HMAG30080 - Registration and approval: the fit and proper test
Source: gov.uk (2025-03-17)


This section provides guidance on establishing whether a person is fit and proper to be approved.

All applications must be considered against this test. New applications should be robustly challenge. Where we have granted approval, we should continue to monitor that business via assurance activities to be satisfied that it continues to be 'fit and proper' to remain approved.

We should only grant approval to a business if:
- It is a commercially viable genuine enterprise with a genuine need for approval,
- all persons with a key role, or controlling interest in it are law abiding, responsible, and do not pose any significant threat of non-compliance or fraud,
- it will meet all HMRC’s requirements as set out in the legislation and relevant public notices, including any bespoke conditions which may be necessary,
- there is no evidence of applicants or persons with a controlling interest being involved in significant revenue non-compliance or fraud, either within excise or any other HMRC regime.
Immediate indicators of risk

Immediate indicators of risk include if the legal person seeking approval and any key persons with day to-day responsibility for the business have:
- penalties for wrongdoing, or civil penalties,
- attempted to avoid being approved and traded unapproved,
- had approvals revoked or refused for this or other regimes,
- had previous confiscation orders and recovery proceedings under the Proceeds of Crime Act,
- been disqualified as a director under company law,
- a direct connection with other known non-compliant or fraudulent businesses,
- an unspent criminal conviction involving dishonesty or linked to organised criminal activity,
- have outstanding, unmanaged debts or a history of poor payment across the HMRC regimes including direct and indirect taxes.
By key persons we mean persons who have authority and responsibility for directing and controlling the activities of the business or its day-to-day management or significant beneficiaries of the business who are not directors, partners or similar.

Where a risk is identified, this should be carefully considered to establish whether it still applies or whether it can be controlled by a condition on the approval. Where it still applies and cannot be controlled then the level of revenue threat should be considered. For example, poor compliance in any HMRC regime should be considered carefully. A failure to improve after warning letters or other sanctions would indicate a risk of non-compliance if approval were granted in the new application. Each case should be considered on its own merits. If there was a genuine reason for a breach of rules it may be appropriate to allow the approval, subject (where necessary) to conditions and restrictions.

Where the applicant has unpaid debts to HMRC, the size of the debt and whether time to pay arrangements are in place and whether the business is meeting these should be considered. The debt should only be considered as grounds to refuse the application where the business is not meeting the time to pay agreement conditions, or there is a justified concern that the business, because of the debt, would be unable to pay further taxes. Please note, we do not normally enforce a debt If the decision which created the debt is still under review, it would only be enforced if the review decision were in our favour. Before a Tribunal will hear a case, the trader will be required to either pay the debt, have adequate security in place to cover the debt, or be granted a certificate of hardship in place of the debt. In such cases the facts of the case under review and whether these present a real risk should be considered.

For many of the examples of immediate indicators of risk, it is more than likely that the business will represent too high a risk and should normally not be approved, or if it is already approved have their approval revoked. This is especially the case where serious non-compliance or fraud is identified. Where a decision to revoke or refuse an approval is made, we must be able to show on a good balance of probability basis, with compelling evidence, that our decision was both reasonable and proportionate. We must be able to show that we have considered all the available facts and challenged these. Where we have identified a business to be neither fit nor proper, but our decision is challenged by the business either requesting a review or tribunal hearing, the business may request temporary approval, please see the separate section on temporary approval. Where approval is granted, despite the evidence of risk, the risk should be mitigated, where possible, with conditions or restrictions placed on the approval and the business closely monitored.

Spent and unspent convictions

To help those with lesser offences, the Rehabilitation of Offenders Act 1974, which covers England, Scotland and Wales and the Rehabilitation of Offenders (Northern Ireland) Order 1978 enables criminal convictions to become spent or ignored after a set period. We must not include a spent conviction as reason for refusal - instead these should be disregarded. Further information is available from: Rehabilitation Periods - GOV.UK (https://www.gov.uk/guidance/rehabilitation-periods)

Where a person has an unspent conviction which is not related to fraud or organised crime, we should carefully consider whether that person can be deemed ‘fit and proper’ to carry on the excise business despite the conviction. For example, where the person had an isolated conviction for domestic violence, this does not in itself indicate that that person would present a real revenue risk. However, where there is a persistent record of violence this may raise a question over the safety of our officers. Each case needs to be considered on its own merits.

Is the business genuine?

It should be established why the applicant needs the approval (if other approvals are required that these will also be in place) and whether that person will be running the business. Does the applicant have a solid understanding of the roles and responsibilities of the requested approval? In deciding if there is a genuine need for the approval, both the business plan and any other evidence of being or intending to be in business should be considered. Where possible aspects of the plan should be challenged and tested to establish whether the planned business activity makes commercial sense, for example: if goods are being exported, is there a real market for the product in the destination country, or do transport costs indicate that this would be an unlikely supply route?

Consideration should be given to how the applicant will promote the business, are there customers and/or suppliers lined up for goods and or services - if there are contracts or agreements in place these should also be considered. If there are not any yet, how will the applicant seek business? If service providers are required, are agreements in principle in place from these? Where there is detail of customers, suppliers etc. these should be considered against HMRC records to establish if they represent a risk.

Where a general storage and distribution warehouse application is being considered, it should be established whether there is an economic need for the warehouse at that location, including whether there is enough clients or business to run the warehouse as a viable going concern? If there are other approved warehouses nearby consideration should be given to whether there is a genuine need for a further excise warehouse in the area. If a trade facility warehouse application, it should be established what the trade need is and why it must be completed under duty suspension arrangements - also it should be established what happens to the goods and who owns them after the trade need has been met.

Applications should not be approved if there is no genuine plan to trade legitimately or where information has been supressed with the intention to deceive.

Business assets

To provide an indicator of a business’s commitment we should establish the business’s fixed and moveable assets. Where these are leased, we should establish the terms of the lease, including its length, and any costs the business would incur if the lease were prematurely terminated. If leased from a related business this arrangement may be intended to protect the asset if the new enterprise fails. If vehicles, control systems, Information Technology (IT) or special plant are required, and are not in place, how will these be obtained and funded. Where a warehouse premises approval is being considered, it should be established that the premises, record-keeping and other systems are suitable.

Finance in the company

It should be established who is financing the company and whether that person or persons are a known risk? Consideration should be given to credit checking both:
- those funding if they are not a recognised financial institution and
- those with a controlling interest in the business.
Establish who the applicant is banking with and whether their bank accounts have loans or overdraft facilities and whether security has been taken by the bank. If there is considerable debt, consideration should be given to whether this is manageable against the business plan.

We should also consider if the business model is sustainable and establish when the business anticipates making a profit and how this will be achieved. Does the anticipated volume of trade seem realistic? Will, in the medium to long term, profit on sales and services cover expenditure and overheads, including wages etc? Consideration should be given to how payments will be received and made and whether discounts or customer’s credit is offered - if they are, consideration should be given to whether this undermines the business plan in any way. If the business deals in goods, when does ownership pass, or does the sale contain a retention clause? Where there is a requirement for fixed or moveable assets how will these be financed?

If a Limited Company, shareholders seek to make a profit on their investments and will only move towards higher risk financial projects to obtain higher financial returns. Obtaining a clear understanding of the financial return to be paid to shareholders and when this is anticipated is useful. The legitimacy of ‘lend me now, I’ll pay you later’ arrangements should be tested in depth and may suggest potential revenue risks. Where the business is withholding the identity of who is financing it, then this should be regarded as a risk.

Also consideration should be given to the risk of money laundering, Money laundering supervision for high value dealers - GOV.UK (www.gov.uk) (https://www.gov.uk/guidance/money-laundering-regulations-high-value-dealer-registration) This is in addition to the obligations of approved traders to notify HMRC of cash payments using form W7 Notify HMRC of cash payments for alcohol in duty suspension (W7) - GOV.UK (www.gov.uk) (https://www.gov.uk/government/publications/alcohol-duties-cash-payments-for-alcohol-goods-or-services-in-duty-suspension-w7)

Establishing who is really running the business

Persons shown on the application form or identified during the pre-approval visit who claim to have key roles in the business may not always have the involvement they claim to have. Roles within the business should be established, such as who makes important day to day decisions such as entering new contracts, or who finances or agrees deals. Do individuals identified have the necessary knowledge to carry out their role? Where it is suspected that the business is run by a person or persons other than those with a recognised company position, it should be established (as far as possible) their identity and roles within the business and how long they have held that position. Once this detail is obtained it should be carefully considered to establish if it represents a revenue risk. If the person with a controlling interest is a revenue risk, then the application should be refused.

Where there is a genuine misunderstanding such as an application received from the representative member in a VAT group, we should establish which business is really carrying out the activity needing approval, as it is this business which should apply to be approved.

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