Doing Your Due Diligence – As a Potential Cask Owner

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We live in an unpredictable world right now. With Covid-19 still raging in many parts of the world, the global economy is facing a huge challenge. International travels come to a halt and some people realised the spare cash could potentially go into a proper investment. 

At the same time, alternative investments such as whisky casks, watches and fine art are on the rise. The reason is quite apparent – the stocks and property markets are too volatile to venture into without high risks.

Unfortunately, the weak economy also gives rise to scammers looking to make quick bucks. If you are in the market shopping for Scotch whisky casks as a potential alternative investment, here are some of the things that you can do. Doing your due diligence to check the companies offering whisky casks is vital to protect your investments. Do note that the below apply only to the UK and Scotch whisky casks.

Ask for the company’s WOWGR 

All companies in Scotland that have the permission to hold goods in duty suspension in a bonded warehouse have a document called a WOWGR. HMRC (Her Majesty’s Revenue and Customs) gives out the WOWGR and all companies need to have this license in order to trade in duty suspension.

In order to apply for a WOWGR, a company needs to present the following information to HMRC:
– A business plan, including evidence of a commercial need for a WOWGR
– Details of trading partners and the due diligence on said partners
– Types of trading products
– Clear evidence on who is undertaking the movements of these products
– Cash flows
– Insurances
– Published Accounts
– Profit and losses

Officers from HMRC will also visit the place of the business to conduct a detailed interview before approval. After issuing the WOWGR, HMRC also expects the company to inform the officer-in-charge if there is any major changes (such as a change in trading partners) to update the WOWGR. The stringent checks put in place by HMRC provide a layer of protection by screening the company and ensuring that they are a proper legal entity.

Request for the company’s VAT & EORI number

The UK VAT number is similar to Singapore’s GST number. It is essentially a unique ID that HMRC provides to businesses when they register for VAT. In the UK, the VAT numbers are nine digits long and may or may not have the prefix “GB”.

It is also important for companies who offers to bottle your casks and ship them out to you to have the EORI (Economic Operator Registration and Identification) number. Without the EORI, the company will not be able to ship them out as duty-suspended goods. Therefore, if you are planning to bottle your cask eventually, make sure that you check for both the VAT and EORI numbers.

When you ask for a VAT number, you should also check that the VAT number is valid. The UK government provides a system to check for the validity of the number. If the company has a valid VAT number, the system will show the validity together with the registered business address.

The EORI number can also be checked. The UK government provides this website for everyone to check for the validity of the EORI number.

Check for the company’s AWRS number 

AWRS is known as the “Alcohol Wholesaler Registration Scheme” in the UK. Any business that want to sell alcohol must apply for AWRS. Without the approval, the business is illegal and will face penalties from HMRC.

A company needs to apply for AWRS if all of the following apply:
– the business sells, or arranges the sale of alcohol, and has an establishment in the UK
– the sales are made at, or after, the point where excise duty is due
– any sales to other businesses are made for onward sale or supply

You need to take note that AWRS is only needed by companies that sell bottles. Therefore, if a cask broker firm trade only casks and not bottles, they will not need to have AWRS. To find out if they need an AWRS, you can go to their website and find out if they also trade bottles. As long as they trade bottles of alcohol, you can be sure that the business will need a AWRS.

Once you obtained the number of the company’s AWRS, you can check for its validity at this website. It is provided by the UK government and will help you to verify that the AWRS is valid.

Similar to the WOWGR, the business must inform HMRC of any changes to the company’s details as soon as possible. Important changes such as a change in partners, directors, trading name, VAT number and contact details must be notified no later than 14 days from the date of change.

Read up on the company

The next crucial thing to do is to research the company that you want to buy the whisky cask from. It is important that you know who they are, what they specialise in, and how they can help you to achieve your investment targets.

Search for their website and social media pages to see what they regularly do. Look out for any reviews that they may have online. You can also drop an email or a call to the company to see their responses to your questions.

Ultimately, you will need to trust the company when you finally part with your cash to buy a whisky cask.

Look for the annual financial returns

To look at the annual financial returns of a company, head over to Companies House, a website in the UK which records all the registrations AND annual returns of a company registered in the UK. As long as the company is registered in the UK, you will find it there.

A financially healthy company faces lesser risks of bankruptcy, collapse or foreclosure in a weak economy. Buying a whisky cask with a healthy company also safeguard your investment as the process can take longer than you think to sort out. If a company collapse before you receive the Certificate of Title of the cask you bought, it may be tricky for you to prove that the cask belongs to you. 

Conclusion

We hope that the article is helpful to everyone, especially those of you who are considering to buy a whisky cask as an alternative investment. If you would like to read more, you can read up on Excise Notice 196. It is a section of UK’s law regarding the excise goods and has comprehensive information on all of the above points discussed. Should you have any further questions on any of the above points, or wish to ask for more information about whisky casks, please contact us at sales@spiritscastle.sg and we will get back to you as soon as possible. 

Whisky Cask Investment – What You Need To Know

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Casks sitting on Pallets

Personal investment in Scotch whisky cask is not for everyone. It satisfies unique investment needs for individuals looking for alternatives. Cask investment also requires more research than the regular stocks and property markets. For individuals keen on whisky casks investment, there are key points that they should be aware of.

Scotch Whisky Association (SWA) published a note about investing in Scotch Whisky casks in June 2020, sharing various pointers on what investors should know. We decided to summarise the points here for our readers.

The Scotch Whisky Market

Scotch whisky exports rose drastically through the last 10 years, and currently, stands in excess of £4.9 billion. While we may be familiar with single malts or even single cask whiskies, most of these exports are blended Scotch whiskies. The export of blended whisky created the whisky cask market. Blenders sought contracts with various distilleries in Scotland to buy whisky in advance for their blends. Whisky casks are, therefore, mostly traded within the industry. Sometimes, distillers and blenders even trade casks without having money changing hands.

However, some distilleries, especially the younger ones, also sell whisky casks to individuals and Scotch whisky brokers. Most distilleries would have, in the contract, basic requirements on a buy-back scheme or bottling scheme. Other companies work with Scotch whisky brokers like us. They sell casks to brokers who then either sell the casks onwards or bottle the whisky as independent bottlers. Individuals and other companies can buy casks from brokers for bottling or investment purposes.

Key Areas To Look At Before Buying A Cask

Whisky Cask

There are various key areas that you should look at when considering the various whisky casks brokers. Below are eight points which you should be aware of before committing your money to a whisky cask.

Indications of Likely Returns

Most whisky brokers will not tell you a definite figure of likely returns because investing in whiskies is similar to other commodities. The value of a cask rise and fall as a result of supply and demand. When potential investors ask about likely returns, experienced whisky brokers can share a value, but will always add the disclaimer that it is not definite as nobody knows for sure, how the market will be in 10 years time.

Ask The Right Questions

Buying and owning a cask of whisky is not hard, but potential investors must be careful to ask the right questions. How much is the warehousing fees? Is there insurance for your cask? How much does the broker charge to measure (re-gauge) the contents of your casks? What are the fees for moving the cask under bond from one warehouse to another? What is their commission structure? These are but, some questions that a potential buyer should ask.

Know Your Whisky

A practical key point is to know your whisky. A potential buyer of a whisky cask must know the difference between a Scotch Malt Whisky and a Scotch Grain Whisky. The information on the cask list should have the name of the distillery (where the whisky is produced), the year of distillation, the alcohol percentage and the litres of alcohol in the cask. It should also, ideally, let you know if the cask is re-gauged previously. When you purchase a cask, the seller must tell you the cask number too. The same information must also be in the contract and the cask ownership certificate. You can read more about how to choose a whisky cask here.

Available Whisky Cask Services

As a potential investor, you also want to know if the broker that you are working with is able to help you make changes to the whisky that you bought. For example, if you buy a bourbon cask of whisky and wish to turn the whisky into a sherry bomb, can the broker help you to re-rack into a first-fill sherry cask? The information is crucial because you may become stuck with an underperforming cask without the means to change it. It could potentially lead to a downplay of the cask’s actual value if you do not have the means to change the cask before selling.

Limitations of Cask Disposal

It is crucial for a potential buyer to know how you can sell the cask in future. Some sellers, especially distilleries, only allow the whisky cask to be bottled for personal purposes. Hence, if you are not planning on bottling any whisky cask, you need to ask if there are any limitations of cask disposal.

Restrictions on the name of the distillery

As more and more independent bottlers and private owners come onboard the whisky industry, some distilleries are restricting the use of their names on private bottles. Therefore, if you are planning on bottling the whisky, check if there is a contractual limitation on the use of the name. For example, many Clynelish casks are not allowed to use the name of the distillery. The same apply to Highland Park and Macallan distillery. One easy way to know is to look at the name of the distillery in the cask list. If it is not listed as the name of the distillery, you can’t use the distillery name. A good example would be Macallan distillery. Most of the independent bottling of Macallan casks are labelled as Speyside Single Malt, or Highland Single Malt.

Cost of Bottling

Equally important is the cost of bottling the whisky if you are keen to do that. Find out in advance the cost of bottling so that you know what you need to pay further down the line. It is also wise to check the timeline for bottling so that you know how early to trigger the bottling discussion when the cask is ready.

A potential bottler should also check if the broker is willing to help you source for a freight forwarder that can ship your bottles of whisky to your destination in future. Otherwise, there could be potential issues in transportation after bottling your whiskies.

Contract and Cask Ownership Certificate

Finally, the biggest pointer for a potential buyer is to know if you will be given a contract and a cask ownership certificate. If the answer is no, you can look for another broker. It is crucial to have both so that you know that your cask investment is well taken care of. The ownership certificate also clearly states that the cask is yours. Without both documents, you cannot prove that you are the owner of the cask.

Conclusion

Always choose a reputable Scotch whisky broker who can help you with everything that you need. Be wary of those who promise a guaranteed return on your investments. Finally, do your homework. If you know what you are buying, you make it harder for others to cheat you.