25th July 2023Why next week’s changes to Alcohol Duty could dampen spirits

With effect from 1 August 2023, significant changes to UK alcohol duty will be introduced in an effort to standardise the tax by removing the different rates that exist between types of alcohol. It replaces the current system which involves four different taxes for beer, cider, spirits and wine.

Gerry Myton, Head of Indirect Tax explains: “The changes coming into effect next week will help simplify a currently complicated system. However, for those who sell certain alcoholic products, they will see an increase in the amount of duty they pay. It will also require many manufacturers, retailers, wholesalers, and importers to adjust their processes of completing duty forms and calculating duty, and so it is important that they fully understand the new rules that will apply.”

In this article, Gerry outlines what the changes are and how they will affect businesses that are involved in the manufacturing, distributing, holding or sale of alcohol.

What are the changes?

Six new standardised bands are being introduced across all types of alcoholic products, with tax rates being calculated based on the nature of product and litres of pure alcohol. This new approach applies to all alcohol products except for products with an ABV (alcohol by volume) of between 3.5 and 8.4%. You can find the details of the new rates on HMRC’s website.

In addition, HMRC will also be introducing new reliefs, a temporary easement and a consultation:

• Small Brewers Relief Scheme – This is being replaced and extended, and as a result small businesses who produce any alcoholic products with ABV of less than 8.5% will be eligible for reduced rates of alcohol duty on qualifying products.
• Draught Relief – This will reduce duty on draught products under 8.5% ABV in large containers holding at least 20 litres.
• A temporary easement for some wine products – All wine ‘of fresh grape’ between 11.5% and 14.5% ABV will be treated as if it is 12.5% ABV for calculating duty. This will be in place for 18 months from 1 August 2023 and is aimed to assist wine producers in managing the new alcohol duty rates.
• Consultation on the definition of cider – The government has indicated that a consultation will begin later this year that focuses on the retention of the 8.5% ABV, minimum juice requirements and fruit additives/flavouring.

Who will benefit from these changes?

Pubs, restaurants, and other establishments that sell draught products, will benefit as the duty on these products will not increase, unlike non-draught products.

As a result, duty paid by pubs and restaurants on draught products will be up to 11p lower than that charged in supermarkets. While end customers won’t see any discounts on their drinks, the relief could stop pub landlords from having to put up the price of a pint.

Small UK producers are also being thrown a lifeline. They should check their eligibility for the new scheme, along with the duty rates they will be eligible for. The conditions can be found on the Government’s website.

By contrast, those importing and producing goods for off-trade consumption, next week’s changes will likely lead to increased costs for both producers and importers.

Gerry adds: “These are the biggest changes to the alcohol duty system in 140 years and businesses need to be prepared.

“As well as simplifying the system, the government is hoping that lower rates of duty on lower strength drinks will drive innovation into their production, and in the long-term help to encourage more responsible drinking habits in the UK.”

If next week’s changes will impact your business and you would like to receive advice from one of our experts, please get in touch.