Spirit start-ups – areas to consider

For any new start-up there are many different issues to consider. However, when your business involves alcohol production, there are additional excise considerations to address.

Over the last few years, the number of craft gin and vodka distillers have significantly increased as the relative simplicity of the production process makes these spirits ideal choices for anyone looking to create and sell their own brand. However, setting up to produce alcoholic spirits is not like producing widgets, there are many more hurdles to cross.

The production and distribution of spirits is controlled by HMRC. Whilst the days of the swashbuckling  exciseman in the style of Robert Burns may be a thing of the past, today’s officers still have an important role to play in the process.

Before any spirits can be produced, it is necessary to ensure that the appropriate spirits licence is held. Once you have the appropriate licence, you must get your plant and manufacturing process approved by HMRC. To undertake a full production process, HMRC will need:

• the location of the distillery
• a full description of the manufacturing process
• the number and description of the vessels used in the manufacturing process
• a plan of the premises

If the largest still to be used has a capacity of less than 18 hectolitres, HMRC will not grant approval without a business plan demonstrating that it will be used for commercial purposes.

The next problem for spirit start-ups is cash-flow. As the duty is due on the spirits as soon as they are manufactured, unless you are dealing with duty suspended spirits, you may have to fund the duty for a considerable period of time. It is unlikely that start-up businesses will meet the criteria for approval as a general storage and distribution warehouse; therefore, you may wish to register as a trade facilitation warehouse. This allows you to carry out specific parts of the production process (e.g. bottling) on duty suspended spirits. However, trade facilitation warehouses will not overcome the cash flow problem completely, and it may be necessary to arrange storage of the spirits in a third party excise warehouse.

Finally, once production starts, there are quarterly spirit production returns to complete; setting out the type and quantity of the materials used in production along with the volume of spirits produced. At least at this point, unlike for widget manufacturers, you will have a product you can enjoy.

AAB has a specialist team dedicated to the food and drink sector. The multi-disciplinary team of specialists have extensive knowledge of the sector and AAB’s ability and experience to support clients through every stage of their lifecycle makes us a natural partner for new excise businesses. If you require help in this area or would like any further information please contact Alistair Duncan, Director & Head of Indirect Tax, or your usual AAB contact.