Guidance: Storing, processing or producing excise goods in a Freeport customs site

Overview

This guidance explains who can operate in excise goods in a Freeport customs site (also known as a ‘free zone’) and what you must do. You should read it if you:

• want to import, export, produce, handle, store, process, package, transport or deal in excise goods in a Freeport customs site
• want to be authorised as a Freeport excise business (also known as a ‘free zone excise business’) and approved to operate a Freeport excise warehouse (also known as a ‘free zone excise warehouse’) and:
  • wish to be approved and registered as a Freeport owner (also known as a ‘free zone registered owner’) to deposit excise goods that you own in an authorised Freeport excise warehouse
  • wish to be approved and registered as a Freeport duty representative (also known as a ‘free zone duty representative’), acting on behalf of an overseas trader

A ‘free zone’ means an area in the UK designated as a special area for customs purposes under section 100A of CEMA 1979.

A free zone registered owner means a revenue trader who has been approved to deposit relevant excise goods that they own in a free zone excise warehouse under regulation 85D(2).

A Freeport duty representative means a revenue trader who has been approved to act as agent for overseas revenue traders under regulation 85D(3).

HMRC can choose whether to:

• allow an existing authorisation or approval to continue
• approve and register new Freeport excise businesses and premises
• approve new and additional premises
• approve and register new Freeport owners or Freeport duty representatives of excise goods

You may get a penalty if you do not apply for authorisation or approval at the correct time.

HMRC will always:

• review the compliance of existing authorised Freeport excise businesses
• check all new applications

Who can be authorised as a Freeport excise business to operate a Freeport excise warehouse

An authorised Freeport excise business is approved to operate a Freeport excise warehouse to either:

• declare goods to a Freeport procedure (also known as a ‘free zone procedure’)
• carry out a Freeport activity (also known as a ‘free zone activity’)

An authorised Freeport excise business means a business which is authorised as a ‘free zone’ business who is also approved to operate a free zone excise warehouse in accordance with regulation 85C. A free zone procedure means a storage procedure described in paragraph 2(1)(b) of Schedule 2 to the Taxation (Cross-border Trade) Act 2018.

A Freeport excise warehouse is a place of security for the deposit, keeping and securing of excise goods in a Freeport procedure.

A Freeport activity is an activity that falls within the description in regulation 3(2)(c) of the Customs (Special Procedures and Outward Processing) (EU Exit) Regulations 2018.

Applying to be authorised as a Freeport excise business to operate a Freeport excise warehouse

You must apply to use the Freeport customs special procedure. The application form must be completed and signed by a responsible person within the business. This will either be:

• the sole proprietor of the business
• one of the partners if the business is a partnership
• a director or the company secretary or an authorised signatory if the business corporate body

As part of your application you must include:

• copies of drawings or plans showing details of the proposed warehouse area seeking approval
• a copy (or a summary) of your premises’ health and safety risk assessment
• any other information that we may request (for example, business plans)

Your application will be considered and we will carry out background checks. Should these checks not be enough for us to decide, we might ask for more information. Until this information is received, your application will be on hold.

You may receive a pre-approval visit for us to get information to help in processing the application.

During any visits to your premises, we will examine all the business’s activities and may ask about your:

• suppliers
• customers
• business plans
• accounting systems
• premises
• financial viability
• other relevant matters

An important part of the application process is the fit and proper test.

You’ll need to prove you are fit and proper to carry on excise activities within the Freeport to be granted approval. Read more about the excise fit and proper tests in Excise Notice 196.

For HMRC to consider approving your Freeport excise warehouse you must:

• show a genuine need for Freeport excise warehouse storage facilities in the area
• provide a guarantee (if we decide one is needed)
• make sure that the premises are secure
• make sure that the premises allow HMRC safe access to all approved areas and duty-suspended stock
• make sure that your systems allow us to carry out an audit and any other checks
• meet all the conditions set out in this guidance
• meet any other conditions which we may impose on your approval

When we authorise you, you’ll get a letter that sets out the authorisation conditions and what you need to do next.

Your obligations as a Freeport excise business to operate a Freeport excise warehouse

Before you accept goods into your warehouse you must make sure that:

• the owner of the goods is an authorised Freeport excise owner
• if the depositor is an overseas owner, they have appointed a Freeport duty representative
• the owner does not require registration
• if you are dealing with alcohol goods you need to carry out due diligence on your supply chains to ensure goods are legitimately sourced

Carrying out due diligence

Due diligence is the care a company applies when:

• starting business relations or contracts with other companies
• responding to trading risks identified

Without due diligence, there are risks across supply chains of becoming implicated in illicit trading.

Doing so will help to:

• prevent illicit trading in alcohol supply chains
• reduce the risk to businesses of financial liabilities on goods with which duty has not been paid

Due diligence is a condition of your approval. Read more about due diligence in Excise Notice 196.

Keeping records

As part of the procedure for authorising you as a Freeport excise business, you must prove that you can keep commercial records.

Your records must show details of all excise goods received, stored, processed and removed from your premises.

Electronic records

If you keep digital records (for example, online), you should tell us about the software you plan to use when you apply to be a Freeport excise business.

HMRC does not endorse any specific software package. Software packages which are used in one warehouse may not be appropriate for use in another.

Access we require

When considering granting approval to use your specified software package we need:

• right of access to your computer systems and the data and documentation, including financial and management systems
• the facility to download data for any checks and audit work that we may carry out off-site
• you to provide any necessary assistance to our officers whilst carrying out audits of your systems
• you to have adequate back up in place, with fallback and disaster recovery systems
• advance notice from you of any proposed changes to the software package — you cannot introduce any changes that may affect the system’s ability to account for the excise goods without our approval

You must make sure that safeguards exist to protect your system from unintentional corruption. If necessary, we’ll ask you to:

• provide a terminal for official use, which is capable only of printing, reading files and displaying information on the computer
• allocate a unique password to our officers which will allow us to access the files on a ‘read only’ basis
• maintain a record of changes to programmes
• prevent unauthorised access to data

Marking and controlling your stock

Whilst operating a Freeport excise warehouse you must mark all excise goods, so that you can easily identify them in your stock accounts. They must always have clear and tamper-proof markings, from arrival to removal.

You should keep all excise goods in identified locations so that you can trace them to the stock account. You must note the appropriate stock account whenever you move excise goods to a new location in the Freeport excise warehouse.

You may use any system to meet these requirements (for example, bar coding), providing that you can establish an audit trail.

A stock account must show:

• a commercial description of the product the quantity received (for example, for alcohol in litres for all goods other than spirits which should be in litres of alcohol)
• the alcoholic strength of the product
• the quantity received in cases, casks or polydrums
• a unique identifying reference number
• the date received
• the owner of the goods

You must also make sure that:

• your stock records accurately record any change of ownership
• all Freeport owners of relevant goods are registered with HMRC and the date that you examined their certificate or, if appropriate, the Freeport duty representative’s certificate
• full details of Freeport owners and Freeport duty representatives are available to us

Storing excise goods with different duty status on a single approved site

Under certain conditions, we will allow you to store excise goods with different duty status on a single approved site. This is known as ‘co-storage’.

You may store goods:

• that are liable to excise duty which are suspended under the Freeport special procedure
• on which excise duty and any other duties have been paid (in other words UK duty-paid goods)

When you apply to use the Freeport customs special procedure, you must tell us if you wish to store duty paid or non-excisable goods.

You must satisfy HMRC that your accounting system is capable of:

• identifying and recording the location and duty status of all the excise goods
• running the various accounting routines for all classes of excise goods
• showing clearly when duty becomes due

Your system must be robust enough to make sure the correct duty status is shown at all times. For example, duty suspended goods must not be shown as duty paid without prior payment of duty.

Permitted operations in a Freeport warehouse

You may carry out operations on your goods as long as HMRC has:

• approved you to receive and store excise goods in bulk
• not specifically restricted your authorisation by imposing any conditions or restrictions.

You must list all operations you wish to carry out on your application.

HMRC can impose conditions or restrictions on operations you perform to reduce the risk of duty not paid.

Records you must keep for operations performed

When carrying out any operation in a Freeport excise warehouse on duty-suspended goods, you must keep accurate records.

You must:

• take and record your accounts immediately before and after each operation
• keep an accurate record of any cleaning agent used
• tell HMRC about any gains and losses from any operation

You may mix goods of different descriptions in one case if you make sure that your accounting system lets you account for the goods concerned. You must use the correct tax type and duty rate for each of the products in the mixed case whenever you pay duty.

Contact HMRC if you have any doubts about the capabilities of your proposed system.

For all operations you must:

• record details of any mechanical breakdowns where losses have occurred
• make sure that you take account of and keep secure all remnants from any operation
• keep a separate record of losses (by type) to establish loss patterns
• investigate and record the reasons for any losses or gains outside your established loss patterns
• make sure that all empty packages not intended for immediate reuse are removed from warehouse or placed in packaging materials compartments without delay
• denature or destroy used pads following filtration or other operations
• bring into warehouse only empty packages and quantities of packing materials required for immediate use — you must remove or obliterate any previous identifying marks

Gains and losses during operations

We accept that there will be gains or losses from any operation carried out in a warehouse, and we do not set tolerances or ‘allowable losses’.

It is the authorised Freeport excise business’s responsibility to:

• maintain controls on all operations
• accurately record any gains or losses

Any gain resulting from the operation must be immediately added into the appropriate stock account. Any loss should be recorded and investigated.

You must show that any loss is within your business’s established parameters (considering the type of operation, product, machinery, temperature, and so on). If you fail to do this, or your explanation is not accepted by HMRC, we may ask you to account for the excise duty.

Statements on labels

We may not let you use labels, wrappers, cases or printed matter contained in cases with incorrect or misleading statements or words. For example:

• claiming an exclusively British origin for spirits which are shown by the records to be imported spirits, or vice versa
• claiming an exclusively British or an exclusively foreign origin for spirits which are shown by the records to be a mixture of British and imported spirits
• implying, directly or indirectly, that the trader concerned is a licensed distiller when they do not hold a distiller’s licence
• indicating that the spirits are ‘Scotch whisky’ or ‘Irish whiskey’ when the legal requirements relating to these descriptions are not fulfilled

If you print labels in a foreign language, you must provide an English translation on request.

We may need you to provide written clearance from a Trading Standards Officer for the use of any label. The Food Labelling Regulations contain other requirements for labels on alcoholic drinks. Get more information from either:

• your local Trading Standards Office
• the Food Standards Agency

Production of excise goods in a Freeport

You can produce excise goods under the Freeport procedure, if you get the correct authorisations.

When you apply to use the Freeport customs special procedure you must show that you plan to produce excise goods in the Freeport.

You’ll also need to:

• apply for the relevant production authorisation (for example, to become a Registered Brewer)
• follow the terms and conditions of that authorisation

You can check information on excise production in:

Destruction of goods and deficiencies in stock

If you plan to destroy excise goods within a Freeport excise warehouse, you can only do it if HMRC has authorised you. We retain the right to impose any conditions necessary.

Goods will be treated as having been released for consumption in the UK where either:

• excise goods are destroyed without permission
• deficiencies in stock are identified

You must declare these goods to free circulation and account for all duties.

Cancelling your registration

If you want to cancel your registration you must email: freeportbusinessapplications@hmrc.gov.uk. You should email at least 30 days before the date on which you need HMRC to cancel your registration.

If we agree to cancel your registration, we will inform you in writing.

On the date of cancellation, you must destroy your certificate of registration.

HMRC may cancel your registration at any time and if we do so we will inform you in writing, giving our reasons for the cancellation. We will offer you a review of our decision or you can appeal direct to the independent tribunal.

When your registration is cancelled, you must immediately destroy your certificate of registration. You cease to be a Freeport excise business the instant we cancel your registration.

Who can be authorised as a Freeport owner or Freeport duty representative

HMRC must approve and register all owners of duty-suspended excise goods stored in a Freeport excise warehouse, unless:

• the goods belong to the authorised Freeport excise business
• the owner of the excise goods is not a revenue trader
• the excise goods are wine or made-wine
• the excise goods are hydrocarbon oils, bioethanol, or special energy products
• you are a non-UK based owner and have appointed a Freeport duty representative to act on your behalf

Approved and registered Freeport owners and duty representatives must produce their registration certificates to the authorised Freeport excise business.

If HMRC issue an amended or varied certificate to a Freeport owner or Freeport duty representative, a copy of the new certificate must be provided to every authorised excise Freeport business in which the owner’s goods are stored. The certificates will contain details of any conditions imposed by us.

We will confirm the validity of any registration if an authorised Freeport excise business supplies their certificate with their name and registration number.

We will not give out any information regarding conditions or restrictions. These details will be on the registration certificate provided to the Freeport owner.

Applying to be authorised as a Freeport owner or Freeport duty representative

Applying as a Freeport owner

To get approval to own excise goods held in a Freeport excise warehouse you must apply to HMRC.

Your application will be considered against the fit and proper tests explained in Excise Notice 196.

An owner can be a sole proprietor, a partnership or a limited company. The application form must be completed and signed by a responsible person within the business. This will either be:

• the sole proprietor of the business
• one of the partners if the business is a partnership
• a director or the company secretary or an authorised signatory if the business is a corporate body

As part of the application process, you must send an up to date business plan. You may also need to send further business papers to help your application. If you do not supply this information, we will place your application on hold until you send it.

If you cannot provide a business plan or other requested information, email: freeportbusinessapplications@hmrc.gov.uk. Failure to do this will result in your application not being processed until you send it.

If any applicant provides false or misleading information on the application form, we may:

• cancel any approval which we have granted
• impose financial penalties
• prosecute the applicant

If we approve your application, we will give you a certificate of registration which will contain:

• your unique registration number
• your name and (if different) your trading name
• your address
• any conditions or restrictions which apply to your registration

You should quote the unique registration number on all correspondence with HMRC about your registration. You should also have it available when contacting us.

If we do not accept your application, we will inform you in writing and give our reasons for the rejection. We will offer you a review of our decision or you can appeal direct to the independent tribunal.

If you do not have a business address in the UK, you will be unable to keep the goods in an authorised Freeport excise business for more than the initial period, which is 72 hours (excluding bank holidays) from the time of deposit.

You should appoint a duty representative if:

• you are an overseas revenue trader
• you want to hold excise goods in duty-suspension in a Freeport excise warehouse beyond 72 hours

Applying as a Freeport duty representative

To be a Freeport duty representative you must apply to HMRC.

The application form must be completed and signed by a responsible person within the business. This will either be:

• the sole proprietor of the business
• one of the partners if the business is a partnership
• a director or the company secretary or an authorised signatory if the business is a corporate body

Applications for Freeport duty representative approval will be considered against the fit and proper tests explained in Excise Notice 196.

You must check before acting for an owner that any owner you represent does not have either a:

• business establishment in the UK
• fixed address in the UK

You should keep evidence that they have carried out such checks before you act for them.

Failure to complete these checks and hold the required evidence will result in your registration being revoked. It may also affect any other excise registrations or approvals you hold.

Your obligations as a Freeport owner or Freeport duty representative

Conditions that may be applied to a Freeport owner and Freeport duty representatives

All Freeport owners and Freeport duty representatives must comply with the conditions and restrictions detailed in this guidance. HMRC may also apply specific conditions (for example, restrictions of the type of goods that can be held) which we will list on your certificate of registration.

Changing registration details

If the legal status of your business changes (for example, a sole proprietor becomes a partnership), the new legal entity must apply to become a Freeport owner before taking ownership of the excise goods. This also applies for Freeport duty representatives. We will not automatically approve the new applicant.

If there is any change to the key people involved in the business, we may review the registration after considering the fit and proper criteria. Following this review, your registration may be withdrawn or have conditions added.

For any other changes to the details contained on your certificate of registration (for example, a change of address) you must email: freeportbusinessapplications@hmrc.gov.uk within 7 days of the change taking effect.

We will provide you with a new certificate, then you’ll have 7 days to provide a copy of it to every Freeport excise warehouse where your goods are deposited. Failure to notify changes to the details shown on your certificate of registration may result in the issue of a financial penalty.

You must destroy the previous certificate as soon as you receive the new certificate.

Change of ownership of goods in a Freeport excise warehouse

The Freeport owner or Freeport duty representative must tell the Freeport excise business before any duty-suspended goods are sold whilst held in their premises.

The new owner must produce their registration certificate to the authorised Freeport excise business, which will contain details of any conditions attached to the registration.

If the new owner is a revenue trader but not registered with us, this creates a duty point and the duty is due to HMRC immediately. In this instance the Freeport excise business, the buyer and the seller will all be jointly and severally liable for the duty. If this happens, you as a Freeport excise business, or the buyer or seller, should contact HMRC.

Similarly, an overseas Freeport owner of duty-suspended goods must give you 72 hours’ notice of a change of their Freeport duty representative. They must also give 72 hours’ notice of any change to their duty representative.

You can get confirmation of the validity of the registration from: freeportbusinessapplications@hmrc.gov.uk.

Cancelling your registration

If you want to cancel your registration as a Freeport owner or Freeport duty representative you must email: freeportbusinessapplications@hmrc.gov.uk at least 30 days before the date on which you require HMRC to cancel your registration.

If we agree to cancel your registration, we will inform you in writing.

On the date of cancellation, you must destroy your certificate of registration.

HMRC may cancel your registration at any time and if we do so we will inform you in writing, giving our reasons for the cancellation. We will offer you a review of our decision or you can appeal direct to the independent tribunal.

When your registration is cancelled, you must immediately destroy your certificate of registration and inform every authorised Freeport excise business in whose premises your goods are deposited. You cease to be a Freeport owner the instant we cancel your registration.

If you are a revenue trader and your registration is cancelled you (Freeport owner) will be jointly and severally liable with the authorised excise Freeport business and the person or persons who owned the excise goods immediately before and after the excise duty point (and any Freeport duty representative of either of the Freeport owners), for the excise duty due. If you are not a revenue trader and your registration is cancelled your goods can remain in duty-suspension in the Freeport excise warehouse.

Protocol to Eliminate Illicit Trade in Tobacco products

You must comply with Article 12 of the Protocol to Eliminate Illicit Trade in Tobacco when removing tobacco products from the Freeport procedure and make sure they are not intermingled with non-tobacco products upon their release.

For Freeports and international transit Article 12 states that:

1. Each Party shall, within three years of the entry into force of this Protocol for that Party, implement effective controls on all manufacturing of, and transactions in, tobacco and tobacco products, in free zone by use of all relevant measures as provided in this Protocol.
2. In addition, the intermingling of tobacco products with non-tobacco products in a single container or any other such similar transportation unit at the time of removal from free zone shall be prohibited.
3. Each Party shall, in accordance with national law, adopt and apply control and verification measures to the international transit or transhipment, within its territory, of tobacco products and manufacturing equipment in conformity with the provisions of this Protocol to prevent illicit trade in such products.

After you’ve been authorised

We may visit you and your approved premises to carry out checks on:

• production
• operations
• warehousing

Our controls consist of both audit based and physical checks. While our officers are on your premises you must make sure of their safety in line with the relevant Health and Safety Acts. If you do not provide safe access to your premises and goods held, we may restrict or withdraw your authorisation.

We will normally arrange appointments to visit your premises, but we may also make unannounced visits, particularly when undertaking physical checks. You must give HMRC officers access to any area of your premises during business operating hours or at any time when activity is taking place at the authorised Freeport excise business.

All HMRC officers carry identification which they will produce upon arrival or on request.

Once you are authorised to operate as an authorised Freeport excise business, approved as a Freeport owner or Freeport duty representative you have certain obligations under the law. Failure to fulfil these obligations or observe any condition of your authorisation and approval could result in one or all of:

• restriction of your authorisation and approval
• withdrawal of authorisation and approval of some or all the sites for which you are an authorised Freeport excise business
• withdrawal of your Freeport owner or Freeport duty representative approval
• non-renewal of your authorisation or approval for some or all the sites for which you are an authorised Freeport excise business
• non-renewal of your Freeport owner or Freeport duty representative approval
• the imposition of a financial penalty
• goods may be liable to forfeiture and you may also be liable to pay any duty due

Authorised Freeport excise businesses involved in alcohol must make sure that they carry out appropriate due diligence checks on their suppliers, customers and supply chains. Read more about due diligence in Excise Notice 196.

Review and appeals procedure

Decisions which you can ask to be reviewed and may appeal are decisions to:

• refuse approval or to revoke an approval
• apply a penalty and the amount of any penalty
• apply any additional conditions or restrictions

If you do not agree with any of these decisions, you can:

• tell the person who issued the decision if you have further information or you think HMRC has missed something
• ask for it to be reviewed by an HMRC officer not previously involved in the matter
• appeal to an independent tribunal

Time limits for requesting a review or an appeal

If you want HMRC to review a decision, you must write to the person who issued the decision letter within 30 days from the date of that letter.

Your written request should set out clearly:

• the full details of your case
• the reasons why you disagree with the decision
• any supporting documentation

You should also state what result you expect from the HMRC review. HMRC will complete a review within 45 days unless they agree another deadline with you.

Appealing after HMRC has completed their review

Send details of your appeal to the tribunal within 30 days of the date of the HMRC review decision letter.