishment or some other fixed establishment in the UK.
Further provision relating to definitions
9.Subsection (1) allows for HMRC to make regulations to define further how the sales covered by the scheme are treated for the purposes of Part 6A. Subsection (2) allows for provision to further define how HMRC treat cases involving offering or exposing controlled liquor for sale, or arranging for its, sale wholesale.
Approval to carry on controlled activity
10.This section sets out the conditions for being granted approval as a registered wholesaler. A trader cannot trade in wholesale alcohol unless they have been approved by HMRC. Applicants will be required to pass a fit and proper test before they can be approved. (The test criteria will be set out in the public notice). If appropriate, conditions or restrictions may be attached to an approval. HMRC will have the power to vary the conditions of approval and if appropriate revoke an approval.
The register of approved persons
11.This section states HMRC must maintain a register of approved persons and may make certain information from it available to the public via the internet on an online look-up facility (or other appropriate method) to enable persons making duty paid alcohol purchases to check the approval status of the seller.
Regulations relating to approval, registration and controlled activities
12.This section allows HMRC to make regulations regarding the approval and registration of wholesalers. It also allows HMRC to make specific regulatory provisions in certain circumstances.
13.Subsection (1) allows for regulations covering the registration application process, how variations to approvals are handled and the obligations of registered wholesalers. It also allows for any regulations required for administration of the online register.
14.Subsection (2)(b) allows for regulations covering group approvals. Group members will be jointly and severally liable for any penalties levied on the group or its individual members.
15.Subsection (2)(c) allows for regulations requiring both wholesalers and retailers to keep and make available on request appropriate records, for example, sales invoices and details of due diligence checks to ascertain a wholesaler’s registration status.
16.Subsection (2)(d) and (e) allows for regulations to impose and recover a penalty of up to £1,000 for any contravention of the regulations or conditions of approval.
17.Subsection (2)(f) allows for regulations to provide for alcohol that has been purchased in contravention of the scheme to be forfeited.
Restriction on buying controlled liquor wholesale
18.This section states that a person may not purchase alcohol from a UK wholesaler who is required to be approved unless that person has in fact been approved under the scheme.
Offences
19.This section provides for specific offences for contravention of the scheme.
20.Subsections (1) to (3) state that anyone who knowingly sells, offers or exposes for sale or arranges to sell alcohol on a wholesale basis as defined by the scheme, without being approved by HMRC, will be committing an offence.
21.Subsection (4) states that it is an offence for someone to purchase alcohol on a wholesale basis from an unapproved wholesaler where they knew or had reasonable grounds to suspect that the seller was not approved.
22.Subsection (5) sets out the sanctions that can be imposed for offences under this section on summary conviction in England and Wales, Scotland and Northern Ireland.
23.Subsection (6) sets out the sanctions that can be imposed for offences under this section on conviction on indictment.
24.Subsection (7) sets out a transitional provision until such time as section 154(1) of the Criminal Justice Act 2003 commences.
Penalties
25.Provisions covering penalties that may be levied for contraventions of the scheme are covered in new Schedule 2B to ALDA 1979.
Regulations
26.This section provides more detail on what can be done by regulations under Part 6A
Groups
27.This section provides further definition of the meaning of group sale by setting out the control requirements for group membership.
28.Subsection (1) sets out the requirements for two or more bodies corporate to form a group.
29.Subsection (2) elaborates upon when one body corporate controls another.
30.Subsection (3) states (a) when individuals will be considered to control another body corporate and (b) when a body corporate is to be regarded as having an establishment in the UK for the purposes of being entitled to be a member of a group. The test is whether the company is established or has an establishment in the UK for VAT purposes.
Schedule 2B – Penalties for contraventions of Part 6A
31.Schedule 2B sets out the penalties that can be levied for contraventions of the scheme.
Liability to a penalty
32.Paragraph 1 states that penalties are payable for contraventions of the scheme (selling without authorisation and buying from an unapproved wholesaler).
Amount of penalty
33.Paragraph 2 subparagraphs 1 to 3 set out the levels of penalty that can be charged, depending on whether the offence is considered deliberate and concealed, deliberate but not concealed or otherwise. Subparagraph 4 defines “deliberate and concealed” and “deliberate but not concealed”.
Reductions for disclosure
34.Paragraph 3 subparagraph 1 provides for reductions in penalties for disclosure.
35.Paragraph 3 subparagraph 2 describes how a person may disclose a contravention by advising HMRC, assisting in highlighting any additional contraventions and providing all records requested.
36.Paragraph 3 subparagraph 3 describes how a disclosure will be considered “unprompted” if it is notified to HMRC prior to them identifying a contravention. All other cases will be considered “prompted”.
37.Paragraph 4 provides that following disclosure the Commissioners must reduce the penalty to reflect the quality of the disclosure. It also sets out the minimum levels of the penalties. The amount that the penalty can be reduced by depends upon the quality of the disclosure and whether it is prompted or unprompted.
Special reduction
38.Paragraph 5 states that under special circumstances, not including the ability to pay, HMRC may reduce a penalty.
Assessment
39.Paragraph 6 sets out how penalties will be assessed. HMRC will notify the person by way of a penalty notice, setting out the reason for the penalty. Penalties raised will be due 30 days after the date of issue of the penalty notice. Two or more contraventions may be assessed as one contravention for the purposes of raising a penalty. A penalty must be raised within 12 months of HMRC discovering the contravention.
Reasonable excuse
40.Paragraph 7 states that a penalty will not be levied for non-deliberate contraventions if a person is able to demonstrate that they have a valid excuse. However, it will not be considered a valid excuse that a person entrusted someone else to fulfil their responsibilities, for example an agent or accountant, unless the person is able to demonstrate that they took appropriate steps to prevent any contravention.
Companies: officer’s liability
41.Paragraph 8 subparagraph 1 describes how penalties or a proportion of a penalty that is levied on a company, can also be levied against an officer of that company, if the officer was responsible or partly responsible for a contravention.
42.Paragraph 8 subparagraphs 3 to 5 sets out the definition of an “officer” for a body corporate, limited liability partnership and all other cases.
Double jeopardy
43.Paragraph 9 states a penalty will not be levied for a contravention where a person has already been convicted of an offence for the same contravention.
The maximum amount
44.Paragraph 10 gives powers to change by regulations the maximum amount of a penalty under paragraph 2(1) (Amount of penalty) where HM Treasury consider that there has been a change in the value of money. Penalties at the revised amount cannot be levied for a contravention that occurred prior to the date that the new amount comes into force.
Appeal tribunal
45.Subsection (6) inserts a new paragraph (ea) to the meaning of “relevant decision” as provided for in section 13A(2) of Finance Act 1994 so that a decision to issue a penalty is subject to review and appeal.
46.Subsection (7) provides that any decision as to approval or the conditions under which a person is approved is a decision falling within Schedule 5 to Finance Act 1994 for the purposes of review and appeal.
47.Subsection (8) provides for the amendments to ALDA 1979 to come into force on and after the date of Royal Assent to Finance Act 2015. Subsection 9 states that the requirement for a person obliged to apply to be registered as an alcohol wholesaler comes into effect from 1 January 2016. The window for applications will run from 1 October to 31 December 2015. Subsection (11) states that applications will not be accepted prior to 1 October 2015.
48.Subsection (10) states that the requirement for persons to have to check the approval status of persons from whom they purchase wholesale alcohol will come into effect on a date to be stated in the regulations.
49.Subsection (12) states that a wholesaler’s obligations under the scheme do not come into effect until such time as their application has been considered and determined.
Background Note
50.Alcohol duty fraud in the UK costs taxpayers an estimated £1.3bn per annum. The most prevalent form of alcohol fraud involves the smuggling or diversion of alcoholic drinks into the UK in large commercial quantities, duty unpaid.
51.The wholesale sector is the major point where illicit alcohol is diverted into retail supply chains to intermingle with legitimate goods because it is the only element of the alcohol supply chain not required to be authorised by HMRC or the licensing authorities. Introducing a requirement for wholesalers to register with HMRC will reduce opportunities for fraud.
52.Following a 2012 formal consultation on alcohol anti-fraud measures the government announced that it would consult further on the introduction of a registration scheme for alcohol wholesalers and launched a further consultation in 2013. The government announced at Autumn Statement 2013 that it would proceed with plans to introduce the alcohol wholesaler scheme from April 2017, and draft legislation was published at Autumn Statement 2014.
53.Since consultation the legislation has been revised to clarify procedures for new criminal offences for trading without approval and buying from an unapproved wholesaler.
