Update 21st April 2009

Dear All

Common calculation method for duty on alcoholic beverages

In my update of 10 December 2008, I advised you that HMRC intended to legislate for the common calculation method to remove any uncertainty that might be caused by misinterpreting the existing law. However, lawyers have now reflected further on this proposal and concluded that any new legislation would merely restate provisions that already exist in law and so would be superfluous and unnecessary.

Therefore, we will not now be introducing the common calculation method through regulations. The provisions in section 137(3) of the Customs and Excise Management Act 1979 allow HMRC to specify that the volume of alcohol must be calculated to a minimum of 4 decimal places.

We will update the relevant public notices in due course.

The implementation date for the common calculation method remains 1 June 2009.

Yours sincerely

Paul Manson

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Dear All

Calculation of excise duty on alcohol and alcoholic beverages – update on the introduction of the common calculation method

Please find an update to the information paper of 8 August which set out the requirements of the common calculation method.

1. Alternative methods of calculation

As previously notified, under the common calculation method, any constituent stage in the excise duty calculation process is to be worked out to a minimum of 4 decimal places.

However, in order to keep business system changes to a minimum, alternative methodologies for duty calculation will be permitted, providing they do not produce any less duty than would be the case under the requirement for 4 decimal places.

Examples of permissible alternative methodologies include where a system:

· rounds up to, say, 2 decimal places, or

· rounds up and rounds down to, say, 2 decimal places (e.g. 10.237 is recorded as 10.24 and 10.234 is recorded as 10.23) but does not produce any less duty than would be the case under the requirement for a minimum of 4 decimal places.

A system that truncates (rounds down) to 2 decimal places throughout the duty calculation process would not be acceptable, as it would result in less duty than the 4 decimal place calculation.

It will be for individual businesses to decide if their duty calculation system meets the requirements for an acceptable alternative methodology.

If a business adopts an alternative methodology that actually produces less duty than would be the case under the requirement for a minimum 4 decimal places, the business would be required to introduce an acceptable method and may be liable to a civil penalty. Additionally, HMRC would call for the duty underpaid as a result of adopting an unacceptable methodology.

2. Providing a legislative basis for the common calculation method

We are legislating to provide for the level at which the duty calculation is performed in order to avoid any uncertainty that may be caused by misinterpretation of current law.

We intend to circulate the draft legislation for comment once it becomes available.

3. Revised date of implementation

We expect all businesses to be calculating duty using an acceptable method described above by 1 June 2009 at the latest.

4. Calculation at container level

The duty calculation is based on the total volume of alcohol removed to home use and not on the duty due per container.

For example, if you remove a total of 1500 kegs of beer to home use during an accounting period, the duty calculation will have to be based on the total hectolitres % of beer in those 1500 kegs and not the duty due on 1 keg, multiplied by 1500.

Similarly, if you remove a total of 800 cases of vodka to home use, each containing 12 bottles, the duty calculation will have to be based on the total litres of alcohol contained in those 800 cases and not the duty due on 1 bottle x 12 x 800, or the duty due on 1 case x 800.

5. Extent of the application of the common calculation methodology

Although we have considered extending the calculation methodology to duty suspended removals, it need only apply to the calculation of excise duty.

6. Impact Assessment

Further to comments from some alcohol trade associations, we will shortly be approaching individual businesses to ask for details of the likely impact on them of the common calculation method. This will inform us whether a formal Impact Assessment will have to be published.

7. Providing an update to individual businesses

We will be writing to individual businesses shortly with an update on the implementation of the common calculation method.

Should you have any queries, please do not hesitate to contact me.

Regards

Paul Manson