Are your stocks of alcoholic drinks legal? It's a simple enough question if you get them delivered along with everything else from your symbol group partner, but it's something thousands of independents who make their own supply arrangements need to ask themselves, as that flow of competitively priced beers, wines and spirits could be about to land you in deep trouble.
The issue of alcohol duty fraud, where goods scheduled for sale abroad are diverted back into UK stores, has in the past been seen as something of a victimless crime you're offered a cheap deal on big brand booze which will help you compete with the price-slashing multiples, the wholesaler in question seems a legitimate and established business, and even if the stock does turn out to be dodgy, well, it's only the taxman who's losing out.
So it may be that not all store owners are angels in this particular regard. Certainly, this is one topic that even the most chatty of retailers that Convenience Store speaks to tends to clam up about.
When it's a case of compete or die, some retailers choose not to ask too many questions about where their supply chain partners are sourcing their stock.
Two respected store owners contacted for this article asked for their comments to be kept anonymous. One said: "I'm regularly offered cut-price stock from a van that comes round. It's proper branded products but way cheaper than I can get at Booker. The bottles aren't marked and I could mix it in with legitimate stock. Do I take it? Of course, I do."
That kind of brazen 'white van' approach is clearly illegal. The moral ambivalence comes if the price you are offered is too good to resist. "I don't ask questions, but it's very cheap," says our other informant. "Once in a while I go to the legitimate cash & carry and pick up a few cases just so I'll have a receipt to show if anyone comes calling."
It's the retailers' willingness to take non-duty-paid goods back into the legitimate supply chain that allows this fraud to thrive. But now the problem is so vast that HM Revenue and Customs (HMRC) is determined to stamp out this illegal activity which is costing the Exchequer an estimated £1bn a year.
Controls
Under legislation introduced in April, HMRC has the power to seize stock from retailers' shelves if it believes duty has not been paid. If proved, you'll face a fine and will have to pay a proportion up to 100% of the missing duty. These 'wrongdoing penalties' are civil, rather than criminal, prosecutions, but they will damage both your cashflow and your reputation. Armed with these new powers, HMRC is making unannounced visits to both wholesalers and retailers. The net is closing in.
"Those who deliberately flout the law also risk having their details made public," says Ruth Ryan, senior policy adviser for the Alcohol & Tobacco Strategy Project Team.
She advises retailers not to take chances. "Be wary who you buy from. To limit the chances of sourcing goods on which duty has been evaded, avoid buying goods from any suppliers about whom you have suspicions. If you have any doubts about their credibility, but still buy the goods you could be liable. It's not worth taking the risk."
Ignorance will be no defence, it seems. "If it can be shown by HMRC that the goods have not been duty-paid, they will be seized and penalties applied," Ryan insists. "The level of penalty levied will depend on the openness and assistance given." The old rule of thumb still applies if a deal seems to good to be true, it probably is.
There's another victim, too the law-abiding wholesalers who have seen their sales of beer in particular fall dramatically over the past two years as the epidemic has grown. Russell Grant, commercial director of Blakemore Wholesale, says that between 2007-09 the company saw sales of Carling 500ml drop by 70% and Stella 500ml by 67%, as overall beer sales plunged. It's true that beer consumption flatlined in the same period, but it did not decline as these figures suggest.
Grant, for one, doesn't believe that it's a demand-driven drop. "Our business has been decimated by the action of certain wholesalers and the inaction of some suppliers and HMRC," he says.
Federation of Wholesale Distributors chief executive James Bielby adds: "The illicit trade is continuing to undercut prices and have a severe impact on the economic viability of legitimate traders whose businesses are being threatened with closure by the fraud." He says FWD members are reporting 40% losses on beer sales.
HMRC's efforts are confounded by the fiendishly complicated nature of the fraud, which often sees the goods, or at least the paperwork, passing through several hands before reaching the shelves. The journey from the supplier's bonded warehouse may involve the goods going abroad where a lower rate of duty is paid or it may just be the invoice trail that makes that journey while the stock itself is diverted to a warehouse in the UK.
On top of this, FWD's Bielby believes the agency needs to work harder. "We have argued over the past year that if HMRC becomes aware of prices offered [to retailers] on products which are simply not credible, they have a duty to immediately seize those goods and thereby disrupt the supply chain, which is a very effective way of stopping the fraud," he says. "We also say that HMRC should explore putting measures in place to track the movement of all 'at risk' alcoholic goods from or within the UK."
Bielby adds: "According to HMRC there is a massive over-supply of beer under 'duty suspense' to the near continent, which cannot be for legitimate sale on the continent. It should be possible for HMRC to keep tabs both on where and to whom the brewers supply to in the EU and all UK supplies of duty-suspended goods to third parties in bonded warehouses."
FWD would like to see beer carry the same duty stamps as spirits bottles, an idea which recieves little support from the suppliers.
"Suppliers think action might cost them business," says Blakemore's Grant. "Some say it's difficult to restrict supply to suspect markets as it would damage them commercially. What we would like to see is suppliers providing a method to track their products, and doing so all together."
That, say the suppliers, will just add costs which will further hurt the legitimate supply chain. Richard Honey of Brewer Moulson Coors says there is no simple answer and points to the "critical partnership of the HMRC and FWD." While he concedes that there is more suppliers can do, he feels that the way forward is for "HMRC to be given an appropriate amount of resource".
FWD shares this fear that, despite its new powers, HMRC will not have the resources to pursue complicated audit trail cases. Bielby points out that with only seven people prosecuted for alcohol fraud in a year, they will need all the help they can get. Last year the Federation proposed a registration scheme for legitimate wholesalers, which would give retailers reassurance that they were buying from a trustworthy source. While this would place a burden on FWD members, they see it as necessary to protect their businesses.
However, HMRC has said it would be unable to supervise such a register of those buying and selling in wholesale quantities without taking resources away from other areas of its alcohol strategy. The new government's round of public spending reductions won't help either five years ago HMRC had 116,000 staff, it now has 70,000, and the cuts threaten another 5,500 jobs.
Resources
It's already stretched, as the recent attempted prosecution of a North London wholesaler demonstrated. Philip Coppell QC, a lawyer for Millennium Cash and Carry in Barking, described how HMRC raided the depot in February and took about 40% of its stock "on a hunch". It was later forced to concede that the duty had been paid and was ordered return all goods that hadn't been destroyed as well as paying more than £150,000 in costs. Coppell also described HMRC's actions as a "prolonged and deliberate misuse of highly invasive powers."
Bielby adds that "HMRC does not have a great track record when it comes to its day in court."
Nevertheless, the agency is confident that its crackdown will yield results and warns retailers to be on their guard. Advice from HMRC's Ryan to ensure you won't get caught out is simple. "Avoid supplies offered via unsolicited email or flier, or where there's a lack of detail around the identity of the supplier only a name and mobile phone number with no address details or VAT registration number.
"Beware of goods offered at incredibly low prices and suppliers who insists on dealing in cash or don't provide a valid purchase invoice."
HMRC also encourages C-Store readers to report anything suspicious to its online hotline, www.hmrc.gov.uk/customs-hotline.
The issue of alcohol duty fraud, where goods scheduled for sale abroad are diverted back into UK stores, has in the past been seen as something of a victimless crime you're offered a cheap deal on big brand booze which will help you compete with the price-slashing multiples, the wholesaler in question seems a legitimate and established business, and even if the stock does turn out to be dodgy, well, it's only the taxman who's losing out.
So it may be that not all store owners are angels in this particular regard. Certainly, this is one topic that even the most chatty of retailers that Convenience Store speaks to tends to clam up about.
When it's a case of compete or die, some retailers choose not to ask too many questions about where their supply chain partners are sourcing their stock.
Two respected store owners contacted for this article asked for their comments to be kept anonymous. One said: "I'm regularly offered cut-price stock from a van that comes round. It's proper branded products but way cheaper than I can get at Booker. The bottles aren't marked and I could mix it in with legitimate stock. Do I take it? Of course, I do."
That kind of brazen 'white van' approach is clearly illegal. The moral ambivalence comes if the price you are offered is too good to resist. "I don't ask questions, but it's very cheap," says our other informant. "Once in a while I go to the legitimate cash & carry and pick up a few cases just so I'll have a receipt to show if anyone comes calling."
It's the retailers' willingness to take non-duty-paid goods back into the legitimate supply chain that allows this fraud to thrive. But now the problem is so vast that HM Revenue and Customs (HMRC) is determined to stamp out this illegal activity which is costing the Exchequer an estimated £1bn a year.
Controls
Under legislation introduced in April, HMRC has the power to seize stock from retailers' shelves if it believes duty has not been paid. If proved, you'll face a fine and will have to pay a proportion up to 100% of the missing duty. These 'wrongdoing penalties' are civil, rather than criminal, prosecutions, but they will damage both your cashflow and your reputation. Armed with these new powers, HMRC is making unannounced visits to both wholesalers and retailers. The net is closing in.
"Those who deliberately flout the law also risk having their details made public," says Ruth Ryan, senior policy adviser for the Alcohol & Tobacco Strategy Project Team.
She advises retailers not to take chances. "Be wary who you buy from. To limit the chances of sourcing goods on which duty has been evaded, avoid buying goods from any suppliers about whom you have suspicions. If you have any doubts about their credibility, but still buy the goods you could be liable. It's not worth taking the risk."
Ignorance will be no defence, it seems. "If it can be shown by HMRC that the goods have not been duty-paid, they will be seized and penalties applied," Ryan insists. "The level of penalty levied will depend on the openness and assistance given." The old rule of thumb still applies if a deal seems to good to be true, it probably is.
There's another victim, too the law-abiding wholesalers who have seen their sales of beer in particular fall dramatically over the past two years as the epidemic has grown. Russell Grant, commercial director of Blakemore Wholesale, says that between 2007-09 the company saw sales of Carling 500ml drop by 70% and Stella 500ml by 67%, as overall beer sales plunged. It's true that beer consumption flatlined in the same period, but it did not decline as these figures suggest.
Grant, for one, doesn't believe that it's a demand-driven drop. "Our business has been decimated by the action of certain wholesalers and the inaction of some suppliers and HMRC," he says.
Federation of Wholesale Distributors chief executive James Bielby adds: "The illicit trade is continuing to undercut prices and have a severe impact on the economic viability of legitimate traders whose businesses are being threatened with closure by the fraud." He says FWD members are reporting 40% losses on beer sales.
HMRC's efforts are confounded by the fiendishly complicated nature of the fraud, which often sees the goods, or at least the paperwork, passing through several hands before reaching the shelves. The journey from the supplier's bonded warehouse may involve the goods going abroad where a lower rate of duty is paid or it may just be the invoice trail that makes that journey while the stock itself is diverted to a warehouse in the UK.
On top of this, FWD's Bielby believes the agency needs to work harder. "We have argued over the past year that if HMRC becomes aware of prices offered [to retailers] on products which are simply not credible, they have a duty to immediately seize those goods and thereby disrupt the supply chain, which is a very effective way of stopping the fraud," he says. "We also say that HMRC should explore putting measures in place to track the movement of all 'at risk' alcoholic goods from or within the UK."
Bielby adds: "According to HMRC there is a massive over-supply of beer under 'duty suspense' to the near continent, which cannot be for legitimate sale on the continent. It should be possible for HMRC to keep tabs both on where and to whom the brewers supply to in the EU and all UK supplies of duty-suspended goods to third parties in bonded warehouses."
FWD would like to see beer carry the same duty stamps as spirits bottles, an idea which recieves little support from the suppliers.
"Suppliers think action might cost them business," says Blakemore's Grant. "Some say it's difficult to restrict supply to suspect markets as it would damage them commercially. What we would like to see is suppliers providing a method to track their products, and doing so all together."
That, say the suppliers, will just add costs which will further hurt the legitimate supply chain. Richard Honey of Brewer Moulson Coors says there is no simple answer and points to the "critical partnership of the HMRC and FWD." While he concedes that there is more suppliers can do, he feels that the way forward is for "HMRC to be given an appropriate amount of resource".
FWD shares this fear that, despite its new powers, HMRC will not have the resources to pursue complicated audit trail cases. Bielby points out that with only seven people prosecuted for alcohol fraud in a year, they will need all the help they can get. Last year the Federation proposed a registration scheme for legitimate wholesalers, which would give retailers reassurance that they were buying from a trustworthy source. While this would place a burden on FWD members, they see it as necessary to protect their businesses.
However, HMRC has said it would be unable to supervise such a register of those buying and selling in wholesale quantities without taking resources away from other areas of its alcohol strategy. The new government's round of public spending reductions won't help either five years ago HMRC had 116,000 staff, it now has 70,000, and the cuts threaten another 5,500 jobs.
Resources
It's already stretched, as the recent attempted prosecution of a North London wholesaler demonstrated. Philip Coppell QC, a lawyer for Millennium Cash and Carry in Barking, described how HMRC raided the depot in February and took about 40% of its stock "on a hunch". It was later forced to concede that the duty had been paid and was ordered return all goods that hadn't been destroyed as well as paying more than £150,000 in costs. Coppell also described HMRC's actions as a "prolonged and deliberate misuse of highly invasive powers."
Bielby adds that "HMRC does not have a great track record when it comes to its day in court."
Nevertheless, the agency is confident that its crackdown will yield results and warns retailers to be on their guard. Advice from HMRC's Ryan to ensure you won't get caught out is simple. "Avoid supplies offered via unsolicited email or flier, or where there's a lack of detail around the identity of the supplier only a name and mobile phone number with no address details or VAT registration number.
"Beware of goods offered at incredibly low prices and suppliers who insists on dealing in cash or don't provide a valid purchase invoice."
HMRC also encourages C-Store readers to report anything suspicious to its online hotline, www.hmrc.gov.uk/customs-hotline.
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