Stuart Walsh, an expert in VAT and indirect taxes at Pinsent Masons, the law firm behind Out-law.com said: “With official estimates placing the alcohol tax gap at £1.3bn per annum, comprising both alcohol duty and VAT, the majority of which is attributed to duty evasion by organised criminals, there is a real commitment from the members of the taskforce to work collaboratively in order to achieve the shared objective of reducing alcohol fraud."
Alcoholic drinks such as beer, cider, wine and spirits are subject to alcohol duty at differing rates. However, a significant amount of duty is lost as a result of fraud.
"The illicit alcohol trade deprives the UK of substantial sums of revenue, and damages the legitimate UK alcohol industry" said Jim Harra of HM Revenue and Customs (HMRC).
The legitimate industry is harmed as alcohol that has not suffered duty can be sold more cheaply than legitimate supplies. In addition those who are caught in possession of goods on which duty has not been paid can be forced to pay the unpaid duty and penalties as well as having the goods seized.
The most prevalent alcohol fraud is known as ‘inward diversion’ fraud. This involves organised criminals getting large commercial consignments of genuine brands of alcoholic drinks exported to the EU without paying VAT and alcohol duty and then smuggling them into the UK untaxed.
The Joint Alcohol Anti-Fraud Taskforce first met in January 2014 and the annual report sets out the progress it has made and its priorities for the future. The taskforce includes representatives from HMRC, the Home Office, the UK Border Force and HM Treasury alongside industry bodies such as the Association of Convenience Stores, the Scottish Whisky Association and the Road Haulage Association.
The report considers the issues for the different sectors involved in the alcohol trade. It states that producers should be wary of orders for shipment of goods overseas in quantities that do not match levels of consumption of those goods in the country where they are destined, as these may indicate fraud. It says that "increased vigilance, including knowing customers well is needed to mitigate the chances of inadvertently feeding goods into the illicit market".
Indicators of fraud for hauliers to look out for include unusual terms or cash payment, jobs where the destination for goods is unknown, jobs where the driver is not given appropriate paperwork or is given alternate instructions en-route, according to the report.
Businesses buying alcohol are warned to be wary if the origin of goods is unclear or the price, payment and financial trading history of the supplier is inconsistent with industry norms or behaviour. There are serious consequences for each of the sectors if they are found to have been involved, even if unwittingly, in alcohol duty fraud.
Stuart Walsh said: "The report demonstrates that excellent progress has been made in better understanding the risks faced by those involved in the alcohol industry, the ways in which fraud can be reduced, as well as identifying some of the existing barriers to success. Agreement upon the respective roles and responsibilities of members of the taskforce in the fight against fraud will be critical to the ultimate success of the taskforce.”
The taskforce has helped to communicate within the industry about how alcohol duty fraud can be prevented and was central to the successful introduction of new due diligence guidance explicitly requiring businesses to consider fraud risks in their supply chains.
Next steps for the taskforce include working together to increase the accuracy of tax gap estimates and to develop wider indicators of harm caused by illicit trading, as well as implementing anti-fraud education plans for key industry sectors.
HMRC is introducing a new scheme called the Alcohol Wholesaler Registration Scheme (AWRS). Under this scheme from October 2015, all alcohol wholesalers must apply to HMRC to be registered. HMRC will only accept onto the AWRS register those it considers to be ‘fit and proper’. Where a business fails the ‘fit and proper’ test, HMRC will remove its right to trade in wholesale alcohol. From1 April 2017, all businesses who trade in, or retail, alcohol will need to make sure that any UK wholesalers that they buy from are registered with HMRC.