Policy paper

Reform of Alcohol Duty and reliefs

Published 23 September 2022

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

The measure makes changes to the duty structure for alcoholic products, creating a standardised series of tax bands based on alcohol by volume (ABV).

The measure also introduces two new reliefs and a temporary easement for certain wine products. Small Producer Relief replaces and extends the relief currently enjoyed by small breweries to all producers of other alcoholic products.

Draught Relief will reduce the tax burden on alcoholic products sold in the on-trade venues, such as pubs, by reducing the tax rate on draught containers containing at least 20 litres of qualifying alcoholic products.

The easement for wine producers and importers helps manage the transition to the new method of calculating the duty owed on their products. This easement will be in place for 18 months.

Finally, the measure harmonises the approval, return and payment processes for domestic producers of alcoholic products.

Some parts of the current legislation that are outdated will be removed and other parts of the Alcoholic Liquor Duties Act 1979 (ALDA) and Finance Act 1995 will be re-enacted so that most of the primary legislation relating to alcoholic products is contained in one place.

Policy objective

The government is committed to simplifying the current system for alcohol duty which is complicated and outdated.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 and arbitrary distinctions, as well as reducing the administrative burden on producers when paying duty and complying with excise requirements.

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.

Detailed proposal

Operative date

Changes to the duty structure for alcohol duty and the two new reliefs are planned to take effect from 1 August 2023. The temporary easement for certain wine products will also take effect from 1 August 2023 and will run for 18 months, until 1 February 2025.

Changes to requirements for approvals as an alcoholic products producer and to the arrangements for duty payment and returns are now planned to take effect from late 2024. Further detail on the timing of these changes will be announced at a later date. HMRC will give at least 12 months’ notice of the start date, to allow businesses time to make the required changes to their own systems.

Transitional arrangements on how producers will submit their returns under the new rates and relief structure will be introduced prior to these taking effect.

Current law

The main provisions relating to the manufacture of alcoholic products and the charging, calculation and remission of excise duty (including any reliefs) are set out within ALDA. ALDA 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:

• 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
• Cider and Perry (Exemption from Registration) Order 1976
• the Excise Goods (Holding, Movement and Duty Point) Regulations 2010

Proposed revisions

The legislation being introduced in Finance Bill 2022 to 2023 will replace the following provisions in ALDA:

• the definition of alcoholic product
• how excise duty on alcoholic products is charged and calculated
• the reliefs from excise 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 nature of the product and litres of pure alcohol in the product.

As part of replacing ALDA, 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 and extend the Small Brewers Relief scheme, which currently applies to beer producers producing less than 60,000 hectolitres of beer a year, with a Small Producers Relief. Small businesses who produce any alcoholic products with an ABV of less than 8.5% will be eligible for reduced rates of alcohol duty on qualifying products if they produce less than 4,500 hectolitres of pure alcohol a year.

The legislation will also introduce a new draught relief, which will reduce the duty on draught products under 8.5% ABV, which are in large containers of at least 20 litres and are sold to connect to a dispense system.

The legislation will introduce an easement for some wine products, which will treat all wine ‘of fresh grape’ 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 easement for 18 months from when 1 August 2023.

The definition of alcoholic product, and details on penalties, are replaced in the new legislation without being amended.

Finally, the legislation will standardise the approval requirements needed to produce all alcoholic products across the regimes.

The government published the draft legislation for technical consultation, as well as a survey on Small Producer Relief on 23 September 2023.

Summary of impacts

Exchequer impact (£million)

Adjustments to the alcohol reform package following consultation after Autumn Budget 2021.

2022 to 2023	2023 to 2024	2024 to 2025	2025 to 2026	2026 to 2027
+25	-15	-80	-30	-30

These figures are set out in table 4.2 of the Growth Plan 2022.

The costings have been produced using the economic forecast from Spring Statement 2022, as this is the latest available official forecast. These costings will be finalised and accounted for in the public finances at the next forecast.

The table above shows the exchequer impact of the policy adjustments which have been made following the consultation that took place after Autumn Budget 2021.

The costings for the reform to alcohol duties and draught relief announced at Autumn Budget 2021 are set out in Table 5.1 of Autumn Budget and Spending Review 2021 and have been certified by the Office for Budget Responsibility. More details can be found in the policy costings document published alongside Autumn Budget and Spending Review 2021.

Economic impact

This measure is not expected to have any significant macroeconomic impacts.

Impact on individuals, households and families

This measure may have an indirect impact on individuals who consume alcoholic products, as the government expects the changes on duty rates to be 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.

The 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. The measure is therefore expected to have both a positive and negative impact for those in all groups depending on underlying patterns of alcohol consumption.

Evidence suggests men are more likely to consume beer and women are more likely to drink fruit cider. Both groups may benefit from the draught relief for the on-trade. Further, women are more likely to drink rosé and sparkling wine, which may get cheaper both at home and in the on-trade.

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.

One-off costs for businesses could include:

• familiarisation with the new process of calculating duty on their alcohol products
• 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
• registration — Cider producers who produce less than 70 hectolitres of cider will face a one-off cost of registration as they will have to register when they did not before

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

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.

Operational impact (£million) (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 £45m.

There may be a requirement for extra staff to support the introduction of these changes. Work is ongoing to quantify that resource.

Other impacts

There are no new penalties being introduced in this legislation, however 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

HMT will evaluate the impact of the new rates and structures three years after their introduction. This should give enough time for the changes to have embedded and for HMRC to have useful and accurate data with which to evaluate.

Further advice

If you have any questions about this change, contact Catherine Ayres on email: [email protected].

Declaration 

Felicity Buchan MP, Exchequer Secretary to the Treasury, has read this tax information and impact note and is satisfied that, given the available evidence, it represents a reasonable view of the likely costs, benefits and impacts of the measure.