The new alcohol duty system: what you need to know

From 1 August 2023, the Government will introduce a new alcohol (excise) duty system. The reform will have direct or indirect impact on a range of businesses including:

• Pubs
• Bars
• Restaurants
• Wine Merchants
• Vineyards
• Alcohol Importers
• Alcohol Wholesalers
• Breweries
• Distilleries

If you create or release excisable alcoholic products for consumption in the UK, you will need to be aware of the new alcohol duty system. If you purchase duty-paid product, your costs are set to change.

How to prepare for the new alcohol duty system

Businesses can prepare for the changes now and may wish to:

• Ensure systems are ready for the new duty calculations
• Ensure the new duty rates are included in future costings
• Efficiently manage duty suspended stock or production at the time of the rate change to reduce the amount of duty due
• Assess eligibility for reliefs and be ready to apply them where available

New duty rates for the alcohol duty system / calculation method

The most significant change is that all alcoholic products across all categories will be taxed by reference to the exact final alcohol by volume (ABV) of the product.

Current categories will be replaced by a series of standardised bands – reducing the number of different rates applied. Current distinctions between sparkling and still wines have been removed entirely.

*Beer, cider, wine, spirits and other fermented products less than 1.2% ABV are nil duty.

The changes mean most alcoholic beverages will be subject to a higher rate of duty, with the notable exceptions of:

• Most sparkling wines – particularly prosecco (typically 11% ABV)
• Some low ABV (e.g., 4%) spirits based ready-to-drink products.

If you operate or use an excise warehouse, you may want to consider which products you will release prior to the change and which you will keep in suspension.

Special changes to excise rate for wine calculation (11.5-14.5% ABV)

Wine between 11.5% and 14.5% ABV will be treated as if it is 12.5% ABV for the purposes of calculating the charge to alcohol duty from 1 August 2023 until 1 February 2025.

Examples:

750ml bottle of Wine

Draught relief

Draught relief will be introduced on 1 August 2023 and is intended to relieve the tax burden on pubs and sales of alcohol made in other on-trade venues.

To qualify for the draught relief rate of duty, the product:

• Must be under 8.5% ABV
• Be sold on draught
• Packaged at the duty point in a container that:
  • Is of a capacity of at least 20 litres
  • Is designed to connect to a qualifying system for dispensing individual drinks (i.e. pressurised gas or pump).

Decanting from a 20+ Litre container to smaller containers will be prohibited, unless for consumption on the same premises the decanting takes place.

Where alcohol is decanted and sold off-premises, the purchase of the container will need to be at the full duty rate – even if the container is over 20 Litres.

Small producer relief

This relief will apply to alcoholic products under 8.5% ABV, produced by those making less than 4,500 hectolitres of pure alcohol per year. All products under 8.5% ABV will be eligible.

Small producer relief replaces the existing small brewer’s relief. Calculation of the relief depends on several variables, particularly the annual production volume.

All alcohol production will count towards a maximum relief threshold, so if you are a small brewer who also produces spirits, you will have to total all the litres of alcohol produced to monitor your eligibility.

Future changes

From late 2024, the government plans to introduce changes to the approval, return and payment processes for domestic producers of alcohol products. A new digital system will be created, details of which will be released in due course.

How can we help?

If you would like additional support to manage this change ahead of the new alcohol duty system, please contact our indirect tax team who will be happy to assist.