Policy paper

The Spirit Drinks (Cost of Verification) Regulations 2013 (Charging Regulations) review

Published 21 December 2023

The Spirit Drinks (Cost of Verification) Regulations 2013 (Charging Regulations)

The Spirit Drinks (Cost of Verification) Regulations 2013 (Charging Regulations) provide the legal basis for HM Revenue and Customs (HMRC) to publish details of each verification scheme, the method of applying for verification, for charges to be made on producers of spirit drinks with a geographical indication (GI) who apply for verification and how those charges must be paid to HMRC. The Charging Regulations also provide for verification work to be undertaken by agents authorised by HMRC.

The Charging Regulations require HMRC to carry out a review of the regulations every 5 years and publish a report of its conclusion. Following the previous review in 2018, this report presents the findings of the review completed in 2023. The review aims to assess the operation and effect of the Charging Regulations considering whether the objectives of the regulations have been met and whether they remain appropriate.

Background

In Great Britain (GB), retained Regulation  (EC) No 110/2008   lays down the rules for the definition, description, presentation and labelling of spirit drinks, and retained Regulation (EC) No 2019/787 provides the rules for the protection of geographical indications for spirit drinks, including the establishment of the UK GI Register.

In both the retained GB and directly applicable EU versions of Regulation 2019/787, Article 38 obliges competent authorities to assure the production of spirit drinks marketed with a protected GI are produced according to the requirements of the respective Product Specification. The article also specifies that the costs of such verification may be borne by the operators which are subject to those controls. Consequently, the Charging Regulations 2013 specifies that charges for producers seeking verification are to be determined and paid to HMRC by producers.

The United Kingdom (UK) Spirit Drinks Verification Scheme

Under Regulation 5(1) of the Spirit Drinks Regulations 2008, HMRC is listed as the designated competent authority for UK spirit drinks with a registered GI produced and marketed in the UK. This requires HMRC to design and launch verification schemes and ensure spirit drinks with a protected GI comply with the Product Specification – a defining document outlining production particulars for each GI spirit drink.

There are currently six UK GI spirit drinks for which HMRC publishes verification schemes: Scotch Whisky, Irish Whiskey produced in Northern Ireland, Irish Cream produced in Northern Ireland, Irish Poteen produced in Northern Ireland, Somerset Cider Brandy and Single Malt Welsh Whisky.

HMRC fulfils its verification role through the Spirit Drinks Verification Scheme (SDVS). Since its introduction in 2014, the scheme protects the reputation and authenticity of GI spirit drinks in the UK by providing a rolling programme of assurance, ensuring products and brands comply with the requirements outlined in the Product Specification.   HMRC conduct on-site verification visits to production premises across the UK to ensure the requirements of the relevant Product Specification are being met. This protects the name and reputation of spirit drinks from misuse or imitation in the market. HMRC then lists all verified brands and production processes on the SDVS look up service. This provides assurance to producers, consumers and anyone with an interest in the product, of the authenticity of brands and production processes and can help identify where a brand or facility without verification exists.  

Review of the Charging Regulations

The Charging Regulations provide for:

• the publication of verification schemes by HMRC
• the method of making an application for verification
• charges for obtaining verification to be imposed on producers carrying out production processes required to create a relevant GI spirit drink
• 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 invited views on the operation and effectiveness of the Charging Regulations from GI spirit drink stakeholders and trade associations who have been involved in introducing and developing the GI schemes. HMRC has also consulted Department for Environment Food and Rural Affairs (Defra) given their overall responsibility for GI food and drink products.

Findings of the review

The Charging Regulations place an obligation on HMRC to publish verification schemes for each relevant spirit drink. This ensures producers know how to comply with the requirements to market a relevant spirit drink. Details of the schemes are outlined in the relevant Product Specifications for Scotch Whisky; Irish Whiskey, Irish Cream and Irish Poteen; Somerset Cider Brandy and Single Malt Welsh Whisky and the Spirit Drinks Verification Scheme guidance. Stakeholders praised HMRC’s ability to create robust verification schemes ensuring the protection of GI spirit drinks. Defra, which has overall responsibility for GI policy in the UK, expressed that HMRC’s verification system provides assurance that businesses producing and marketing UK spirits drink meet the GI standards set out in the respective Product Specifications.  

The Charging Regulations also set out the method of making an application for verification and the particulars an application must contain. The Spirit Drinks Verification Scheme requires producers and bulk importers to apply for verification before starting production or importation. Applications for verification are completed electronically using the GOV.UK website and in limited circumstances paper applications are accepted. The guidance on how to apply for verification provides further details about the information needed to apply for verification and implications if producers or bulk importers do not apply. Stakeholders raised no issues with HMRC’s current process or the supporting information it provided on the schemes.

The Charging Regulations specify that the cost of verification shall be borne by the producers seeking verification. HMRC sets verification fees aiming for cost recovery in the administration of each scheme on a financial year basis. The verification fees for each GI scheme are published on GOV.UK.

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 every year to ensure they match HMRC’s costs. HMRC is satisfied that the fees charged for each GI spirit drink do not go beyond HMRC costs. During the pandemic, the Spirit Drinks Verification Scheme was impacted by travel restrictions  therefore the standard fee review process was not possible, but instead regular monitoring of fees against costs was carried out as outstanding verification visits were cleared . These reviews informed the decision to allow a 30% discount in verification schemes for one fee cycle with one verification visit to cover the previous and new cycle.

During this review, some stakeholders requested greater transparency in fee setting and the differences in fees set for each GI spirit drink scheme. The Spirit Drinks Verification Scheme launched in 2014, and since its introduction has significantly evolved with new GI spirit drink schemes included in its scope. In 2014, for the Scotch Whisky scheme, the IT investment costs were a significant element of the scheme fee, and were spread over a 10-year period, which is due to end. HMRC will use the end of the investment period to conduct a full review of the fees for all GI spirit drink schemes, consulting industry around any changes to the fee structure for GI spirit drinks. Details of the review will be published in due course.

The Charging Regulations also provide for verification inspections to be undertaken by agents authorised by HMRC. Stakeholders queried whether the use of agents would enable cost reductions in the fees. HMRC would not expect the use of commercial agents to result in any cost reduction in the fees if used as the overall verification decision would remain with HMRC. This provision enables HMRC to authorise agents overseas to carry out verification for overseas operators, if needed, and provides a contingency in the event of resource issues. This facility has not yet been used but is retained if overseas verification is required and where resource issues require alternative operators to carry out appropriate inspections.

Conclusion of the review

In conclusion, the UK Charging Regulations remain appropriate in ensuring HMRC continues to verify the production and marketing of GI spirit drinks. To ensure HMRC continues to efficiently deliver the objectives of the Charging Regulations, HMRC will conduct a full review of the GI spirit drink verification schemes fees in 2024.