…but the law will win.
It’s a small world that the whisky community is. I found this out while making my insurance claim. A whisky broker that I contacted to help value my collections possible drop in value due to flood damage already knew about my wee misfortune due to him also dealing with my insurance broker. There had been no disclosure of information, just a mention that my broker was dealing with a whisky flood claim and then me contacting them allowed him to put two and two together to get four.
After dealing with the issues in hand, we continued a whisky geek-out over the phone, and when discussing our collections the discussion came across selling the collection. It had been my intention to sell piecemeal, but with such a large collection it was suggested that I need to be careful with tax. My broker informed me that the HMRC are starting to pay more attention to whisky auction sales, and in particular whether people are turning over more bottles in such a way that they can be classed as traders. While I am aware of the issues of Capital Gains Tax (CGT), it was suggested that I research the badges of trade, as piecemeal selling can be seen by HMRC as acting as a trader and therefore exposed to different tax liability. The same goes for casks – if you have more than a handful of casks, you may be also classed a trader depending on your potential situation.
The nine badges of trade relate to ‘tests’ that HMRC apply to a situation to determine whether or not a person is gaining income as a result of operating as a trader or whether the income is as a result of a sale of a personal goods. The nine badges of trade can be found here -: https://www.gov.uk/hmrc-internal-manuals/business-income-manual/bim20205
While these are not exhaustive, this could be used against you where you are selling bottles at auction on a regular basis, in particular high value bottles. If you are seen as a trader, then you could be facing a tax bill of hundreds or even thousands, as this tax could be applied at up to 45% depending on your other income. At best, you will have to pay Capital Gains Tax, as bottled whisky is not seen as a wasting asset. If you are a higher rate tax payer, capital gains tax is 20% on the profit made. If you are a basic rate tax payer, this is 10% up to the limits of the basic tax rate, and 20% above it.
Example – you have an income of £25,000. Basic tax rate is £50,000. You sell a collection of rare Macallan for a profit of £40,000. Your tax liability for the sale is £2500 for the portion of profit below £50,000 and £3000 for the £15,000 above the £50,000 threshold. Total tax bill is £5,500.
The reason I mention a rare set of Macallan is that recently a Scottish man who bought a bottle of Macallan 18 every year on his son’s birthday since his birth is to sell it for a reported £40,000. This was published in the newspapers, (see here https://www.dailyrecord.co.uk/lifestyle/food-drink/man-scoop-40k-whisky-bottles-22580659 ) and I’ll be sure that the HMRC are watching this. I know the person brokering the sale, who is Mark Littler, so I know that Mark will be conducting the sale with absolute integrity. I don’t know the full details and am reticent to ask as Mark will have client confidentiality to observe. In cases like this, tax liability can be variable depending on if the bottles are seen as individual items or a set. As the gentleman paid about £5000 for the whisky, that is a taxable income of at least £35000. It’s worth remembering that it doesn’t matter if you give the whisky or money to your offspring as the law also includes the disposal of assets. Capital Gains Tax can be reviewed here https://www.gov.uk/capital-gains-tax/rates.
It brings home to me that I have this headache to contend with when I eventually sell my collection. The almost perfect Flora and Fauna collection which will almost certainly be worth more than £6,000 may have to be broken up to sell, as the chances of me making more than that in profit are high. Plus, selling an entire whisky collection at auction not only risks flooding the market, you just don’t know what prices you will get. I guess you can’t predict auctions or what the demand will be when you come to sell.
Don’t assume that you can hide in the shadows. I’ve heard on the grapevine from a separate source to the broker valuing my collection that heavy users of auction houses that live in the Speyside area have been visited by HMRC, and this has been corroborated by one or two other sources. While this remains not 100% confirmed and the gossip remains circumstantial, there is enough smoke to guarantee a smouldering fire. Auction houses due to the nature of their businesses and the large amounts of money being traded are more likely to be audited, simply on the potential for money laundering. Should a particular client use them consistently for large amounts of money or many trades, this will not go unnoticed. Bear in mind the nine badges of trade – one of the badges refers to frequency of transactions. Be careful.
Lastly, if you are determined to be a supplier of alcohol or trader you may need to be registered as an alcohol wholesaler, and apply for AWRS, which is the Alcohol Wholesaler Registration Scheme. Failure not to comply is subject to penalties. Details of AWRS are here. AWRS guidance
So what else do us whisky geeks have to fear from the authorities? It isn’t just collectors that can fall foul of the law, us whisky bloggers can too, in particular those with YouTube channels. Now, I’m not up to speed with YouTube apart from wasting time on it watching other whisky geeks, but I gather that you can make money depending on your channel subscribers. Plus, many whisky vLoggers and bloggers use Patreon to fund their channel and whiskies for reviews. One vBlogger I am aware of due to the amount of Patreon subscribers they have easily has an income of around £16000 a year after the 5% fees are considered. Just let that sink in. I know people in full time work don’t earn that much. As long as this is declared on the tax return, there won’t be any problem, but further gives more justification to the HMRC classing the income as trader income, particularly if the channel also has merchandise.
The next thing that bloggers can fall foul of is receiving free samples from distillers or retailers. That is essentially being paid to review, therefore regardless if you give it a good review or not, do it often enough and you can be termed as a de facto business. If not that, then it can be termed as an income, in the same way as business gifts in the corporate world.
As a fellow blogger, yes I’ve got business cards made to direct those interested to my site. But I see many vBloggers with coins, Glencairn glasses, glass toppers and other merch. I’ve had a handful of coffee mugs I’ve made up with my blog logo, but there is no financial transaction – these are given solely as gifts. Again, charging for products and having logo emblazoned merch will also help persuade the authorities you are operating as a business, if taken in consideration with other factors.
Neither do I accept free samples or invitations from distilleries (yup, I’ve had them), as unlike some others, I’m not into whoring myself out to corporate interests, regardless of size of distillery. That’s not where my whisky journey was to take me and I was never seeking that kind of attention. That’s because expectations and commitments can grow and I’m busy enough with my day job. I’ll accept tasters from various retailers or friends but I’m not expected to review. It’s genuinely just for me to taste. If I do review its because I don’t want to open a full bottle.
And that brings me nearly to the last way we can fall foul of the authorities. This one will not make me popular I fear, but is hard fact and I’d hate not to say something only for a fellow whisky geek to get caught out.
Sample swapping. Especially if you have a blog or YouTube channel you actively use. The long and short of it is that it is breaking the law. “Ya boo sucks!” I can hear, but I’ll explain the law in Scotland. It is broadly similar in England and Wales. The following is paraphrased from the Personal Licensing Hand Book 2nd Edition – this is the guide book for people that covers the Licensing (Scotland) Act 2005 for people training to obtain a personal license.
1/ it is illegal to sell or give away for free any alcohol from a premises without a Premises Licence or an Occasional licence. A person has to be a personal licence holder to apply for an Occasional licence.
2/ It is also illegal to sell or give away alcohol without a personal licence or a personal licence holder present.
3/ It is illegal to sell alcohol or provide alcohol without an age verification policy (Check 25).
In Scotland alcohol is strictly controlled (believe it or not!) and traders not carrying out the required procedures for the sale or provision of alcohol can face a fine of up to £20,000. If you have a blog, are supplying samples even if they are free, then you could be potentially in a lot of trouble should the authorities become aware of it. They usually come down hard on the offender.
You don’t just need to say you are following the procedures, you need to have it written down in an operating plan which you’d only have if you were a business, as the chances of you being able to run under an Occasional Licence are nil; these are designed for events that take place on non-licensed premises and are temporary. That is the catch that could see you in trouble on 2 fronts.
Potentially only way around this is to demonstrate you know anybody you’ve supplied samples to personally, and not just an online ‘friendship’. For instance, I only give samples to work colleagues who I can demonstrate quite easily that I know personally. And as a personal licence holder I’m not wanting to jeopardise it.
Whisky clubs that meet on licensed premises still need to meet licensing regulations. If you meet in your own homes and no charge is being made for attendance then licensing obligations do not apply. This can be termed as a personal gathering.
Just think about how you could be opening yourself up to prosecution online using social media by advertising the fact that you are swapping samples, especially those with your blog logos on them. It could be argued you meet a badge of trade if you also have merchandise, and you will almost certainly be falling foul of licensing law if not properly licensed. To have a logo on illegally supplied alcohol would be the final nail in the coffin.
I hate to be a killjoy, but with the HMRC starting to take more of an interest in online auctions, it may just be a matter of time before social media falls victim to the attention of the authorities. Returning to my opening sentence of the article, it is a small world within the whisky community, especially online social media community, and should one fall, the potential for others to go like dominoes is always there. And trust me; I have to deal quite a lot with the HMRC due tax issues regarding my work overseas and involvement with differing tax jurisdictions. They are like Pitbull Terriers when they want money and I’ve heard of colleagues being bankrupted by them.
Worse still, if you are caught sending out alcohol without a license, then that is dealt with by the local licensing board and that will involve the police and a potential criminal record. Quite a sobering thought.
Whisky has been regulated for centuries. From the days of the illicit stills, people trying to get one past the authorities has always happened. But in these days of internet communication the chances of getting caught could be a lot higher. And crucially easier for them – the burden of proof is on you.
Just remember the Clash song. They fought the law, and the law won.
Yours in Spirits
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