Policy paper

Report on the conclusions of The Spirit Drinks (Costs of Verification) Regulations 2013 review

Published 13 December 2018

The Spirit Drinks (Costs of Verification) Regulations 2013

The Spirit Drinks (Costs of Verification) Regulations 2013 (Charging Regulations) provide the legal authority for HM Revenue and Customs (HMRC) to charge producers the costs that HMRC incurs for verifying compliance with the specifications in the technical files of the verification schemes. This ensures the correct application of Article 22 of EU Regulation (EC) No 110/2008 (EU Regulation).

The Charging Regulations require that HMRC undertakes a review of the operation of the regulations every 5 years. The review must, as far as is reasonable, have regard to how Article 22 of the EU Regulation is implemented in other member states.

It must set out the objectives intended to be achieved by the Charging Regulations, assess the extent to which these objectives are achieved and assess whether those objectives remain appropriate. This report sets out the conclusions of the review undertaken this year to meet this requirement.

Background - EU Regulation (EC) No 110/2008

The EU Regulation sets out the definition, description, presentation, labelling and the protection of geographical indications (GI) of spirit drinks. It makes provision for member states to introduce measures to ensure that spirit drinks that are marketed with a protected GI are produced in accordance with specific conditions laid down in a technical file for the product.

Article 22 of the EU Regulation requires that a relevant spirit drink is verified by a competent authority as being compliant with its technical file before it can be placed on the market. The article also requires that the costs of verification for each relevant spirit drink are borne by the producers who are subject to the controls specified in the technical file.

The United Kingdom (UK) Spirit Drink Verification Schemes

HMRC is the authority responsible for the verification of UK spirit drinks with a GI. As the verification authority for the UK, HMRC’s role is to verify products are compliant with the specification in the Technical File. The UK publishes verification schemes for Scotch Whisky, Irish Whiskey produced in Northern Ireland, Irish Cream produced in Northern Ireland, Irish Poteen produced in Northern Ireland and Somerset Cider Brandy, all of which are registered at Annex III to the EU Regulation.

The schemes ensure that spirit drinks marketed with a protected GI are produced in accordance with the specific conditions laid down in a technical file for the product. This helps guard against the introduction of counterfeit brands and gives confidence to overseas tax authorities and consumers that imported spirit drinks are authentic.

HMRC conducts verification visits to production premises to ensure that processes are compliant with the technical file. Renewal of the verification is required every two years for Scotch Whisky Irish Whiskey, Irish Cream and Irish Poteen.

Review of the Charging Regulations

The objectives of the Charging Regulations are to allow HMRC, as the UK verification authority, to charge a fee for the verification inspections it carries out in line with Article 22 of the EU Regulation.

The Charging Regulations provide for:

• the publication of verification schemes by HMRC
• the method of making an application
• charges for obtaining verification to be imposed on producers
• verification inspections to be undertaken by agents authorised by HMRC
• HMRC to review the operation of the Charging Regulations and set out the conclusions of the review in a report

HMRC has considered each element of the Charging Regulations and how the verification role is undertaken in other EU member states. HMRC also invited views on the operation of the Charging Regulations from the Scottish Whisky Association, which has been closely involved in the introduction and development of the spirit drink verification schemes.

Findings of the review

The Charging Regulations place an obligation on HMRC to publish verification schemes. This ensures producers know the requirements they must comply with in order to market a relevant spirit drink. Details of the schemes are set out in the Spirit Drinks Verification Scheme technical guidance: Scotch whisky verification, Spirits Drinks Verification Scheme technical guidance: Irish whiskey, Irish cream and Irish poteen verification and Spirits Drinks Verification Scheme technical guidance: Somerset Cider Brandy.

The Charging Regulations also set out the method of making an application for verification and the particulars an application must contain. The UK requires that verification applications must be made using an online application using the GOV.UK website. This provides clarity to producers on what they need to do in order to start the verification process. No issues have been reported with this process or the supporting information provided on the schemes.

The Charging Regulations provide for HMRC to charge a fee for the costs they incur for carrying out verification visits and when payment must be made. They set out that the charges must not exceed the amount HMRC considers will enable them to meet the expenses they incur in carrying out verification.

As required by the UK verification scheme, a verification fee is charged for each production process. The Charging Regulations provide that this fee must be calculated to recover only the costs incurred in its administration on a financial year basis.

HMRC regularly monitors its own costs to ensure they do not exceed what is necessary to carry out its role. The fees charged to industry are reviewed at the end of each two year verification cycle to ensure they reflect HMRC costs. Fees were last reviewed in 2017 and the review was satisfied that fees did not go beyond costs.

The Charging Regulations also provide for verification inspections to be undertaken by agents authorised by HMRC. This provision is needed to enable HMRC to authorise agents in other countries to carry out verification inspections if needed, for example for overseas bottlers. So far this facility has not been used but it is considered this option should be retained so that if concerns about an overseas operator are raised an appropriate inspection can be arranged.

As required by the Charging Regulations, HMRC has reviewed how Article 22 of the EU Regulation is implemented in other member states. HMRC asked all 27 member states for details of how they operate spirit drink verification schemes to see how they compared to the UK scheme. The responses received from other member states outlined verification processes that are broadly consistent with the UK approach and did not highlight opportunities for improvement or further HMRC efficiencies or reductions in burdens on business.

The Scotch Whisky Association is a strong supporter of the verification scheme and its response to the review included comment on various aspects of the scheme, including an appreciation that the industry is required to meet the associated costs. It also reported that verification visits are generally straightforward and hoped that there could be further efficiency savings as the schemes develop.

Conclusion of the review

In conclusion, UK business requirements are as effective as those of other member states and no more or less stringent. HMRC effectively and efficiently delivers the objectives of the UK Charging Regulations and these remain appropriate.