Alcohol duty in the UK

With the exception of products with an alcohol by volume (ABV) range of between 3.5% and 8.4%, the rate of duty to be paid now depends entirely on the alcoholic strength of the product, regardless of alcohol type. In the mid-strength range, the rates depend on a combination of alcoholic strength and product type.

The differentiation between product types in the mid-strength range has been maintained because the government believes that to introduce full equalisation would have a significant impact on the costs faced by some industries. In particular, the differential between beer and cider is maintained to avoid detrimental effects on cider producers.

These rates are subject to specific reliefs for draught products and small producer products and transitional arrangements for wine. At the Spring Budget 2024, the government announced that these rates would be frozen until 1 February 2025.

Draught relief

Draught relief is designed to provide a lower alcohol duty on these products being sold in the on-trade, such as pubs and bars. This is achieved by discounting the duty rates by 9.2% for qualifying beer and cider. The duty discount for qualifying wine, spirits and other fermented products is 23%. Since the relief is only available to products with a maximum ABV of 8.5%, this relief is of limited consequence for most wine, spirits and other fermented products.

Draught relief applies where the relevant products are contained within a large draught container that either incorporates or is designed to connect to a pressurised gas or pump delivery system. In the final response to its consultation on the changes (39-page / 328KB PDF), the government confirmed that it intended this definition to apply to “bag in box” containers that had dual use, such as the ability to connect to such a delivery system even if the drink could also be dispensed without, for example, directly from the container using gravity only. The important characteristic is that it is “designed” to be so connected rather than the actual method of dispense.

The relief is available when the product is contained in a “draught container” over at least 20 litres. This small container size is intended to ensure that craft and micro-breweries can access the relief.

HMRC guidance also confirms that this relief is not available for takeaway drinks bought from pubs and bars. There had been some pressure from the industry to allow draught drinks that are dispensed within the on-trade but for consumption elsewhere to be incorporated into this relief. However, the legislation prevents the lower duty from applying to takeaway drinks by introducing a prohibition on “repackaging” other than by authorised persons.

A producer that intends to sell takeaway drinks in this way can elect to pay duty at the full rates on a container that would otherwise qualify for draught relief, thereby reducing the administrative burden.

Small producer relief

This is a replacement for the previous small brewers’ relief scheme. It is broader in scope, applying across all alcoholic products, rather than just beer, with an ABV of less than 8.5%, but applies to smaller producers. The maximum is 4,500 hectolitres per year, down from 6,000 in the previous scheme.

When the small producer relief applies, a discount on the duty payable is available. The discount applies to either the main rate or the rate already reduced by the draught relief. The amount of the discount depends on the number of hectolitres produced per year – with higher discounts, up to 100%, applying to the smallest producers. There are limitations to the relief, such as the requirement that the product is not produced under licence, designed to ensure that the relief is targeted towards genuine small producers.

Temporary relief for wine

For the first 18 months of the new regime, between 1 August 2023 and 31 January 2025, all wine with an ABV of between 11.5% and 14.5% is treated as if the strength were 12.5% ABV. Under the previous regime, wine between 8.5% and 15% ABV was charged at a set rate per hectolitre of wine. This temporary easement is designed to ease the transition to the new method of calculating the duty owed on products for wine producers and importers.

Since most wine falls within the 11.5% to 14.5% ABV range, producers will only need to calculate the volume of wine and then apply the 12.5% rate of duty. By 31 January 2025, wine producers and importers are expected to have adjusted their systems to be able to apply the new duty regime accurately.

Approval, payment and return processes

The existing regime-specific approval processes will be replaced with a single alcohol approval that will cover all types of production. The new approval application will be made using a new online facility. In February 2024, draft regulations concerning the approval process were released for technical consultation. These draft regulations include a schedule specifying some of the details that must be included in the application. However, full details of how the approval process will work have not been set out and further notices specifying additional details are expected.

In addition, at this stage it remains unclear as to whether there will be any changes to the draft regulations as a result of the consultation. It is understood that existing separate approvals will automatically be transferred into a new, single approval from the date of implementation. Final regulations and guidance are expected before the new approval regime is implemented.

Under the existing regime, brewers can register to store beer under duty suspense at “adjacent premises” and adjacent is interpreted as meaning no further than 5km from the production site. Under the new single approval system, this adjacent premises rule was originally going to be extended to all producers. However, following concerns raised in the industry that this created a barrier to expansion, the requirement will be removed.

The draft regulations for the new approval process require producers to include the address and plan of any premises to be approved. This would include premises where the producer is expected to hold in duty suspense. It therefore appears that, under the new system, each premises will need to be specifically approved.

Under the new digital systems, producers and importers will also be able to submit a single return covering all of their alcohol products and pay duty once. Returns will be due on the 15th day of the month and payment on the 25th.

These changes were originally expected to be brought into force in late 2024, depending on HMRC having established the digital service and giving at least 12 months’ notice for producers and importers. However, the draft regulations issued in February 2024 suggested an implementation date of March 2025.

Future developments

The government had committed to running a consultation in 2023 on the definition of cider, including: whether the upper 8.5% ABV limit should be retained; allowing fruit additives or other flavourings; and raising the minimum juice requirement. However, this consultation has been delayed.

Ministers also plan to keep the 3.5 to 8.5% ABV bands under review, specifically with regard to whether producers tend towards “upwards reformulation” of products in this range. This commitment has been made in response to public health concerns about beer and cider in the upper end of this range.

The government has also stated that it is considering whether to apply the harmonised penalty regime, which has been implemented for VAT only so far, to alcohol duty once the digital system is in place. Again, it will give at least 12 months’ notice of doing so.