UK Prime Minister Rishi Sunak calls it “the most radical simplification of alcohol duties for over 140 years” — but how will the new rates of alcohol duty affect drinks businesses and their customers?
Tax on the product
The longstanding ‘freeze’ on alcohol duty came to an end in August, no doubt to the dismay of many drinks manufacturers. Alcohol duty is now expected to rise with inflation (running at about 10% per annum at the time of writing).
Drinks with an ABV of less than 1.2% will thankfully continue to attract no duty meaning the price of our favourite 0.5% beers, gins, wines and ciders should remain constant, subject to general inflationary forces. However, increased rates of duty now apply to alcoholic products with an ABV of 3.5% and above (the full list of rates have been set out by the Government) and in particular, those drinks exceeding 8.4% will be subject to a sharp increase in duty.
Beer, cider and sprit-based drinks with an ABV of 3.4% and below notably now benefit from slightly lower rates under the new system, meaning that producers might look to cash in on this ‘sweet spot’ by opting to produce lower ABV drinks (radlers, shandies, table beers and spritzers for example) that can offer big flavour at a lower price point. Alcohol-free beer brand ‘Infinite Session’ is one such operator, looking to make full use of the new duty bandings with the imminent release of its higher 3.3% light beer ‘Brisk’. Other producers may well follow suit and release lighter ABV offerings in the near future.
At the other end of the spectrum, producers might be inclined to rejig the recipe on any beers, ciders or pre-mixed cocktails in their range topping 8.4% ABV to ensure that they fall within a middle duty band and are not subject to the newly increased rates.
Wines, and to a slightly lesser extent spirits, are expected to bear the brunt of the changes. The duties imposed on 11.5% to 14.5% ABV wine have increased by 20% and the duty on standard strength spirits has risen by 10%. This represents an extra £0.44p on a 12.5% bottle of wine and an extra £0.76p on a 37.5% bottle of vodka, which will presumably be passed on to the customer in the supermarket or off-licence.
As a result of the above, it may well be that in the coming months, the more cost-conscious drinkers turn to beer, cider and weaker counterparts, resulting in a slight dip in wine and spirit consumption, especially at the lower end of the market. However, we would expect consumption of the more expensive wine and spirits — those that may be regarded as prestige offerings — to remain fairly constant.
In an attempt to offset the increases in duty that will be felt by many producers, the Government has increased the relief on qualifying beer and cider sold in licenced premises from 5% to 9.2%. On qualifying wine and spirits, the relief has risen from 20% to 23%, again differentiating between weaker and stronger products.
The relief applies where products are contained in kegs or barrels of 20 litres or more that incorporate or connect to a draught delivery system. These changes are intended to encourage the public to eat and drink out more — rather than staying in and drinking at home — which will hopefully support the struggling hospitality sector.
If you need any expert advice or guidance around tax or general legal matters affecting your drinks business, feel free to contact Dan at firstname.lastname@example.org.