Distillery finance for stills, bonded stock and maturing casks

Yes. Anyone producing spirits in the UK needs an alcoholic products producer approval from HMRC before distilling, and producing without one is an offence that carries a penalty. HMRC aims to deal with applications within 45 working days, longer if information is missing, and it carries out fit and proper checks on the business and every key person, looking at tax history, convictions, record keeping and whether the business is commercially viable. The application includes a premises plan showing each still and vessel and where spirit will be stored in duty suspense, and HMRC can visit before deciding. Lenders take that timetable into account, so we arrange distillery finance with the still on order and the facility ready to draw on delivery, rather than leaving the founder paying for kit that cannot legally be used.

Can I get finance for a still before HMRC approval?

Yes, in many cases. A copper pot still, a column, fermenting vessels and a bottling line are recognisable assets with a resale market, so asset finance can be agreed while the approval is pending, with the lender paying the supplier on delivery. Lenders want to see that the application has gone in, the premises are secured and the founder has the experience or training to run the still, and they may ask for a larger deposit from a business with no trading history. Working capital to buy botanicals, bottles and labels is harder to raise before approval and usually comes from the founders or equity until sales begin.

• Financial security. First time applicants are not normally asked for a duty guarantee, but HMRC can require security for duty on spirit held in suspense as a condition of approval.
• Other licences. Selling bottles at the door or running tastings needs a premises licence from the council, under the Licensing Act 2003 in England and Wales and the Licensing (Scotland) Act 2005 in Scotland.
• Planning and building control. A still is a fire risk, and the building needs the right use class and fire separation before the lender will release funds.
• Contract distilling. Some brands start by paying an established distillery to produce for them, which needs no still finance at all while the brand proves itself.

HMRC explains approval for alcoholic products producers. Our distillery finance page covers casks and stock, machinery finance covers stills and bottling lines, and brewery finance covers a brewery adding spirits. Instant Quotes lets a new distiller see which panel lenders back stills, before a credit search is ever made.

Yes, and the bill is predictable enough to plan for. Duty is charged on spirit when it leaves duty suspension, which means the moment cases go out of the bonded store to a UK customer, not when the spirit is made. A distillery that ships a large Christmas order in November therefore faces a duty bill in December, often weeks before the trade customers pay their invoices. A revolving credit facility sized to the peak months, a short term business loan or invoice finance against the trade debtors can carry that gap, and lenders look at the sales ledger, the duty paid in previous months and the stock held in bond. We arrange working capital for distillers around the duty calendar, so the money is in place before the busy quarter rather than after the first reminder from HMRC.

When is alcohol duty paid on spirits?

Monthly, after the spirit leaves duty suspension. Each calendar month is an accounting period, the Alcohol Duty return for it is due online by the 15th of the following month, and the duty must reach HMRC by the 25th of that month, or the last working day before it if the 25th falls on a weekend or bank holiday. Spirit released in November is declared on the return due by 15 December and paid by 25 December. A nil return is still required in a month with nothing to declare. The amount is worked out on the litres of pure alcohol released, so a 70cl bottle at 40% contains 0.28 litres of pure alcohol and pays duty at the rate HMRC publishes for its strength band.

• Duty suspension. Spirit maturing in casks or stored in an approved warehouse pays no duty until it is released, which is why aged whisky stock does not create a duty bill on its own.
• Exports. Spirit sent abroad under duty suspension does not pay UK duty, so export orders need far less working capital.
• VAT on duty. VAT is charged on the duty inclusive price, so the cash needed in a peak month is larger than the duty figure alone.
• Late payment. Late returns and late payment bring penalties and interest, and a record of them makes lenders more cautious.

HMRC sets out Alcohol Duty returns and payments. Our revolving credit facility page covers seasonal cash flow, invoice finance explains borrowing against trade invoices, and VAT loans covers the VAT quarter that follows. Instant Quotes checks panel lenders for a duty or tax bill while keeping your credit record clean.

A brewery sells most of what it brews within weeks. A whisky distillery spends money on barley, energy, casks and warehousing today and may not sell that spirit for three, five or twelve years. Spirit sold as whisky in the UK must spend at least three years in oak, and for Scotch the GOV.UK guidance on producing Scotch Whisky sets out where and how that maturation must happen. Every cask filled is a long-dated asset that has already been paid for.

That shapes the funding situations distillers bring to us:

• Filling more casks. Raising production means more new-make spirit, more casks (ex-bourbon and ex-sherry casks are bought in and their prices move) and more warehouse space, with no matching rise in sales for years.
• Bridging to the first release. New whisky distilleries commonly sell gin, vodka or a young spirit drink in the meantime. That income often covers overheads but not the growing stock.
• Stills and plant. Copper pot stills, column stills, mash tuns and washbacks are made to order with long lead times and stage payments to the coppersmith.
• Bottling and packaging. Bringing bottling in-house, or ordering a large run of custom glass and gift boxes for a release, ties up cash months before Christmas trade.
• Duty on released spirit. Alcohol Duty falls due when spirit leaves duty suspension, not when a customer pays, so a big shipment to a distributor on credit terms creates a duty bill before the invoice is settled.

Spirit is produced and stored in an HMRC-approved excise warehouse, where it is held without duty paid. HMRC's Excise Notice 196 covers who must be approved to hold goods in duty suspension. For a lender, two consequences follow. First, the stock's value is a duty-free value, and a buyer in a forced sale would take it on in bond. Second, the warehousekeeper controls physical release, so a lender lending against casks in a third-party bonded warehouse will want written acknowledgement of its interest from the warehousekeeper and a way to stop casks being moved without consent. Clean warehouse records, with each cask's number, fill date, cask type and regauged strength, make this far easier.

Borrowing against stock that will not be sold for years compounds cost: interest accrues every year the cask matures, and a dip in the bulk whisky market can reduce the valuation the facility depends on. Over-filling casks on borrowed money is a common way for a young distillery to run out of headroom. Alternatives worth considering include contract distilling for others to bring in revenue, equity crowdfunding, which many craft distillers have used, and selling some casks to private buyers. Cask sales raise cash early but give away future margin, and selling casks as an investment product attracts regulatory and reputational scrutiny, so take legal advice first. If a duty bill is the pinch, compare a short-term facility with a Time to Pay arrangement or a tax loan. Directors should also read our guide to personal guarantees before signing for working capital.