Whither WOWGR for spirits and beer?

At the meeting of the Joint Alcohol and Tobacco Consultative Group of 21 March 2022, HMRC announced a review of the Warehousekeepers and Owners of Warehoused Goods Regulations 1999 (WOWGR).  These regulations provide for the approval and registration of excise warehousekeepers, owners of goods held in excise warehouses, and duty representatives of owners of goods held in excise warehouses.

This review is welcome. The WOWGR regime is a veritable pain for the spirits and beer industry, and, in my opinion, being disproportionate, it is not lawful, as I have submitted constantly to HMRC Policy on behalf of clients and the British Distillers Alliance (BDA). 

HMRC’s review has wide-reaching implications and possibilities.

HMRC’s position

​HMRC recognises that WOWGR is inconsistent and causes problems, which may briefly be summarised as follows:

• Only spirits, beer and tobacco products are included in the scheme;
• Oils (fuel) ownership is excluded from the scheme, as is wine and made-wine (including flavoured ciders)
• Duty points (when the duty is due in law) are created for errors/breaches of WOWGR (which are in breach of retained EU law) and cause immense difficulty to resolve;
• Problems with identification of ownership of the goods (spirits in cask) for the third party warehousekeeper.

HMRC say the review will help it adopt an effective policy and ensure any future changes to WOWGR are approached clearly and consistently.

HMRC say that, going into the review, they hold no fixed or preferred view of change.

HMRC’s indicated options appear to be:

• Do nothing;
• Complete revocation of WOWGR registration of owners;
• Remove investment in product owned in warehouse (mainly spirits) as a “revenue trade”;
• Remove cask/bulk spirits from the ownership scheme;

HMRC's timeline is tight and had commenced by the time the review was announced, to be concluded by July.

Rationale for WOWGR and observations

The rationale for WOWGR is set out in the explanatory notes to the regulations, stating:

The provisions in respect of owners of goods held in excise warehouses (and their duty representatives) enable the Commissioners to identify those persons who hold duty suspended excise goods in warehousing facilities provided by third parties.  (Emphasis added).

The registration of owners was believed to be necessary to identify what HM Customs and Excise (as it then was) termed  “shadowy characters” carrying out spirits duty fraud from excise warehouses between 1994 -1998.  In fact, and as a matter of public record, the frauds were incited and orchestrated covertly by the National Investigation Service (NIS) of HMCE as honey pot entrapment scam enticement (the eponymous London City Bond fraud).  HMCE knew all the owners of goods and the transporters in order to arrest and prosecute them.  When HMCE stopped the operation abruptly in 1998, all the fraud ceased immediately.  There literally was no spirits fraud as can be seen from the official revenue data.  The fraud was a major cause of HMCE and the Inland Revenue being merged by law in 2005. 

Moreover, the implementation of WOWGR did not, nor could not, achieve more than HMCE had already done by simply stopping the fraud 18 months previously.  For that reason alone, the scheme, which has no basis in EU law, fails to meet any measure of the principle of proportionality which requires HMRC to do no more than necessary to achieve the legitimate objective.  Unfortunately, HMCE (as was) and HMRC hitherto avoided this uncomfortable truth.    Nevertheless, as HMRC now recognises, the law is inconsistent because oils (fuel) ownership is excluded from the scheme, as are wine and made-wine.   It should be noted that since most commercial cider is flavoured cider and therefore taxed as made-wine, flavoured cider is also excluded from the scheme.   Only beer and spirits are really left as alcohol products within the scheme. 

Wider problems

Duty points are created for errors leading to non-compliance with WOWGR (which are in breach of retained EU case law — known as the “Polihim" case) and there are growing problems concerning the clear identification of ownership of cask spirits in warehouse (actually caused inadvertently by the mechanics of WOWGR).

Evaluation of options

The registration and authorisation of excise warehousekeepers filled a gap (lacuna) in UK law to enable HMCE to formally authorise persons as excise warehousekeepers.  It is therefore necessary to maintain such registration.

In terms of registration of owners of goods in warehouse and duty representatives, the WOWGR scheme is riddled with inconsistencies, anomalies and breaches of retained EU law.  Accordingly, HMRC does not realistically have an option to do nothing.  The BDA’s position is as follows:

• WOWGR has caused unintended problems for ownership of casks of spirits maturing in warehouse.  Therefore, there is a case for removal of cask spirits from the scheme, which would remove from the register a great many owners of goods in warehouse.
• There is also a case for removing the interpretation of investment in spirits in warehouse as a “revenue trade”.  This would also remove large numbers of registered owners of goods in warehouse and could be in unison with removal of cask spirits from the scheme.
• However, any “piecemeal” removal of such parts of the WOWGR scheme would leave little purpose in the regime remaining on the statute book, because there would be far more exclusions from WOWGR than products and activities remaining within its ratio.

Recommendation

The BDA is urging HMRC to either:

• amend WOWGR to repeal registration of owners and duty representatives; or
• revoke the regulations entirely and replace with a short statutory instrument that continues to regulate the authorisation of warehousekeepers.

The Alcohol Wholesale Registration Scheme (AWRS), which encompasses all alcohol products, comprehensively addresses any existing risk of alcohol duty fraud.  Moreover due diligence is, in any case, part of the anti-fraud infrastructure for both duty suspension and duty-paid supply chains under AWRS.  WOWGR, by contrast, is overkill.

Guest blog by Alan Powell, Excise Duties Consultant, Founder and Co-ordinator of the British Distillers Alliance, and member of the CIOT Indirect Taxes Committee