The Chancellor’s annual Budget always contains a lot more detail than is apparent at first sight. This year even the best media commentators took a day or so to work out how Gordon Brown had conjured up a 2% tax rate cut that will cost the Exchequer practically nothing. But, buried even further down in the small print was some very welcome news for wholesalers. This was an announcement in the Budget Report that new measures are being put in place to stem one aspect of duty fraud in the UK alcohol market by tightening up the verification of claims for drawback of excise duty.

The Federation of Wholesale Distributors has long held the view that fraudulent use of the duty drawback system is a key element that is fuelling illicit alcohol sales – particularly beer – in our market. Until now the facility has provided a fast-track repayment of the UK duty on consignments of beer and other alcoholic products placed in bonded warehouses that are notionally destined for export. Much of this stock is then diverted back into the UK and sold at unrealistic prices that are underpinned by the money made from the fraud. Because this has had such a damaging effect on its members’ sales, FWD has been co-operating intensely with HM Revenue Customs over past months to tackle this particular element of duty fraud.

In June last year, HMRC issued a consultation document on possible changes to the excise duty drawback procedures. This was in the light of a marked increase in drawback claims and concerns that the existing procedures were vulnerable to systematic abuse. After subsequent, detailed work to check the eligibility of goods on which drawback had been claimed, HMRC established the existence of numerous “missing traders” in the supply chains for these goods. The term “missing traders” means companies that have disappeared without declaring their true tax liability, with HMRC unable to find any records or trace their directors.

As a result, a number of drawback claimants were unable to show to the satisfaction of HMRC that their goods were eligible, and thus these claims have been rejected. This in itself is good news for the legitimate trade. But the Budget announcement means that as of April 1 beefed up requirements have put into effect. These demand much more information from traders using the drawback system, and in particular they must provide the clearest possible evidence that the goods are UK duty paid. Hopefully, this will improve matters, but FWD is very much staying on the case.

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