In concert with HM Treasury’s alcohol duty review, the government has prepared a Bill to repeal the existing Alcoholic Liquor Duties Act (ALDA) 1979. The new Act will make changes to the duty structure for alcohol, moving from product-specific duties and bands to a single duty on all alcoholic products and a standardised series of tax bands based on alcoholic strength. The Act will also implement reduced rates for smaller producers on products below 8.5% alcohol by volume and a rate reduction for alcohol in draught containers.
Product classification
The alcohol product classifications (‘types’) are identified in the initial clause of the Bill and specifically defined by reference to a schedule, with the useful ability of HMRC to change or add classifications by means of regulations. ‘Alcohol’ is defined succinctly as ‘ethanol’ but an alcohol product is not subject to duty if it does not exceed 1.2% alcohol by volume.
The historic definitions in ALDA 1979 are retained for spirits, beer, wine and cider, but the definition of made-wine will be changed to ‘other fermented products’, which is also the heading of 2206 for the harmonised system for such products.
Duty charge and rates
As is the case under ALDA 1979, alcohol products will be charged with duty when they are produced in, or imported into the UK (subject to reliefs or exemptions for qualifying products).
There still isn’t uniformity of tax treatment for alcohol products – there were always going to be winners and losers – but overall, things are much fairer. There are four duty bands in which rates for each product are to be applied. It should also be noted that there will be transitional provisions to enable wine of fresh grape between 11.5% and 14.5% abv to adapt to the strength-based system. This will expire at the end of the period of 18 months beginning with the day on which the ‘full’ rates come into force.
The new alcohol duty rate and reliefs will take effect in August 2023. The commencement of changes to the approvals and administration will be announced at a later date.
Drinks factory
What is really significant is that producers of all alcohols in duty suspension may be authorised by HMRC to produce and store any alcoholic type ‘under the same roof’ – effectively a ‘drinks factory’. The ‘drinks factory’ will encompass traditional distillers and necessary maturation processes, as well as the production of gin or flavoured alcohol (‘rectifying and compounding’) from high strength grain neutral spirits. Currently, such maturation and production has to take place in a highly-regulated excise warehouse (‘bonded warehouse’). This consequentially means that there will no longer be the archaic requirement for licensing of distillers, rectifiers/compounders of spirits, wine producers and made-wine producers.
The ‘details’ of the registration and approval of alcohol producers will be by regulations. According to HMRC, there will be a single duty return for all products that are released to home use (i.e. at the duty point).
Excise warehousing
Finally, it should be noted that the excises warehousing regime provided for by CEMA 1979 s 92 (‘bonded warehousing’) will not be changed fundamentally since excise warehouses enable private and third party duty suspension for all excise goods after production, not just alcohol.
Home >Articles > Changes to the alcohol duty system
Changes to the alcohol duty system
In concert with HM Treasury’s alcohol duty review, the government has prepared a Bill to repeal the existing Alcoholic Liquor Duties Act (ALDA) 1979. The new Act will make changes to the duty structure for alcohol, moving from product-specific duties and bands to a single duty on all alcoholic products and a standardised series of tax bands based on alcoholic strength. The Act will also implement reduced rates for smaller producers on products below 8.5% alcohol by volume and a rate reduction for alcohol in draught containers.
Product classification
The alcohol product classifications (‘types’) are identified in the initial clause of the Bill and specifically defined by reference to a schedule, with the useful ability of HMRC to change or add classifications by means of regulations. ‘Alcohol’ is defined succinctly as ‘ethanol’ but an alcohol product is not subject to duty if it does not exceed 1.2% alcohol by volume.
The historic definitions in ALDA 1979 are retained for spirits, beer, wine and cider, but the definition of made-wine will be changed to ‘other fermented products’, which is also the heading of 2206 for the harmonised system for such products.
Duty charge and rates
As is the case under ALDA 1979, alcohol products will be charged with duty when they are produced in, or imported into the UK (subject to reliefs or exemptions for qualifying products).
There still isn’t uniformity of tax treatment for alcohol products – there were always going to be winners and losers – but overall, things are much fairer. There are four duty bands in which rates for each product are to be applied. It should also be noted that there will be transitional provisions to enable wine of fresh grape between 11.5% and 14.5% abv to adapt to the strength-based system. This will expire at the end of the period of 18 months beginning with the day on which the ‘full’ rates come into force.
The new alcohol duty rate and reliefs will take effect in August 2023. The commencement of changes to the approvals and administration will be announced at a later date.
Drinks factory
What is really significant is that producers of all alcohols in duty suspension may be authorised by HMRC to produce and store any alcoholic type ‘under the same roof’ – effectively a ‘drinks factory’. The ‘drinks factory’ will encompass traditional distillers and necessary maturation processes, as well as the production of gin or flavoured alcohol (‘rectifying and compounding’) from high strength grain neutral spirits. Currently, such maturation and production has to take place in a highly-regulated excise warehouse (‘bonded warehouse’). This consequentially means that there will no longer be the archaic requirement for licensing of distillers, rectifiers/compounders of spirits, wine producers and made-wine producers.
The ‘details’ of the registration and approval of alcohol producers will be by regulations. According to HMRC, there will be a single duty return for all products that are released to home use (i.e. at the duty point).
Excise warehousing
Finally, it should be noted that the excises warehousing regime provided for by CEMA 1979 s 92 (‘bonded warehousing’) will not be changed fundamentally since excise warehouses enable private and third party duty suspension for all excise goods after production, not just alcohol.
