HMAG30090 - Registration and approval: approval conditions

Excise approvals are usually conditional. Conditions are intended to direct and control the day-to-day activities of the approved person. Conditions are either set: 

  • directly in law, for example, payment or declaration requirements, 
  • by public notices such as notices 196 and 197, for example, the due diligence condition, or  
  • where the law allows, as an extra bespoke condition or restriction. 

This section covers applying bespoke conditions and restrictions to the premises and revenue trader approvals covered by this guidance under CEMA section 92 and CEMA section 100G (2), the relevant law is quoted in the warehouse premises and revenue trader sections above. 

When extra conditions should be applied 

Any new condition or restriction must be achievable within the privileges of the approval it is applied to and proportionate to the concern identified. A bespoke condition (including a Commissioners’ Direction) should only be applied where specific risks or compliance concerns are identified that place excise duty (and other taxes) at an unacceptable risk of tax loss. It should be designed to achieve a specific outcome, which in turn will reduce the risk of, or prevent, tax loss. Where necessary, a condition can be designed to: 

  • stop or limit the high-risk activities an approved person can carry out, for example, by preventing removals of duty suspension goods into high-risk supply chains, 
  • control high-risk activities, for example, to 
    • require pre-notification of an event before it takes place, such as, an importation, warehouse removal, destruction, or repacking, 
    • require our agreement before a controlled activity or event can take place, such as, warehouse removal or destruction, 
    • require a standing time on specific consignments to provide opportunity to inspect or mark goods, 
  • protecting revenue at risk, for example, by requiring additional financial guarantees. 

When an extra condition should not be added 

An extra condition should not be added to an approval where: 

  • it simply repeats a requirement already placed in law or by a public notice, 
  • it would not be proportionate or reasonable to the risk or concern it is intended to address, 
  • another action was more appropriate for example, issuing a warning letter if this was likely to change behaviours, 
  • it makes a requirement that cannot be achieved under the privileges of the approval it is applied to, 
  • evidence is not sufficient to substantiate a concern. 

The interaction between conditions and the “Fit and Proper” requirements 

New approvals should only be given to a business which is fit or proper to carry out the approved activity. In some cases, the need to apply a condition may be identified in relation to a business that meets our fit and proper test, due to a risk identified. For example, it may be appropriate on a compliant service provider’s approval such as a warehouse-keeper to control the release of third-party goods belonging to an owner we have concerns over. In such cases it is important that the business is fully aware as to why the condition is applied. 

When approving a new business if there is insufficient detail available to fully test whether it is fit or proper, then concerns may be managed by conditions placed on the approval designed to restrict the high-risk aspects identified.  

If we later find an approved business is no longer fit or proper to remain approved, then during the revocation process it may be necessary to restrict the business’s activities via a condition to protect revenue at risk during any period of notice given to enable the business to wind down before the revocation takes effect. 

What we mean by proportionate 

By proportionate, we mean that any condition placed must be reasonable and comparable in impact and size to the evidenced concern. It should be designed to directly address a specific concern and not to simply impede trade or place burdens on a business where there is no evidenced reason to do so. Examples of when it would be proportionate to add a condition include:  

  • restricting an approval so that the business could not continue trading in high-risk arrangements, such as: 
    • where there are failings in the business’s due diligence, 
    • frequent tax losses are identified, 
    • to prevent tax loss during a revocation period of notice, 
    • to control/monitor duty suspension removals from a warehouse where there is a high-risk of outward diversion creating a tax loss, 
  • placing controls to protect revenue, such as requiring higher financial guarantees on an excise warehouse approval where serious deficiencies in day-to-day controls are identified. 

Where restrictive conditions are applied, these should be reviewed on a regular basis; if the reason for the condition no longer applies, for example, because significant improvement in compliance has been made, then the restriction should be lifted. It would not be proportionate to allow a restrictive condition to run indefinitely where there was no longer a reason for it. 

Examples of when it would not be proportionate to add a condition include:  

  • requiring a high value financial security from a business, or stopping its deferred payment arrangements, simply because it has a small HMRC debt, 
  • significantly restricting a business where no substantiated revenue risk is identified or where the actual revenue at risk is low, such as, by restricting trade to named suppliers or customers. 

To decide whether to apply a condition it is necessary to assess and quantify the risk/compliance concern against actual evidence. Consideration should be given to the amount of revenue at risk, and whether revenue loss is likely. Where the risk or compliance concern does need managing the case officer should: 

  • establish what needs preventing or controlling,          
  • consider all compliance options available and what impact these will have on the business and management of the risk - alternatives to a condition include. 
    • education, 
    • warnings, 
    • financial penalties 
    • revocation (very restrictive conditions are one step short of revocation),  
  • consider whether the proposed action is reasonable and proportionate and what effect it will have on the business. 

Sufficient clear, cogent and admissible evidence, disclosable to both the business and/or a Tribunal Court must be held to support a decision to place a condition or restriction on an approval. A condition or restriction cannot be placed on an approval merely on suspicion of poor compliance or that a risk may be present.  

The business whose trade will be affected by our decision must be informed of our concerns at each stage of our decision process. It should normally be notified of any new condition in writing within 5 working days of discussing the issues with the director, owner, or appropriate manager of that business. The business whose activities are being controlled, either directly or via a third-party condition, should be aware of the concerns the condition is intended to address. 

Warehouse premises approval conditions  

A warehouse premises approval allows a warehouse-keeper to use those premises for the secure storage of excise goods under duty suspension arrangements and to carry out operations on them. Bespoke conditions can be applied directly to an existing or new warehouse premises approval, for example, to:  

  • specify the types of goods that can be held there,  
  • permit different operations or prevent certain operations listed in public notice 196,  
  •  address security concerns, such as.  
    • limiting access to warehouse approved areas to named persons,  
    • restricting the warehouse opening times,  
    • requiring further financial security,  
    • extending or reducing approved areas,  
  • require different records to those specified in relevant notices, to improve accountability and stock control,  
  • permit goods to be removed and stored at an annex warehouse site,  
  • permit or stop the co-storage of duty suspended and duty paid goods,  
  • address health and safety concerns.  

 Conditions on operations  

Section 7 to Public Notice 196 lists the types of warehouse operations which can be carried out, which vary depending on the type of warehouse approval. A bespoke condition would be needed to prevent a business carrying out any of these, or to enable the business to be able to carry out an operation that is not listed there. Operation-related conditions may be required for both the premises and warehouse-keeper’s approval. The actual wording of a condition will depend on which approval it applied to. If applied to the:  

  • warehouse premises approval, it is necessary to set out what can or cannot take place on the premises, for example, to prevent further destruction of Ethanol the condition could state: “with effect from (such a such date) ethanol spirit under suspension arrangements may no longer be destroyed at (the address of the approved premises)”  
  • warehouse-keeper approval it is necessary to set out what the warehouse-keeper can or cannot do, using the same example, the wording changes to: “with effect from (a specified date) you can no longer destroy ethanol spirit under suspension arrangements at (name the warehouses)” 

Examples of when conditions on operations may be required include, to:  

  • permit an operation not normally allowed,  
  • remove, prevent, or restrict an operation taking place, such as when unacceptable losses are recorded,   
  • limiting repacking of goods when the motive was to make them difficult to trace,  
  • restrict operations to specific warehouse areas,  
  • prevent operations on certain goods, such as, repacking or relabeling third party goods owned by a high-risk owner to prevent goods losing traceable identity,  
  • requiring further records not specified in our notices to better account for the operation,  

This list is not exhaustive.  

Warehouse keeper approval conditions  

Conditions may be placed on the warehouse-keeper’s approval to control or address concerns/risks with the warehouse-keeper, or clients using the warehouse. WOWGR Regulation 11 enables a registered warehouse-keeper to:   

  • receive dutiable goods at his excise warehouse and keep them there,  
  • consign relevant goods, or special energy products, to other Member States (Please note post EU exit this only applies to warehouse-keepers of NI warehouses) 
  • carry out operations on dutiable goods in his excise warehouse, and  
  • remove dutiable goods from his excise warehouse  

Where the privilege relates to “dutiable goods” this covers all excise goods under suspension arrangements including hydrocarbon oils and wine. Where the privilege relates to “relevant goods” this covers goods such as beer, cider, and spirit but excludes wine and hydrocarbon oils. These privileges apply to the duty suspension of goods in the warehouse, whether they are owned by the warehouse-keeper or a third party. Any condition on a warehouse-keeper's approval must be achievable within these privileges, to limit, restrict or control the extent of that privilege.   

Warehouse-keeper receipt and removal of goods conditions 

The main conditions for the receipt and removal of goods are published in public notice 197. Where there is a justifiable reason, further conditions can be added to a warehouse-keeper's approval to control, limit, or restrict receipt or removal of dutiable goods into or out of the warehouse. 

For example, in the case of receipt conditions could include that the warehouse-keeper: 

  • must provide us with details and at least 24hr notice before receiving goods from a new business, or  
  • is restricted or prevented from receiving dutiable goods from specified high-risk businesses. 

Please note, restricting the receipt of goods into an excise warehouse may put revenue at risk if it results in the goods being turned away. 

In the case of removal of dutiable excise goods, conditions on the warehouse-keeper could include that the warehouse-keeper:  

  • may only remove specified high-risk consignments on payment of duty,  
  • must seek agreement from HMRC before consigning specific high-risk goods, 
  • must provide 24hr/48hr notice to HMRC before certain high-risk goods are removed, 
  • must have a guarantee in place to cover the risk inherent in specific duty suspension movements, 
  • may only account for duty using their own deferment account or restricting which third party accounts can be used. 

Applying approval conditions to revenue traders approved under CEMA s100g. 

Before considering what conditions to apply to an approval, it is necessary to firstly identify the legal privileges that approval type has. For example, in the case of a Registered Consignor the privileges set by the Excise Goods (Holding, Movement and Duty Point) Regulations 2010 are that a registered consignor can dispatch imported excise goods under excise duty suspension arrangements on their release to free circulation (meaning that all customs duties have been paid or accounted for) to allowable destinations in duty suspension. These include going to a tax warehouse in the UK or to a place of export. A registered consignor, if we agree, may also dispatch goods in duty suspension from a place where the goods are released to free circulation in Northern Ireland, to allowable destinations in an EU member state. As such any further bespoke condition must be achievable within these privileges, for example these could include restricting the categories of goods the approval is valid for, or restricting movements to named allowable destinations. 

New approval conditions 

Where a business has little or no revenue history, perhaps because it is a newly formed company, consideration should be given to limiting the approval to the activities declared in the business case supporting the application. If the approval is restricted in this way, the condition should be set with a probationary purpose. Its aim is to provide the business with an opportunity to demonstrate whether they can be granted the full privileges of approval at the end of the probationary period. A reasonable probationary time for the business to achieve this should be given during which compliance should be monitored.  

Where restricting approval activities are being considered, care is needed to ensure that restrictions do not prevent or hamper the business’s natural growth, where they are, the business should be asked to provide a revised business case. This should be carefully considered along with other information about the business before a decision is made to either lift or retain the restrictive condition. 

Consideration should also be given to limiting the privileges of a new approval where we have real concerns that revenue may be at risk, but insufficient reason to refuse the application based on the information available.  

Monitoring conditions 

An added condition can run the lifetime of the approval. Restrictive conditions on a new approval should be reviewed (at the very least) after one year. A condition applied to an existing approval should remain for as long as the concern/risk it is intended to address remains a concern/risk.  

Unforeseen consequence 

When designing a condition, it is necessary to ensure that it does not create an unforeseen consequence placing revenue at risk or placing unreasonable burdens on the business resulting in loss of legitimate trade. For example, if the warehouse-keeper is required to notify HMRC of new owners 48hrs in advance of goods being allowed to enter the warehouse this could result goods being turned away if they arrive in a lesser period, potentially placing those goods at a further risk. 

Limitations on issuing conditions 

Any approval condition applied must be achievable within the privileges of the approval it is applied to. For example, where we wish to control the removal of high-risk goods from an excise warehouse the condition must be placed on the warehouse-keeper not the third party we have concerns over. Care is also needed when designing bespoke conditions not to duplicate an existing condition placed either by the law or via a public notice, for example, marking of warehouse stock is set by regulation 12(3)(a) EWER 1988, due diligence is set by various public notices such as Notice 196. 

Once a new condition has been added compliance with it should be monitored to ensure the terms of the new condition are met and that it is still required and continues to be a proportionate to the concerns originally identified. It should be removed if it is no longer required. Where a business fails to comply with a condition then further sanctions, such as financial penalties or revocation should be considered, whatever action is taken this must be proportionate to the concern identified.