VAT Director Rayner Essex
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Chancellor visits a brewery

Budget 2021: Sunak uncorks alcohol duty reform

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The Chancellor set the Treasury taps flowing with what he called “the most radical simplification of alcohol duties for over 140 years". Jason Croke reports on the alcohol duties reform and the other duty Budget announcements.

27th Oct 2021
VAT Director Rayner Essex
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Changes to alcohol duty ended up being one of the big headlines coming out of the Budget. In what will surely earn him favour with the tabloids in the morning, Rishi Sunak first announced that the current duty rates on beer, cider, wine, and spirits will be frozen for the next 12 months. 

The Chancellor then made a point that free from EU regulations, he wanted to reform alcohol duties, a tax that hasn’t been reformed for a long time and that currently has a multitude of tax bandings (currently 16) across different alcohol types (cider, beer, wine, spirits, etc) and with different administrative and registration procedures for reporting.

Introducing the new bands, Sunak called the current system "outdated, complex and full of historical anomalies" and said the Intitute of Economic Affairs said it "defies common sense". 

New banding and rates

Sunak summed up the new system with the common sense principle: “the stronger the drink, the higher the rate”.

The new banding/rates will be based on the alcoholic content (ABV – Alcohol by Volume), the bandings will be:

  • 1.2% - 3.4%
  • 3.5% - 8.4%
  • 8.5% - 22%
  • 22% and above

Beverages above 8.5% ABV will have the same duty rate applied across all categories (such as wine, spirits, cider, beer), so in that regard there is a simplification. 

Jason Croke will be speaking about business tax changes at AccountingWEB Live Expo. Register now. 

Although the new rates are yet to be agreed or published, the intention is that below 3.5% ABV will have lower rates than at present, so expect some lagers that are on the 3.5% strength to be re-engineered to lose 0.1% of alcohol in order to gain the benefit of the lower duty rate.

Government will also simplify the registration and administration of alcohol duty to reduce the burden of red tape on business in this sector. Consultations are expected to conclude January 2022 and so more details to follow thereafter.

Small producer relief

The government also unveiled a new “small producer relief” for smaller/artisanal producers of alcohol products with an ABV below 8.5% with the aim to encourage innovation in products from smaller producers.

Draft beer relief          

To recognise the role that pubs play in communities, there will also be a 5% cut in duty associated with draft beer and cider (kegs of 40 litres or more). Most pubs and restaurant use a half-keg which is around 58 litres/124 pints and so the relief is clearly aimed at traders, not home use.

The government is publishing a consultation on the detail of these reforms, which will close on 30 January 2022. The government will continue to discuss the application of these reforms to Northern Ireland with the EU during the consultation period of the review.

Fuel duty

As with alcohol duty, fuel duty has also been frozen for the next 12 months.  This is probably another tax that needs reform, as more road users switch to electric vehicles and to encourage more greener forms of transport (such as public transport), continuing to freeze this duty will eventually lead to reform.

Air Passenger Duty

The intention is to introduce a new band that relates only to UK domestic flights between England, Scotland, Wales, and Northern Ireland.  Currently there are two bands based on distance from London. Band A is under 2,000 miles and band B is over 2,000 miles – band A captured Central Europe, Channels Islands and parts of North Africa.

The new domestic band will be set at £6.50 per flight.

In addition, the existing A & B band will be extended to three band covering distance of 0-2,000 miles, 2,000-5,500 miles and then 5,500 and above.

In addition, the government is increasing the number of international distance bands from two to three, with the new distance bands set at 0-2,000 miles (£13), then for 2,000-5,500 miles (£87) and then for 5,500 miles plus (£91).

Replies (7)

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By ireallyshouldknowthisbut
27th Oct 2021 17:46

Is it right the EU would prevent these reforms?

I have a quick look at the EU guidance and it seemed pretty vague and largely upto member states what to do.

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Replying to ireallyshouldknowthisbut:
Jason Croke
By Jason Croke
28th Oct 2021 10:45

https://ec.europa.eu/taxation_customs/taxation-1/excise-duties/excise-du...

The EU set minimum alcohol duty rates, but member states were free to set their own rates above that. Likewise, sparkling wine was seen different to still wine in terms of duty bandings.

In terms of "Brexit benefits", it's not really riding high on most peoples priorities, Sunak was on TV this morning telling Kay Burley that 87p off a bottle of Prosecco was a really big thing, he was so proud of this....but it really isn't a big thing for most people.

If it was designed to increase UK production of sparkling wines, which are very nice, then as these cost about £15-£25 a bottle, they are not competing with cheaper Prosecco imports anyway.

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Replying to Jason Croke:
By ireallyshouldknowthisbut
28th Oct 2021 13:43

So the minimum tax for sparkling wine, is erm, nil.

Some UK sparkling wines are very good, I have been fortunately enough to be given some by a client who's exact words were "don't tell anyone its not from France".

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Stepurhan
By stepurhan
28th Oct 2021 08:40

Has this become an American site? We call it "draught beer" over here.

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Replying to stepurhan:
Jason Croke
By Jason Croke
28th Oct 2021 10:37

The Treasury document refers to it as Draft beer.

On my Twitter feed yesterday, I made a point that this "draft" beer relief might be construed as a "draught" relief for insulating homes this winter and to keep Insulate Britain folks happy.

Thanks (3)
Replying to Jason Croke:
Stepurhan
By stepurhan
28th Oct 2021 12:53

So it is the Treasury that can't speak The Queen's English. I wish I was surprised.

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Replying to Jason Croke:
Stepurhan
By stepurhan
28th Oct 2021 12:54

Duplicate

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