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On 1 August 2023, the Government implemented a major restructure of the taxation of alcohol. This briefing analyses the structure of the new system, rates, and reliefs, in comparison to the former arrangements. It discusses the parliamentary and professional commentary of the new system and looks at the process through which the changes were implemented.

What is alcohol duty?

Alcohol duty is a tax charged at the point of production or importation of drinks of alcoholic strength exceeding 1.2% alcohol by volume (abv – the percentage of pure alcohol per litre of product). Duty rates differ for beers, ciders and perries, and wines, spirits, and other fermented products.

The principle of the duty system is that stronger products (with a higher abv) will pay a higher rate of alcohol duty, though some exceptions apply.

VAT is charged on the duty-inclusive price.

Alcohol duty and Northern Ireland

The new alcohol duty system applies in Northern Ireland as well. Originally, some changes to the alcohol duty system would only have applied in Great Britain, due to the terms of the Northern Ireland Protocol.

However, the agreement between the UK and the EU on changes to the Protocol (the ‘Windsor Framework’) agreed by both entities in February 2023 meant that the changes to the alcohol duty system would apply to Northern Ireland too. However, some EU legislation still applies.

What alcohol duty reliefs are available?

Small Producer Relief

Small producers of alcoholic products below 8.5% abv may be entitled to a lower rate of duty. To be eligible, the total product made in the previous production year has to contain less than 450,000 litres of pure alcohol. Producers also have to reasonably expect that the total production in the current production year will not exceed the 450,000 litre limit. Producers of cider and other fermented products below 8.5% abv may be subject for a full duty exemption for the first 5,000 litres of pure alcohol produced (PDF). Additional conditions on overall production apply in Northern Ireland.

Draught relief

Alcoholic products below 8.5% abv sold in venues such as pubs may be entitled to a lower rate of duty. To qualify, products must also be able to be connected to a pump system or a drinks tap, and be contained in a container of capacity of 20 litres or higher.

The previous alcohol duty system

A different alcohol duty system applied until 31 July 2023.

The previous system had more duty rates than the current one. The structure of various duties also varied across, and often within categories. This often resulted in different products at the same alcoholic strength being taxed at significantly different rates. There was broad consensus that the system needed to be reformed and simplified.

How much do alcohol duties raise?

The Office for Budget Responsibility (OBR) estimates that alcohol duties will raise £12.6 billion in 2023/24, rising to £16.1 billion in 2028/29.

The Government has forecast that the reforms will slightly reduce alcohol duty revenue (PDF). However, the Treasury clarified that the aim of the reform was not to significantly change the amount of money raised through alcohol duties.

How are alcohol duty rates increased?

In absence of specific policy initiatives, public finance forecasting assumes that alcohol duties will be increased year-on-year. This typically happens on 1 February, based on the rate of Retail Price Index (RPI) measure of inflation. This process is known as ‘uprating’.

The OBR notes in its webpage on alcohol duties that many policy decisions on alcohol duties since 2010 have differed from this uprating assumption. Until August 2023, no type of alcohol duty had been uprated since 2020, with some having been frozen since 2017. 

Recent developments

Since the implementation of the new duty system, the duty rates have been frozen at their levels at Autumn Statement 2023 and Budget 2024. The rates are due to stay at this level until February 2025.

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