CHANGES TO THE UK ALCOHOL TAXATION REGIME: NEW DUTY RELIEFS

The UK implemented a major change to its system of alcohol taxation on 1 August 2023. The new regime largely removes “banding” and differential rates for different alcoholic beverages, although some elements have been retained, notably for “sparkling ciders” and – temporarily – for wines in the 11.5% to 14.5% Alcohol by Volume (ABV) range. The EU agreed to allow the same regime to be implemented for Northern Ireland in order to maintain the alignment of Northern Ireland’s duty regime with the UK as-a-whole.

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At the same time the UK government introduced 2 new duty reliefs for alcoholic beverages with a strength lower than 8.5% ABV. These reliefs are available for any alcoholic products within the permitted strength range and can be claimed by sellers based outside the UK as well as UK-based producers.

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The 2 reliefs are:

• Small Producer Relief (SPR) which is available to entities which manufacture products containing less than 4,500 Hectolitres (HL) per year, which is equal to approximately 5.3 million Litres at 8.49%. For this purpose the production year is counted from 1 February to 31 January.

• Draught Relief which is available for any product of less than 8.5% strength, provided that the product is:

  • Sold in containers of 20 Litres or larger, and

  • The containers can be connected to an electric or gas-driven pump system.

 

Importantly both reliefs can be claimed for the same product. The duty relief obtainable is calculated as a “discount” against the full rate of duty for each product.  Both reliefs are available for ALL alcoholic products including low-strength wines, beers, ciders, spirit-based drinks and “other fermented beverages”.

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The actual relief is a complex calculation which depends on the amount of product produced, based on up to 8 possibly different rates of relief and aggregated cumulatively: i.e. you get so much relief for the first few Hectolitres, then a bit more for the next level of production and so on up to 4,500 HL of pure alcohol produced. If the maker produces at level 2 he gets the level 1 relief PLUS level 2 relief. And so on. The total amount of relief is converted back to a “per Hectolitre” figure and deducted from the “full” rate to calculate the actual rate of duty payable.  Therefore the actual rate needs to be calculated individually for each product produced, but starting from the total production of the entity concerned (and any “linked” entities, which must be counted as one for this purpose).

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The calculations are likely to be especially problematic for entities which produce both Ciders and Beers.

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The calculations should ideally be independently verified and retained in case of review by HMRC. Producers claiming SBR must also estimate their production for the following year, as the relief is available only for entities making product containing less than 4,500 HL of alcohol per year – if they anticipate exceeding this threshold SPR may not be allowed. For the same reason they should monitor their production throughout the year as the rate can change depending on production volume and is no longer claimable once they exceed the 4,500 HL limit.

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In spite of the difficulties smaller non-UK producers can potentially claim significant discounts on their UK excise duty by using SPR and Draught Relief.

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