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 will depend 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.

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. This discount was increased from 5% at Spring Budget 2023. The duty discount for qualifying wine, spirits and other fermented products is 23% - increased from 20% at the 2023 spring budget. 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, 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 was originally only expected to be available when the product was contained in a “draught container” over at least 40 litres. At the spring budget, this limit was reduced to 20 litres, so that it encompasses smaller kegs and barrels, following campaigning from craft and micro-breweries.

The government response 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 existing 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 existing 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% will be treated as if the strength were 12.5% ABV. Under the existing regime, wine between 8.5% and 15% ABV is 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. Full details of how the approval process will work have not been set out. It is not yet clear how existing separate approvals will interact with the new approvals regime, for example, whether a producer with existing approvals for beer and cider at the time of implementation will have to apply for a new approval immediately, or whether there will be some kind of transition period. Both 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, HM Revenue and Customs (HMRC) has stated that the requirement will be removed.

The new approval provisions in the Finance Bill refer to producers being approved to hold in duty suspense in certain premises but do not include the detail of which premises can be approved. At the moment, therefore, it is not clear whether the requirement for premises to be adjacent will be removed altogether, whether the definition of adjacent will be extended beyond 5km or whether a different categorisation will be introduced for approved premises.

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 are expected to be brought into force in late 2024, depending on HMRC having established the digital service, and with at least 12 months’ notice for producers and importers.

Consultation on the definition of cider

The government has recommitted to running a consultation later 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.

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.