Whisky, WOWGR and what you need to know

Key takeaways

• Within the framework of Scotch whisky regulation, one of the fundamental pieces of legislation is the Warehousekeepers and Owners of Warehoused Goods Regulations 1999 (known as WOWGR). It is the scheme which allows certain goods to be stored in “duty suspension”.
• WOWGR sets out the rules regarding who can be the warehouse keeper of an excise warehouse, and who can own goods hold in duty suspension within an excise warehouse.
• A key feature of WOWGR is the regime for the appointment of a “duty representative”, allowing overseas owners to deposit Scotch whisky in excise warehouses under duty suspension whilst the spirit matures.
• WOWGR also performs a wider verification role beyond ensuring that HMRC receive excise duties due, with (indirect) benefits to those operating in the Scotch whisky industry in relation to verification and due diligence.

This article outlines the key roles and features of the WOWGR regime in the Scotch whisky industry. This article is part of a series, please visit our Scotch whisky page.

What is WOWGR?

WOWGR sets out the rules regarding who can be the warehouse keeper of an excise warehouse, and who can own goods hold in duty suspension within an excise warehouse.

Under this regime, Scotch whisky is able to be stored and matured in excise warehouses across in Scotland, with excise duty becoming payable to HMRC only at the point at which the whisky leaves an excise warehouse for the last time – typically to be bottled and sold.

An “excise warehouse” is a warehouse authorised by HMRC (under the Customs and Excise Management Act 1979) to house goods in duty suspension. A search of authorised warehouses can be made through HMRC’s Spirit Drinks Verification Scheme “look up“ service online available here.

WOWGR applies to a range of goods including spirits, wine and tobacco, and is the scheme that is utilised for the maturation of Scotch whisky within excise warehouses. Indeed, it is a regulatory requirement - for whisky to be called “Scotch whisky” – that the whisky has been matured “only in an excise warehouse or a permitted place”¹.

Whisky held in duty suspension can move between excise warehouses without triggering payment of the excise duty. The duty only becomes payable when Scotch whisky leaves an excise warehouse for the last time. Typically, this is when the whisky is bottled and sold. However, excise duty would also be payable if the whisky is transferred to other premises not registered with HMRC.

It is through the collective regime of authorised warehouses, warehouse keepers and owners that HMRC obtains sufficient oversight and control over goods to allow them to be held in duty suspension.

Who needs to be registered?

The regime for goods being held in duty suspension is, at present, tightly controlled. Authorisation must be obtained from HMRC to deal in duty suspended goods. As the name suggests, WOWGR applies to the authorisation of both:

• Warehouse keepers; and
• Owners of goods stored in excise warehouses.

WOWGR is supplemented by Excise Notice 196 (Registration and approval od excise goods held in duty suspension) issued by HMRC.

Warehouse keepers

Excise warehouses can be authorised to carry out one or more functions – including warehousing, maturation and bottling. As the name suggests, the warehouse keeper is the person responsible for the excise warehouse, and who must be authorised by HMRC.

Once registered, there are monthly reporting obligations and ongoing compliance checks (including inspections by HMRC).

The warehouse keeper must exercise control over the excise warehouse, and is responsible for all aspects of the authorised processes in the warehouse – including:

• maintaining stock records;
• taking all necessary steps to control and safeguard stocks;
• examining any losses and investigate their cause; and
• submitting commercial records and returns to HMRC on time.

Certain changes in ownership or control will require approval from HMRC. Therefore, it is important to take legal advice well in advance of any sale or transfer to ensure that authorisation is in place.

Owners of warehoused goods

Before accepting any goods into an excise warehouse, the warehouse keeper must ensure that:

• the owner does not require registration (i.e. a private individual);
• the owner of the goods is an excise registered owner; or
• if the depositor is an overseas owner, they have appointed a duty representative for the goods².

Owners of goods in excise warehouses therefore fall into three categories:

1. Private individuals;
2. Revenue traders; and
3. Duty representatives.

It is of critical importance for the criteria for each category of ownership to be correctly understood and applied. If the required authorisation is not obtained from HMRC, excise duty on the goods becomes immediately payable. Depending on the circumstances, the warehouse keeper, seller and buyer of the Scotch whisky can all be liable (jointly and severally) for the excise duty payable.

There is also a wider, related, issue – whisky must be stored in an excise warehouse to be “Scotch whisky”. If the whisky is not accepted by an excise warehouse, this could prevent the whisky from being sold as “Scotch whisky” and therefore significantly affect the value of the asset.

Revenue trader or private individual?

A revenue trader of Scotch whisky must obtain authorisation from HMRC to deposit duty suspended goods in an excise warehouse. An authorised revenue trader can also purchase goods that are held in an excise warehouse.

Excise Notice 196 states:

“5.1 All owners of duty-suspended excise goods must obtain approval and registration (i.e. through WOWGR) unless:

…

• the owner of the excise goods is not a revenue trader”

Therefore, the requirement for registration can be understood as follows – unless the owner of the goods is a revenue trader, they will not be required to obtained authorisation from HMRC to store the goods in an excise warehouse.

The classification of a “revenue trader” is therefore of great importance. However, it is a term that requires a degree of interpretation in its application.

WOWGR states that HMRC may approve “revenue traders” to deposit relevant goods that they own in an excise warehouse. A revenue trader who has been so approved and registered by HMRC, is to be known as a “registered owner” under WOWGR. However, the criteria for a “revenue trader” is not contained in WOWGR and no further guidance is provided in the regulations.

“Revenue trader” is defined in Excise Notice 196 as follows:

“In the context of this notice, anyone carrying on a trade or business concerned with the buying, selling, importation, exportation, dealing in, or handling of excise goods, and the financing or facilitation of any such transactions or activities.”

From this definition, it can be understood that “revenue trader” is intended to apply to persons or parties who own the goods in the course of their trade or business. However, beyond this definition, there is no further guidance in WOWGR or the Excise Notice as to what will constitute a “revenue trader” and therefore require authorisation from HMRC.

There is no direction that a revenue trader is limited to companies or partnerships – instead, the definition of “revenue trader” is concerned with the activity carried out. A revenue trader could therefore be an individual person. This is where matters become more complex. It is not clear when an individual person who invests in casks (therefore, buying, selling, dealing in, and / or handling excise goods) will fall within the definition of a “revenue trader” and require registration with HMRC. There is some commentary in the industry as to the number of casks that could be considered to be for “personal use” and not in the course of a trade or business. However, this is not confirmed by HMRC. 

There does, therefore, remain some uncertainty (in certain circumstances) as to when a party will be required to register as a revenue trader, and legal advice should be sought.

Duty representative

Overseas owners of Scotch whisky must appoint a duty representative to act as their agent if they wish to deposit goods in an excise warehouse. WOWGR allows revenue traders to be authorised to act as the agent (a “duty representative”) of the owner or buyer of goods to be held in an excise warehouse. The rationale of this provision in WOWGR is to protect HMRC and create a UK-based nexus for recovery of excise duty.

A duty representative cannot act in this capacity if the owner or buyer of the goods has:

1. any business establishment or other fixed establishment in the United Kingdom; or
2. if the owner is an individual, his usual place of residence is in the United Kingdom.

The duty representative arrangement is an important feature of the WOWGR regime, allowing overseas owners to deposit Scotch whisky in excise warehouses under duty suspension whilst the spirit matures.

However, care should be taken when entering into this type of arrangement. The duty representative will be the party recorded by the warehouse keeper as the owner of the goods held in the warehouse. The credentials of a duty representative should therefore be investigated before appointing them to act as an agent. Written confirmation (signed by the duty representative) should also be obtained, which confirms the ownership position – i.e. the duty representative is acting as an agent only, and the principal (i.e. the purchaser /  owner) is the owner of the goods. This document should also be signed by the warehouse keeper, acknowledging this position.

Comment

WOWGR is a key feature of the regulatory framework for Scotch whisky. It is essential that the required authorisations are obtained from HMRC, and that applications for all necessary authorisation are made ahead of time to avoid issues regarding goods being purchased, sold or stored “in suspension”.

When purchasing a cask of Scotch whisky, it is also important to carry out due diligence – on the seller, duty representative (if any), and the excise warehouse and warehouse keeper. This will ensure verification of the parties and allow ownership of Scotch whisky to be transferred with duty “in suspension”.

Whilst the HMRC Spirit Drink Verification Scheme offers an online “look-up” facility for registered excise warehouses, a similar feature is not available to the public for the authorisation of individuals under WOWGR. Whilst certificates of authorisation are issued by HMRC, these are not publicly available. It is therefore important to obtain confirmation of authorisation as part of the due diligence process.

In addition, overseas owners of Scotch whisky will require to appoint a duty representative for their goods stored in duty suspension in an excise warehouse. The ownership position and liabilities of the parties should be documented in writing.

WOWGR is therefore an important component of the regulatory framework for Scotch whisky, and advice should be sought at an early stage to navigate compliance.

DLA Piper and our Scotch whisky team has experience of advising clients across the globe in the distilled spirit sector and would be pleased to discuss any issues which arise from the terms of this brief guide.