All staff must read and make themselves aware of the due diligence checks they must carry out on customers and suppliers.

Due Diligence Checks

Financial health

• you must undertake credit checks or other background checks on the business with whom you intend to trade
• where a poor credit rating is identified, establish how the transactions will be funded – especially what security can be offered that you will be paid
• where credit is offered by the business, confirm who provides the credit facility
• check what payment terms are offered and if they are legally valid and commercially viable

Identity

• check company details provided to you against other sources (e.g. websites, letterheads, telephone directories, Companies House)
• ask (and verify) whether your customer or supplier is a member of a relevant trade association
• obtain copies of certificates of incorporation, VAT registration certificates and excise registration certificates where appropriate.
• where a trade class is quoted on these, check whether or not it relates to the type of trade in which you are engaged
• verify VAT and excise registration details with HMRC, including checks of the online look up system for AWRS approved wholesalers (HMRC recommends that these checks are undertaken regularly for new trading arrangements and proportionately longer for trusted ones, unless you suspect a problem)
• obtain signed letters of introduction on headed letter paper and references from other customers or suppliers
• insist on personal contact with a senior official of the prospective supplier and where necessary, make an initial visit to their premises, and use this opportunity to confirm the identity of the person you intend doing business with and keep a record of your meeting
• establish what your customer’s or supplier’s history in the trade is – and how this can be evidenced
• obtain the prospective customer’s or supplier’s bank details
• in the case of import or export, check if the supplier or recipient shares the same country of residence as their bank
• establish who you will be paying, and if this is the same company as the one with which you are dealing directly
• if you are providing a service check, then who will pay for that

Terms of any contracts, payments and credit agreements:

• carefully consider the terms of any contracts and credit agreements before entering into these, and challenge elements which appear unusual
• confirm what recourse there is if goods are not as described
• if payment is to be made to or from a third party, check if there is a sound legal or commercial reason for that
• if payment is to be made to or from a third party, confirm if to or from an offshore account
• check if there are there normal commercial arrangements in place for the financing of the goods
• where payment is made from an overseas business, confirm how it is to be made
• check if your supplier has referred you to a customer who is willing to buy goods of the same quantity and brand as being offered by the supplier
• confirm if your supplier offer deals that carry no commercial risk for you, for example, no requirement to pay for goods until the payment is received
• consider if the goods are adequately insured
• check whether deals are being offered with no formal contractual arrangements
• where you are buying from a broker, consider:
  • what overall added value does this link in the supply chain provide
  • whether is it possible to source more directly
  • how competitive is the broker’s pricing compared to those from a more direct route
  • how can savings be made in a long supply chain to make it commercially viable
• where transactions are being financed by a third party, check if this person is a regulated financial body (e.g. bank, credit institution, etc)

Transport

Check

• who is responsible for the transport and if the cost of the goods is inclusive of transport and, if so, does that mean potential logistical costs make the unit price commercially unprofitable
• that details of delivery vehicles are retained and, if necessary, any variations to expected transport arrangements are recorded

Existence or Provenance

Consider

• how the trader contacted you
• if the goods exist
• if can you inspect the goods before purchasing them
• if they are in good condition and not damaged in any way
• if the quantities on offer seem credible for the type of business with whom you intend to trade
• ensuring you have sufficient detail to confirm the goods are duty paid

The Deal

Review

• the nature of the transaction, including:
  • does it just look too good to be true
  • if the alcohol has come from abroad but is of UK origin, how did this occur and why
  • where incentives are offered, when these are taken into consideration does this make the overall deal seem too good to be true
  • why is it being offered
  • have normal commercial practices been adopted in negotiating prices
  • how does the price compete with that offered by competitors
  • what is the age of the goods – if the stock is old you should seek an explanation as to its provenance
  • does the price seem realistic – you should be aware of unit cost when duty and VAT values are removed
• if you are already established in a trading agreement, HMRC recommends you continue to monitor correspondence and business paperwork to identify changes in those arrangements and take any follow up action as necessary

Trade Buyers’ Obligations

It is an offence to buy alcohol for re-sale from unapproved UK wholesalers. With the exception of purchases direct from overseas suppliers and purchases from licensed retailers who are making only incidental sales, trade buyers must ensure that wholesalers they purchase from have been approved by HMRC.

To ensure your purchase is legitimate, as a trade buyer you will need to carry out sufficient due diligence. You must demonstrate to HMRC you requested a wholesaler’s URN and have checked its authenticity before you do business with them.

You should periodically refresh these checks to the extent that you consider it necessary, this to ensure that a wholesaler’s HMRC approval remains valid.

As part of your checks in verifying the AWRS URN, consider whether the number you have been given relates to the wholesaler with whom you are dealing.  AWRS numbers are displayed on invoices and other business correspondence, so it is possible that someone may attempt to use a legitimate number belonging to another company.

HMRC may seize stock supplied from an unapproved UK wholesaler, apply penalties of up to £10,000 and even prosecute, so you must satisfy yourself that you bear and carry no risk. In addition to using the online look up service to verify the URN, reasonable checks may include, but are not limited to, considering:

• how you know the supplier
• if the supplier acts like a legitimate business
• how the supplier contacted you
• if you have the supplier’s contact details (names, phone numbers, business address) and if these match the AWRS record
• how payment will be made
• to whom you will make payment
• if the name of the business you are paying match the name on the AWRS record
• if the business only accepts cash
• if you get a receipt, purchase order and/or invoice

If a trade buyer is found to have purchased from an unapproved wholesaler, they could face prosecution, be liable to a penalty, and alcohol stock may be seized. If the trade buyer also holds a retail licence, HMRC may also apply to the relevant licensing authority, for them to consider penalties to the trader’s retail licence to sell alcohol.

Checking a Wholesaler is approved

HMRC provides an online look up service that allows trade buyers to look up the details of their alcohol suppliers to ensure that they are approved for AWRS.

The user will be able to enter the AWRS URN of the wholesaler and the service will return sufficient details to allow the user to confirm that the wholesaler is approved.

This will include the wholesaler’s approval number, their date of registration, the business name and trading name, and their principle place of business. For groups it will also show details of the representative member and other members of the group, trading names and addresses.

If a wholesaler has been approved, but has since ceased trading, the look up will return the dates that the wholesaler was removed from the register.

Accessing the AWRS online look-up system:

• The online look up service is available on GOV.UK. Search for ‘Check for approved alcohol wholesalers or producers’
• Your wholesaler should have provided their URN which can be entered in the search facility. If the wholesaler has been approved, you will see a screen which shows ‘approved’ under the name of the wholesaler. This should then be printed or the page saved for your records, this check will support your normal due diligence checks.
• The businesses will be shown on the register until they’re no longer approved either when HMRC revokes the approval or the business ceases to trade.

What to do if you find you are dealing with a wholesaler who is not (or no longer) approved:

• If you find that a wholesaler you’re purchasing from is not approved, you should first check to ensure that the sale is not excluded from the scheme (see Section 4)
• If you are sure that the purchase should fall within the scope of the scheme, you should not continue with the purchase and you must notify HMRC immediately.
• You can notify HMRC at Customs, excise and VAT fraud reporting here