Alcohol duty increase scrapped plus system reform
The Chancellor has scrapped the planned duty increase on spirits, wine, cider, and beer announcing higher taxes for stronger alcoholic drinks
From midnight tonight, the duty rates for beer, cider, wine, and spirits will be cancelled, which is a cut tax worth £3bn over the next five years.
Rishi Sunak stated that the government has ‘simplified’ the duty system for alcohol reducing the number of main rates from 15 to six with the new reforms planned to be introduced in February 2023.
The government will approach alcohol taxation by taxing drinks on their alcohol content with a standardised set of bands. These bands are alcohol with an alcoholic content of between 1.2-3.4%, an alcoholic content of between 3.5-8.4%, an alcoholic content of between £8.5% and 22%, then drinks with an alcoholic content of above 22%.
The government will also introduce new rates for low-strength drinks below 3.5% to encourage manufacturers to develop new products at a lower alcohol rate. The Chancellor stated that all products across these categories will pay the same rate of duty if they have the same proportion of alcohol content.
The government as introduced a small producer relief for cidermakers and other producers of lower alcohol rate drinks. This is aimed to allow a smaller producer to diversify their product range to include more products below 8.5% while still benefiting from reduced rates.
Commenting on the alcohol reforms, Alex Henderson, senior tax partner at PwC, said: ‘While the speech contained the expected dram or two on skills, levelling up and Net Zero, they were somewhat diluted by the emphasis on alcohol duties.
‘After all the country has been through, a Chancellor may be forgiven for wanting to introduce some cheer. However, the amount of time spent in the speech seemed disproportionate.
‘Perhaps the time spent on alcohol duties is explainable when placed in context since as well as support for the drinking woman or man in the street the Chancellor signalled at least four important things, he is prepared to modernise the tax system, he will cut tax taxes and duties judiciously, he wants to simplify taxes, and he wants to use the freedom of being outside the EU to shape the tax system in support of Government policy.
These are important signals which will set the tone for the remainder of the Chancellor’s tenure of the office’.
The reforms come after the government launched a call for evidence consultation on alcohol tax reforms in 2022. The government has now launched its second consultation with the current plans of reform. This consultation is to close on 30 January 2022.