What do I need to do when investing in or acquiring a whisky company?
There are 134 whisky distilleries operating in Scotland and there are thought to be over 90 gin distilleries. Each will have had to secure the appropriate HMRC licences and approvals for their operation. Those businesses who operate to support distillers including bottlers, warehouse storage, transportation and retailers also require appropriate approval for their operations.
HMRC licences and approvals are necessary to operate under duty suspension meaning there is no alcohol duty payable until the product is released for consumption. The regime is punitive should the licences and approvals not be complied with. Some approvals require the provision of financial guarantees that enables HMRC to debit the relevant holder's bank account for payment of duty in cases of non-compliance.
What licences and approvals are necessary?
When investing in, or acquiring, a whisky, gin or other alcohol company in the UK, it is vital that you do your due diligence. You will need to ensure that any company operating within the duty suspension regime complies with the HMRC licence and approval requirements.
The type of operation (i.e., distilling, bottling and/or warehousing) will determine which HMRC licences and approvals are required. There is no "one size fits all" checklist. It is therefore important to understand the operations and identify which licences and approvals the company has, and that they are still valid.
If you intend to change or extend operations, you will need to consider what additional licences or approvals are required and ensure you have sufficient time to secure these.
What impact does a change of control have on licences and approvals?
Once you are satisfied the whisky, gin or drinks company has the relevant HMRC licences and approvals, you need to consider the changes that require to be notified to HMRC caused by a change in ownership.
While the licences and approvals are generally in the name of the company, due to the highly regulated nature of the industry, HMRC require to be informed of significant changes to key personnel. This is not simply a change of directors; it can include those occupying responsible roles in the day-to-day management of the company and significant beneficiaries of the company.
It is necessary to carefully identify these individuals and the HMRC licences and approvals affected in advance. HMRC require to be notified 45 WORKING days in advance of the change and provided with details of the incoming persons. This is a minimum time scale as HMRC can seek further information, extending the time-period. It is necessary to identify the relevant individuals early to start the application process. Deals are often structured as conditional on the relevant approvals being secured.
HMRC retain the right to review changes and can withdraw or amend the licences and approvals. HMRC are seeking to ensure that those investing in or acquiring a whisky company are "fit and proper". To establish this, they will consider amongst other things, the individual's personal and professional tax profile, explore any connections to non-compliant or fraudulent businesses and the commercial viability of the proposed business.
What should you do?