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New Alcohol Duty rules and the price of a pint | AccountingWEB | image of pints of beer
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New alcohol duty rules and the price of a pint

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The reform of alcohol duty from 1 August 2023 will change the manner in which the duty is applied and amend the duty rates, along with new reliefs and transitional arrangements.

7th Jul 2023
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Alcohol duty (current system)

Beer and spirits are taxed (alcohol duty) based on alcoholic strength which is measured by alcohol by volume (ABV), while the other types of alcohol are taxed on a specific duty based on overall volume. 

In summary, wines are taxed on the total volume of the product rather than the total volume that is made up of pure alcohol.  For products taxed on ABV, there are separate bands that increase duty rates according to alcoholic strength. This creates a system whereby products of the same alcoholic strength may be taxed at significantly different rates.

Most Budgets see either marginal changes in these rates or freezes, the economy may be a complex machine but the price of a beer or VAT (Vodka and Tonic) still holds some emotional relevance to the general population.

Examples based on the current system (pre 1 August 2023)

  • A supermarket sells a 1-litre bottle of gin with a strength of 40% ABV. 
  • The pre-tax price of the product is £15. Spirit duty is £28.74 per litre of pure alcohol. The gin is 40% strength so multiply by the litre duty rate (£28.74) = £11.50 of alcohol duty, and the price of the gin is now £26.50 (£15 + 11.50), plus VAT at 20%: £5.30.
  • The retail price to consumer is £31.80 (£15 + £11.50 + £5.30)
  • For a pint of 5% lager, the duty would be 19.08p (the duty rate for lager under 7.5%) x 5% (the ABV of the lager) = 95.40 pence per litre (or 0.954p per ml). A pint is 568ml so 0.954 x 568ml = 54p per pint.  

The current alcohol duties can be found on the GOV.UK website here.

Revised Alcohol Duty 

From 1 August 2023, the new system aims to simplify and broadly increases the tax as the alcoholic content rises. Different rates will apply to products between 3.5% abv and 8.4% abv.
The new rates can be found on Gov.uk here, as well as the rates for draught relief.

Examples based on the new system (post 1 August 2023)

Looking at beer, the new rate for is split:

  • Duty on all alcoholic products less than 3.5% (ABV) = £9.27 per litre 
  • Duty on beer at least 3.5% but less than 8.5% (ABV) = £21.01 per litre 

Very quickly, we can see an incentive for producers to produce a beer that is 3.4% in strength and should create an obvious gap between the 5% premium products.

If we apply these new rates to the same earlier example for beer:

  • For a pint of 5% lager. The duty would be 21.01p (previously 19.08p) x 5% (the ABV) = 1.054p (previously 95.40 pence). A pint is 568ml so we take 1.054 x 568ml = 59p per pint (previously 54p), an increase of 5p
  • If that beer was at 3.4% ABV, the duty would be £9.27 per litre x 3.4% = 18p per pint.
  • A four-pack of 568ml bottled beers contains £2.36 of alcohol duty (59p x 4), whereas the lower alcohol version would see duty of just 72p (18p x 4).

Will prices rise?

The big question is whether producers and retailers will actually lower their prices in line with the lowering of the alcohol content. Based on purely observational evidence (ie, regular buying of bottled beer at the supermarket), a price drop is unlikely, in the same way a reduction of VAT or freeze in fuel duty does not automatically mean lower taxes are passed to the consumer.

HMRC’s own impact study concluded that for draught beers (with the draught relief in play) we would see no increase to a pulled pint. For bottled beers, there would be roughly a 5p increase per bottle.  For cider a 2p increase if draught and 5p if bottled. Spirits may go up by 3p and around 5p increase is expected for wine.

Reliefs

  1. Small Producer Relief will now extend the relief that was previously just for small brewers, to all producers of alcoholic products under 8.5% ABV. So artisanal gin or wine producers who meet the conditions for small producer relief can enjoy the same benefits as artisanal brewers.
     
  2. Draught Relief is designed to reduce the duty on draught products which are sold in bars and other public venues. The relief will apply a reduced rate of duty on draught alcoholic products, again under 8.5% ABV which are sold wholesale in containers of at least 20 litres.
     
  3. There is also a temporary, transitional arrangement for wine producers and importers to facilitate the transition to the new duty calculation methods, this temporary provision will exist for 18 months (from 1 August 2023 through to 1 February 2025).

Summary

The reforms were much needed, but as with any reform there are winners and losers, mainly losers if you drink at home and like to at least taste something akin to alcohol. 
For those who prefer a night out, then draught drinks will probably still go up at the bar but not because of the duty. As for wine drinkers and those of a sparkling persuasion, well, we can drown our sorrows or consider the journey to a tee-total life, which does come with health (as well as tax) benefits.

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Replies (5)

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By Hugo Fair
07th Jul 2023 16:13

I thought I recalled these changes originally being announced as a 'simplification'?!?

Anyway, a useful explanation with examples from Jason, alongside https://www.gov.uk/government/publications/changes-to-alcohol-duty-rates... from today's GOV.UK updates.

Thanks (1)
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By AndrewV12
10th Jul 2023 10:43

'Examples based on the new system (post 1 August 2023)
Looking at beer, the new rate for is split:

Duty on all alcoholic products less than 3.5% (ABV) = £9.27 per litre
Duty on beer at least 3.5% but less than 8.5% (ABV) = £21.01 per litre
Very quickly, we can see an incentive for producers to produce a beer that is 3.4% in strength and should create an obvious gap between the 5% premium products.'

I am not sure drinkers would drink a beer of 3.5%. maybe they already do, who knows.

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Replying to AndrewV12:
paddle steamer
By DJKL
10th Jul 2023 14:00

They do in say Sweden where beer at I think less than 3% is available in supermarkets but above 3% you have to buy from a government shop. (May be 3.5% but think from memory it is 3%)

Whilst I agree there is not much beer I would drink at 3.5% I certainly do drink lager down at that level, in fact in summer I tend to drink it diluted with lemonade, drinking to quench thirst rather than inebriation (Unlike my children I am not really that keen on strong beer anyway)

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VAT
By Jason Croke
12th Jul 2023 15:37

https://www.msn.com/en-gb/money/other/carlsberg-cuts-alcohol-in-beer-ahe...

First of many, Carlsberg lowers its lager to 3.45 (from 3.8%) but will the price of a can/bottle go down or will it stay exactly the same/more profit for the manufacturer?

Thanks (1)
By SteveHa
12th Jul 2023 15:38

By the time I've had four or five pints, and a couple of shots, I'm past caring what the duty is.

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