That's why the Federation of Wholesale Distributors is urging HMRC to use its powers to tackle the issue, says James Bielby
The government, we learnt last week, is considering giving HMRC extra powers to tackle alcohol fraud.
Keen readers of The Grocer will have observed over recent months that the FWD and others have been calling for action, not least AB InBev's Stuart MacFarlane who used his platform as The Grocer's guest editor to bolster the ongoing campaign, and this makes all the more noteworthy the government's public response to the issue.
However, those who have kept an eye on that coverage by The Grocer will know HMRC's recent actions do not set an auspicious precedent. In fact, the prospects of HMRC doing anything are opaque. The powers it is considering are nothing new. And, as we have pointed out time and again, already it has adequate legal tools at its disposal.
There are two main types of alcohol fraud currently operating in the UK. Firstly, diversion fraud, which involves goods leaving the UK under suspension of duty and re-entering illicitly without the duty being paid. And secondly, drawback fraud, where goods are exported to the near Continent and are deposited in a tax warehouse. The duty is then reclaimed from the British government and paid at the lower rate in the member state, but the goods are illicitly returned to the UK.
The estimated cost to the Exchequer of duty fraud on beer is £700m a year. What is the figure for wine? Gobsmackingly, HMRC does not know and its response is to establish the extent of the problem first no small task. In the meantime, FWD members, and suppliers, are continuing to see duty avoidance on an eyewatering scale.
At least the economic basis for action has now been publicly acknowledged: all tax must be passed down the supply chain so it is paid by the consumer. It follows that HMRC must seize suspiciously priced goods and disrupt the fraud. The effort and resources needed to do this is easily proportionate to the benefits.
HMRC should also require notification of all movements of at-risk alcoholic goods from or within the UK, and track them.
According to HMRC, there is a massive oversupply of beer under duty suspense to the near-Continent. That supply can only be made directly from brewers to bonded warehouses in the EU or from third-party owners of the goods who supply the beer into bond. HMRC should keep tabs on all this activity.
In fact, it set up a register of owners of goods in warehouses in 1999. This register holds information that should be used.
We have also urged HMRC to impose very robust controls and prohibition of some product for export, in order to limit drawback fraud. Any "high-risk" goods should be prevented from being exported at all under the drawback system, unless there is a known and genuine destination in the EU on the grounds there is no real commercial activity for the drawback exports. Who in the south of France would drink US branded wines in vast quantities?
HMRC's ambiguity on duty fraud is impeding FWD members' ability to compete and we will continue to push it to act. Sadly, on current form, I fear it could be a long wait.
At least it is now publicly acknowledging the extent of the problem. It needs to consider how to act. On that, the FWD can help.
James Bielby is chief executive of the FWD.
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