Reform of Alcohol Duty Rates and Reliefs
Published 23 March 2023
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Who is likely to be affected
Individuals and businesses involved in the manufacture, distribution, holding, sale and consumption of alcoholic products.
General description of the measure
Spring Budget 2023 confirmed changes to the alcohol duty system through a package of Alcohol Duty Reforms.
This measure makes changes to the duty structure for alcoholic products, creating standardised tax bands based on alcohol by volume (ABV).
The measure also introduces two new duty reliefs and transitional arrangements for certain wine products:
- Small Producer Relief, which reforms and extends the relief currently enjoyed by small breweries, to all producers of other alcoholic products under 8.5% ABV
- Draught Relief, which will reduce the tax burden on draught alcoholic products sold in on-trade venues, such as pubs. The relief will provide a reduced rate of duty on draught alcoholic products under 8.5% ABV packaged in containers of at least 20 litres
- the temporary arrangements for producers and importers of wine will help them manage the transition to the new method of calculating the duty on their products. This provision will be in place for 18 months, from 1 August 2023 until 1 February 2025
Finally, the measure harmonises the approval, return and payment processes for domestic producers of alcoholic products.
These measures ensure all primary legislation relating to alcoholic products is contained in one place. To achieve this, those provisions contained within the Alcoholic Liquor Duties Act (ALDA) 1979 and Finance Act 1995 that are unaffected by the reforms but are still required, will be carried forward in the Spring Finance Bill 2023. Obsolete provisions will be repealed.
The changes to the duty structure and the new reliefs will take effect from 1 August 2023. HMRC will also take forward plans to modernise the approval, return and payment processes for domestic producers of alcohol products. These changes are currently scheduled to take effect from late 2024 with the introduction of a new digital system.
Policy objective
Alcohol Duty Reform delivers on the government’s commitment to simplify the current system for alcohol duty which is complicated and outdated. It will do this by making the basis of alcohol taxation more economically rational, with fewer distortions, as well as reducing the administrative burden on producers.
In making these changes the government also aims to support public health, encourage product innovation, and ensure the duty system reflects modern drinking practices.
Background to the measure
At Budget 2020, the government announced that it would take forward a review of alcohol duty, to reconsider the way that the duty system would work after the UK left the EU.
The government published a call for evidence as the first stage of the review on 1 October 2020, receiving 106 responses.
The government launched a technical consultation on Small Brewers Relief (SBR) on 7 January 2021 which received 101 responses. The response to this technical consultation was published on 30 November 2021.
The government ran a consultation on the new alcohol duty system from 27 October 2021 receiving 346 responses. The response to this consultation was published on 23 September 2022.
The government published draft legislation for technical consultation on 23 September 2022 and received 53 responses.
At Spring Budget 2023, the government announced an increase in the duty rates on all alcoholic products produced in, or imported into, the UK in line with the Retail Price Index (RPI) from 1 August 2023. The government also announced increasing the Draught Relief, previously proposed in the draft legislation, from 5% to 9.2% for qualifying beer and cider products, and from 20% to 23% for qualifying wine, spirits based and other fermented products. You can read details of the announcement.
On 23 March 2023, the government published the final consultation response to the Alcohol Duty Reforms and legislation for this measure in Spring Finance Bill 2023.
Detailed proposal
Operative date
The new duty structure for alcohol products and the two new reliefs will take effect from 1 August 2023. The temporary arrangements for certain wine products will also take effect from 1 August 2023 and will run for 18 months, until 1 February 2025.
Changes to the requirements for approval as an alcohol producer and the new arrangements for duty returns and payments are scheduled to take effect from late 2024. Further detail on the timing of these changes will be announced at a later date. HMRC intend to provide at least 12 months’ notice so that businesses have time to prepare.
Transitional arrangements on how producers should complete their duty returns under the new rates and relief structure will be introduced prior to these taking effect and conversations with industry have begun to explain these.
Current law
The main provisions relating to the production of alcoholic products and the charging, calculation, and remission of excise duty (including any reliefs) are set out within the Alcoholic Liquor Duties Act (ALDA) 1979.
ALDA 1979 also contains provisions covering the control of production, holding of alcoholic products and various anti-fraud measures.
Finance Act 1995 covers Denatured Alcohol and Alcoholic Ingredients Relief.
Relevant secondary legislation is:
- Cider and Perry (Exemption from Registration) Order 1976
- The Cider and Perry Regulations 1989
- The Wine and Made-wine Regulations 1989
- The Spirits Regulations 1991
- The Beer Regulations 1993
- The Alcoholic Liquor Duties (Beer-based Beverages) Order 1994
- Denatured Alcohol Regulations 2005
- Duty Stamp Regulations 2006
- The Excise Goods (Holding, Movement and Duty Point) Regulations 2010
- Wholesaling of Controlled Liquor Regulations 2015
Proposed revisions
The legislation being introduced in Spring Finance Bill 2023 will replace the following provisions in ALDA 1979:
- the definition of alcoholic liquor is replaced by alcoholic product
- how excise duty on alcoholic products is charged and calculated
- the reliefs from alcohol duty that are provided
- how alcoholic product producers are approved
- how activities are regulated for excise duty purposes
- details on penalties
The new legislation will create standardised bands across all types of alcoholic products, with all tax rates calculated based on the classification of the product and litres of alcohol it contains.
The new legislation sets out the rates of duty for all categories of alcoholic products in Schedule 6. As part of replacing ALDA 1979, outdated provisions which are no longer relevant, for example, racking of duty-paid spirits and prohibition of grogging, will not be contained within the new legislation.
The legislation will replace the existing Small Brewers Relief with a new Small Producer Relief. The relief will apply to eligible producers of alcoholic products with an alcoholic strength of less than 8.5% alcohol by volume (ABV) that are consumed in the UK. Producers will be eligible for the relief if they produce less than 4,500 hectolitres (hL) of alcohol per year.
The legislation will also introduce a new Draught Relief, which will provide a reduced rate of duty on qualifying draught products. To qualify the product must be under 8.5% ABV and packaged at the duty point in containers that hold at least 20 litres and incorporate or are designed to connect to a dispense system. Decanting from these containers (for which a discounted rate of duty has been paid), into smaller containers will be prohibited unless it is for consumption on the premises where the decanting takes place.
Businesses which decant product for off-premises consumption will have the option to purchase a full duty paid container. At Spring Budget 2023 the government announced legislating to increase the new Draught Relief from 5% to 9.2% for qualifying beer and cider products, and from 20% to 23% for qualifying wine, spirits based and other fermented products.
The legislation will introduce a provision, which will treat all wine between 11.5% and 14.5% ABV as if it is 12.5% ABV for the purposes of calculating the charge to alcohol duty. This will be a temporary provision for 18 months from 1 August 2023.
The definition of an “alcoholic product”, definitions of the categories of products (e.g. wine or beer), and details on penalties for failure to meet any regulatory requirements, are replicated in the new legislation with minor changes.
Finally, the legislation will standardise the approval and duty payment requirements for alcohol producers across the regimes.
The government published the draft legislation for technical consultation on 23 September 2022
Summary of impacts
Exchequer impact (£m)
The following figures are set out in Table 4.2 of Spring Budget 2023 and have been certified by the Office for Budget Responsibility. More details can be found in the policy costings document published alongside Autumn Budget 2021 and Autumn Statement 2022.
Alcohol Duty: reform to alcohol duties
| 2022 to 2023 | 2023 to 2024 | 2024 to 2025 | 2025 to 2026 | 2026 to 2027 | 2027 to 2028 |
|---|---|---|---|---|---|
| -20 | -110 | -120 | -130 | -140 | -155 |
Alcohol duty reform: changes to the new alcohol duty system (following the consultation after Autumn Budget 2021)
| 2022 to 2023 | 2023 to 2024 | 2024 to 2025 | 2025 to 2026 | 2026 to 2027 | 2027 to 2028 |
|---|---|---|---|---|---|
| +20 | -30 | -80 | -30 | -30 | -30 |
Economic impact
This measure is not expected to have any significant macroeconomic impacts.
A behavioural adjustment is made to account for a change in quantities of alcohol demanded as a result of a change in prices. Reformulation and forestalling assumptions are used to allow for producers and consumers responding to new tax incentives. No behavioural adjustments are made for Small Producer Relief.
Impact on individuals, households and families
This measure may have an indirect impact on individuals who consume alcoholic products, if the changes on duty rates are passed onto individuals through higher or lower prices for these products.
Individuals who drink stronger alcoholic products may pay more through the revised duty structure. Individuals who drink draught products in pubs may pay less through the Draught Relief.
This measure is not expected to impact on family formation, stability or breakdown.
Equalities impacts
Those who drink alcohol are represented in each of the groups sharing protected characteristics. This measure is therefore expected to have both a positive and negative impact for those in all groups depending on underlying patterns of alcohol consumption.
It is not expected that there will be adverse effects on any group sharing protected characteristics.
Impact on business including civil society organisations
This measure is expected to have a negligible impact on up to 10,000 businesses that either produce alcohol in the UK, import alcohol into the UK, or are involved in warehousing alcohol in duty suspense. This impact is due to changes in how they calculate the amount of duty owed on their alcoholic products, how producers apply for approval, and how they submit returns and make payments.
The new Draught Relief will have a positive impact on the hospitality sector as it aims to promote drinking in supervised venues which are less associated with alcohol harm, such as pubs, bars and restaurants.
One-off costs for businesses could include:
- familiarisation with the new process of calculating duty on their alcohol products and updating their processes
- familiarisation with the new approval and returns process for producers
- updating the software used to calculate and track their alcohol duty obligations
- training and upskilling staff who are responsible for managing their alcohol duty
- approvals — cider producers who produce less than 70 hectolitres of cider will face a one-off cost of approval as they will have to be approved by HMRC once the new system is in place (until that time, there is a temporary provision to continue to make small cider producers exempt from the duty charge until the new approvals system is rolled out)
Continuing costs could include calculating and recording the amount of duty based on the ABV and volume of the beverage rather than just the volume. This will mainly impact producers and importers of wine, made wine and cider, as producers and importers of beer and spirits are already required to record this data and perform this calculation.
This measure is expected overall to improve businesses experience of dealing with HMRC as registering for approvals, updating their approvals and filing returns will be simpler.
There is no impact on civil society organisations.
Small and micro business assessment: This measure will impact on some small and micro businesses. The new Small Producer Relief will positively impact some small and micro businesses. Businesses who qualify for the relief will pay reduced rates of alcohol duty.
Operational impact (£m) (HMRC or other)
HMRC expects to incur one-off capital costs to update the current processes of businesses submitting their alcohol duty returns, as well as developing the new system for businesses applying for approval, submitting returns and making payments.
Early estimates of IT build costs for the full reform, including updating existing IT accounting systems to accommodate changes to rates and reliefs, are in the region of £45 million.
There will be a small increase in staff support required when the rates and reliefs changes are introduced and immediately afterwards, but that increase is considered negligible.
Other impacts
A new penalty is being introduced in this legislation to prohibit decanting alcoholic products subject to draught relief. This aims to reduce the risk of fraud in the new Draught Relief. Businesses will need to meet their alcohol duty obligations through a new method, and this may have an impact on the justice system. Therefore, work will be done with the Ministry of Justice to assess the extent of this impact.
Other impacts have been considered and none have been identified.
Monitoring and evaluation
The measure will be monitored through information collected from tax receipts.
Further advice
If you have any questions about these changes, contact the Excise and Customs Helpline.