Operators run risk of HMRC fine for cocktail deliveries

UK law firm TLT is highlighting that businesses need special permission from HMRC for the off-sale of pre-mixed cocktails, as home deliveries boom under lockdown.

Called a compounder’s licence, HMRC can impose penalties if operators are engaging in these practices without the necessary paperwork. The licence is necessary even if a business is mixing the cocktails at an on-licensed premises, so long as the sale is for customers elsewhere.

The warning comes as bars, restaurants, pubs and drink brands are increasingly offering cocktail home deliveries as a way of continuing to trade during the pandemic. A number of new pre-mixed cocktail brands have also launched over the last year, to cater for the homebound consumer.

According to HMRC, you are a compounder if you “combine or mix plain spirits or previously compounded spirits with any other substance, except water, so as to distinctly alter the character or flavour of the plain spirits or compounded spirits, producing a new compounded spirit.”

HMRC also says: “If you’ve not applied for a licence when you should have done, you must let us know without delay. You’ve the right to appeal if we impose a penalty.”

Piers Warne, legal director at TLT, says: “A lot of operators don’t realise they need a compounder’s licence to legally offer this kind of service. It has largely flown under the radar, but with the recent rise in home deliveries of alcohol and specialist cocktail makers looking to supply their creations directly to consumers at home, the genie is well and truly out of the bottle. Remember this does not apply to spirits sold unmixed for mixing at home, only pre-mixed cocktails.

“Operators could be in for a nasty surprise if they are deemed by HMRC to have been too slow to make the application. There is no charge for applying, so subject to complying with the requirements for producing the products in accordance with the law, this is an administrative process only.

“Cocktail makers looking to offer this service will also need a premises licence to sell alcohol. For those who already have a premises licence, they will need to ensure they are permitted to provide off-sales without restrictions that would otherwise prevent this activity. The current temporary Covid deregulation of off-sales, along with the suspension of conditions, will assist the majority of premises licence holders, but it is worth seeking advice to ensure that this applies where otherwise your licence would not allow it.”

The compounder’s licence also applies in Scotland. Stephen McGowan, partner and head of licensing (Scotland) at TLT, says: “In addition to the HMRC permissions, in Scotland if you are doing home deliveries of cocktails, or any alcohol, this facility should be clearly stated on your premises or occasional licence under the Licensing (Scotland) Act 2005 to avoid any issues with the licensing board. There are also special rules you must observe for home delivery, including keeping records and following age verification processes.”

Businesses can apply for the licence on the gov.uk website. See information on who needs to apply at note 14 here.