ALCOHOL TAXATION IN THE UK
In 2020, the UK Government announced a review of alcohol taxation (excise duty). Plans to change fundamentally the structure of the UK’s excise duty regime were announced in the Spring Budget of March 2021 and were expected to take effect from August 2023.
In September then-Chancellor Kwasi Kwarteng said that existing duty rates (which had been frozen since February 2019) would be maintained until August 2023. In October this decision was reversed and then reversed again in December by the incoming Chancellor Jeremy Hunt. Therefore, it appears probable that current UK rates will likely remain unchanged until August.
The current Government has said recently that it will bring forward legislation to implement the new alcohol taxation regime in the March 2023 Budget so that the new regime can take effect from August or September 2023. It is worthwhile now to look at some of the proposed changes.
The legislation being introduced will amend and replace provisions in the Alcoholic Liquor Duties Act 1979 (ALDA) and a number of enabling secondary Regulations covering wine, beer, cider and spirits, as well Holding and Movement of alcoholic products.
The main reform proposal is to tax all alcohol on standardised “bands” for all alcoholic products on the basis of the alcoholic content (%age alcohol by volume or abv). This is particularly significant for wine and cider. The current bands for wine are:
Exceeding 1.2% - not exceeding 4% abv £91.68
Exceeding 4% - not exceeding 15.5% abv £126.08
Exceeding 22% £28.74 per litre of alcohol (taxed as a spirit)
Exceeding 5.5% - not exceeding 15% abv £297.57
Exceeding 15% - not exceeding 22% abv £396.72
Exceeding 5.5% - less than 8.5% abv £288.10
8.5% and above - not exceeding 15% abv £381.15
The current level of taxation equates to duty of £2.23 per 75 cl bottle, for standard (11.5% to 14.5% abv) still wine, and £2.86 per 75cl bottle for sparkling wine. If the alcohol percentage is used, then the rate needed to achieve the same tax outcome for a wine of 12.5% abv would be £24/litre. At this rate, a wine of 11% above would be subject to duty at £1.98 per bottle, while a 14.5% abv wine would be taxed at £2.61 per bottle.
However, it is important to appreciate that this regime is specifically intended to target (and disadvantage from a tax point-of-view) higher alcohol wines. At the same time, spirits (i.e. all alcohol of greater than 22% abv) are not likely to see a reduction in taxation. Therefore, it seems reasonable to assume, for early planning purposes at least, that the UK rates of duty will be at least equivalent to the current “spirits” rate of £28.74 per litre of alcohol. At £28.74 per litre of alcohol, the excise tax burdens would be £2.48 (11%abv), £2.69 (12.5%abv) and £3.13 (14.5%abv).
The UK Government has announced that for 18 months from August 2023 all wine of 11.5% to 14.5abv will probably be taxed at the rate for 12.5% abv wine. In effect this creates a new “band” for standard wines, which may give an indication of how the revised bandings will be structured, i.e. more and narrower than currently.
It seems that the intention is that sparkling wine shall be taxed in the same bands as still wine. Sellers will need to review pricing strategies based on the revised bands and rates, when published. Sparkling wine has traditionally been taxed at higher rates than still wines but tends to have a lower alcohol percentage.
Details of tax bandings and planned duty rates will probably be announced in the Spring budget statement, in March 2023.
The Government has also announced that there will be a new “relief” for draught products (beer) of less than 8.5% abv sold in containers of 20 litres or greater which can be connected to a dispense system.
We understand that some elements are not likely to change, notably the definition of alcoholic product and the civil penalty regime. Any changes in these areas will be more probably in the form of consolidation into more unified and updated legislation, rather than substantive amendments.
Under EU rules excise taxation is reserved to the competence of the Member States, subject to compliance with relevant Directives (principally Directive 92/83/EEC, as amended). In principle the UK’s reformed alcohol taxation regime will also apply to Northern Ireland, however the UK Government does not show any sign of having considered this question.
Current alcohol duty rates are likely to remain unchanged until at least August 2023.
Reformed taxation scheme likely to take effect from around September 2023.
Definition of alcohol products and penalty regime is not planned to be modified
New partial duty relief to be introduced for draught beers in large containers
Most standard-strength wine will be taxed at the rate for 12.5% product from September 2023 to February 2025.
The UK excise tax burden for alcoholic products after July 2023 depends on the rate at which duty is set, which will not be known until at least March 2023
A rate of £28.74 per litre of alcohol, which is the current rate for spirits, would increase the tax burden for almost all standard-strength still wine currently on the market, but would reduce the tax on many sparkling wines such as Cava and Prosecco by about £0.40 per bottle.
UK Government undoubtedly plans to include Northern Ireland in the revised alcohol taxation regime but does not appear to have considered whether it is compliant with EU rules.