David very kindly took the time out of his busy schedule at the Wine & Spirit Trade Association (WSTA) to talk to Chris Porter for Kukla News and update us on regulatory issues. He generously shared his insights and expertise on various other important related topics.
David, thank you again for taking the time to talk to Kukla. Things are never quiet at the WSTA, but what specific news can you give us to share with our clients?
DR – Many specific issues are being looked at and are equally important. Currently, the importance of issues fluctuates from week to week. However, the topics of alcohol duty review, DRS, PRNs, borders and customs modernisation are the most significant things we are now dealing with.
PRNs are packaging return notes which you have to pay for the privilege of your material being recycled.
DRS Deposit and Return schemes are a particular issue and a potential game changer. It is being introduced in Scotland, where it includes glass, and we are watching this as it could be significant for the future of the rest of the nations.
As we are all aware, Border processes have changed due to Brexit, and there is a particular issue with the Northern Ireland Protocol. We are all waiting to hear if anything will happen with the current negotiations between the UK Government and the EU.
Migration to CDS (Customs Declarations Service) for exports by 30 November 2023
This is a tricky one. Several outages recently occurred on CDS and some other HMRC services, which caused problems, and the fall-back procedures had to be used.
I think people are quite nervous about exports; this hasn’t changed since the start of the transition process. One of the problems is it depends on which end of the telescope you are looking through. If you are HMRC, you are looking at roughly 300 million transactions per year, 25 million per month, so about one million transactions per day, more or less. If you get 999,000 of those transactions right and they all work, you are pretty happy as HMRC. If this means that 5,000 per day are going wrong, then those are very unhappy traders, and if that happens to your business, you are extremely unhappy. So the volume of transactions, even with a 99% success rate, still translates to many transactions that go wrong. And if you are a small trader of a four or 5-person business somewhere, and it’s your transaction that goes wrong, and it’s your big transaction for that month, then it is pretty serious.
On the import side, I think the problem is more technical than administrative. The challenge will always be putting the correct code in the right box because CDS has so many codes. The reality is that the coding is so complex that there is much room for error. The good news is that for most businesses, the majority of their transactions will follow the same pattern, so once you get it right, most of your transactions will follow the same coding, and you will only have to look for the exceptions. I think it will be the same with exports. There will be some lumpiness; the tech will be imperfect. It’s such an extensive system of imports and exports.
The message I have been telling people for a long time for imports, and I would put it out for exports, is that you may only need to know some data set and code. But, still, you need to talk to the people making your customs declarations (in-house or outsourced) and say, “Are you on top of this?”
Border processes – the Government has introduced Borders 2025, intending to give the UK the most efficient electronic border in the world. This comprises several elements, such as:
- The Target Operating Model will set out new processes and will be published shortly (Q1 2023 for the first draft).
- The Single Trade Window will be a single portal for interacting with all the agencies that regulate the border and will allow much wider data sharing than at present.
- The Ecosystem of Trust will also facilitate easier data sharing and risk assessment. It may also make tracing goods through the supply chain more accessible, possibly using QR codes and blockchain technology.
This is all about trusting the data that will be held from the supply chain and to what extent the Government can access it and then harvest and share. Looking at the industry, it becomes slightly more difficult when you look at how businesses work.
There will be changes with HMRC, and there will be much to get used to for different importers. I think it’s a bit like CDS and a bit like Brexit legislation changes. At the very least, businesses need to understand where there is an issue and to be talking to people in both directions of their supply chain to continue doing business.
We spoke last time about the evolution of Excise and the things that HMRC are looking to progress and modernise. Can you give us an update on some of those, please?
DR – Excise modernisation is partially at least linked to the alcohol duty review. Once in the UK, you need a number of authorisations to trade, depending on your business model.
HMRC wants to digitalise that process and have a consistent set of criteria for them, so when you as a trader apply for something, you essentially face the list of things you could apply for, so you don’t have to make separate applications for alcohol wholesaler, excise warehouse keeper etc. They liken it essentially to be a single entry point to the application process, a single set of criteria, a single grant of authorisation, and a single set of conditions apply to it.
How close are we to implementing the Alcohol Duty Review?
DR – The Alcohol Duty Review means there will be a replacement for a statute called ALDA Alcohol Liquors Duty Act 1979 which will simplify some of the definitions and bring in the provisions the Government want around small producers’ relief and draft relief, and taxing all products by litres of pure alcohol. So there is quite a lot happening this year and the following year in the world of excise law and how you get your authorisations operationally. People with existing authorisations will not have to reapply, but those who want new authorisations will have a new portal to do it through.
Warehouse keepers will still have to register, but owners of goods in warehouses won’t, hopefully.
HMRC want to do things that the industry would like to see. There will no doubt be some glitchy bits and bits we won’t entirely agree with, and we’ll have to work through them, but this is part of working with the Government.
This will see current multiple authorisations processes aggregated into a single platform, along with abolishing some outdated rules, Duty Stamps review and WOWGR abolition.
I don’t think this is a huge issue in the freight forwarding world because if you bring in wine and put it into a bond, the coding for that under CDS will remain the same. That’s not going to change.
However, it is a difference firstly in the warehousing sector because they will have to be able to identify the ABV of wine-based products. It will make a massive difference to traders in terms of agreeing on prices in their forward contracts. Because if you are talking to somebody and you will get their wine after the next vintage, you’re budgeting it on twelve and a half per cent. All of a sudden comes to 13%. And then they say all we want is to label it in tenth–degree increments, which DEFRA will allow people to do. So your duty liability could change, which then completely messes up your figures in terms of your seller, business customer and price to the end consumer.
For wines between 11.5% – 14.5%, the Government says they will assess it at 12.5% for an 18-month transition period, which covers about 70% of wines. This is more of an issue for traders than forwarders and carriers. The good news is that the higher rate for sparkling wine will be abolished,
The ABV on the documents with the product is labelled ABV, not laboratory ABV, subject to some audit requirements.
So, documentation might change.
DR – What it will change is not much documentation but data. It is how the Government will know what tax to collect, as it will be based on ABV. So it has to know the ABV. Does it rely on people telling it during different points in the supply chain or simply receiving the data once the label is put on the bottle? This batch number has an ABV of 12%. Does that data follow through the chain until it drops out that the excise duty is paid without anybody rekeying it, which is fine if you’ve got one batch that’s moving and isn’t disturbed? But if that batch is split up between ten different wholesalers, and then people in the UK buy various bits from other wholesalers, you’ve got to constantly marry up data from different sources. So the data has to be chunked down and reassembled as it goes back through the system. All questions that need to be answered.
Any simplification of moving products to and from Northern Ireland has been one of the most well-publicised and challenging aspects post-Brexit. What likelihood is there of any easing of this process in the coming months?
DR – Northern Ireland Protocol, although there seems to be a positive movement, we don’t know how discussions will go. Still, if it is, the red lane/green lane proposals will create new demand for identifying products exclusively for NI consumption. Although checks might be eliminated, there will still be a demand for clear audit trails.
Thank you. And finally, what update can you give us on issues such as Digital Age Verification and Deposit Return Schemes? Would we be right in thinking that after a promising start “on paper” in practice, these require more thought and especially investment in the appropriate software?
DR – Digital age verification recent trials have shown how this might work, expanding the options for retail businesses and consumers beyond the current paper or card-based requirements. However, there are still some challenges to overcome.
Environmental initiatives such as DRS, PPT and EPR all create obligations around supply chain management and audit, which require modifications to supply chain software.
Whilst many of these developments are welcome and long overdue, we remain alert to the extent to which these new technologies may be mandatory (or effectively mandatory if they become adopted as the only way to do business) and the cost implications of having to buy new software, particularly for SMEs. Implementation periods and the ability to sell on prior stock will also be important factors.
The implementation of the Scottish scheme, in particular, is still causing colossal uncertainty and confusion over liability, labelling and costs. Although producers are now required to register, multiple issues remain to be resolved, and trade does not fully understand the implications.
David, we are very grateful to you for sharing this insight into the current issues the Association are working with on behalf of its members and the wider UK alcohol drinks industry. Thank You.
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