August 2023 has seen a radical overhaul of how the government imposes duty tax on alcoholic products such as beer, cider, perry, wine, spirits and other fermented products. Although this duty tax is paid by manufacturers and importers of alcoholic beverages, price increases will reverberate throughout retail supply chains with the end-consumer absorbing at least some of the cost.
Pubs, bars, restaurants and other hospitality venues will, however, be subject to some relief on certain products, sparing them some of the costs imposed on retailers.
This post outlines the new changes in alcohol duty and how they will impact those in the hospitality industry.
Alcohol duty changes: How does the new system work?
Prime Minister Rishi Sunak and Chancellor Jeremy Hunt have implemented an overhaul of the UK alcohol tax system. Under new alcohol duty laws, the level of duty paid is proportional to the alcohol by volume (ABV) of each product with rates charged per litre of pure alcohol.
While this amounts to an overall increase in alcohol duty rates of 10.1%, rates are higher for wines, spirits and other fermented products that contain higher volumes of alcohol. The legislation also places higher duty rates on strong beers and ciders. This is because cheaper, stronger beers and ciders are the drinks most commonly associated with problematic drinking behaviours and antisocial activity.
Alcohol duty changes are detailed below:
| Product | Strength (ABV) | Rate per litre of pure alcohol |
|---|---|---|
| Beer, cider, wine, spirits or other fermented products | Less than 3.5% | £9.27 |
| Beer | 3.5% - 8.5% | £21.01 |
| Beer, cider, wine, spirits or other fermented products | 8.5% - 22% | £28.50 |
| Beer, cider, wine, spirits or other fermented products | Over 22% | £31.64 |
| Sparkling cider | 3.5% - 5.5% | £9.67 |
| Sparkling cider | 5.5% - 8.5% | £24.77 |
| Still cider | 3.5% - 8.5% | £9.67 |
| Spirits, wine and other fermented products | 3.5% - 8.5% | £24.77 |
How does the increase in alcohol duty tax affect your restaurant, bar or nightclub?
Alcohol duty in the UK has been subject to various freezes and cuts since 2012. As such, this increase may be jarring to those in the hospitality industry who rely on the sale of alcoholic beverages.
However, government guidelines on the revised rate structure claim that the impact on hospitality businesses and their customers will be “negligible”. Guidelines state that assuming 100% passthrough on all alcoholic products sold and current VAT rates of 20%, price increases will be as follows:
- 4% ABV 500ml bottle of non-draught beer will be 5p extra
- 5% ABV pint of draught cider will be 2p extra
- 5% ABV 500ml bottle of non-draught cider will be 5p extra
- 40% ABV 25ml serving of whisky will be 3p extra
- 11% ABV 250ml glass of still wine will be 5p extra
- 5.4% ABV 250ml can of spirits-based ready-mixed drink will be 6p lower
Hospitality businesses will also benefit from an additional draught relief. This is due to the government’s “recognising the vital role pubs play in our communities as well as in acknowledgement that pubs are supervised settings less associated with alcohol harm”. As such, the draught relief duty differential is increased from 5% to 9.2% for qualifying beer and cider products and from 20% to 23% for qualifying wines, spirits and other fermented products. So, for instance, the cost of a pint of 4% ABV draught beer will not increase.
Draught duty rates are detailed below:
| Type of alcohol | Strength (ABV) | Rate per litre of pure alcohol |
|---|---|---|
| Beer, spirits, wine and other fermented products | Less than 3.5% | £8.42 |
| Still cider | At least 3.5% but less than 8.5% | £8.78 |
| Sparkling cider | At least 3.5% but less than 5.5% | £8.78 |
| Beer, spirits, wine and other fermented products | At least 3.5% but less than 8.5% | £19.08 |
| Sparkling cider | More than 5.5% but less than 8.5% | £19.08 |
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UK Alcohol tax changes FAQs
What is the alcohol duty rate increase for 2023?
As of August 2023, duty tax will increase by 10.1% overall. However, new legislation has changed the way in which drinks are taxed, with rates proportional to the alcohol by volume (ABV) of each product. Duty is payable per litre of alcohol contained in the product rather than per litre of product.
Rates are briefly described as follows:
- -3.5% ABV (all products): £9.27 per litre
- 3.5% - 8.5% ABV (still cider): £9.67 per litre
- 3.5% - 5.5% ABV (sparkling cider): £9.67 per litre
- 3.5% - 8.5% ABV (beer): £21.01 per litre
- 3.5% - 8.5% ABV (wine and spirits): £24.77 per litre
- 5.5% - 8.5% ABV (sparkling cider): £24.77 per litre
- 8.5% - 22% ABV (all products): £28.50 per litre
- 22%+ ABV (all products): £31.64 per litre
Who pays alcohol duty?
Alcohol duty tax is paid by the companies that manufacture or import alcoholic drinks. However, the impact of alcohol duty is felt all the way through supply chains to the end consumer. When alcohol duty changes retailers, bars, pubs and restaurants adjust their prices accordingly in order to maintain their profit margins.
What is the purpose of alcohol duty tax?
There are a number of reasons why duty tax is imposed on alcoholic products. As well as generating revenue for public spending. The Office for Budget Responsibility predicts that alcohol duty will contribute £13.1bn in tax revenue for the 2023/24 tax year.
Another purpose is to protect society from alcohol-related harm. Cheaper, stronger drinks available in shops are typically associated with both antisocial behaviour and poor health outcomes. Hence, hospitality venues benefit from a draught relief on beers as they are a more controlled setting for alcohol use and less associated with alcohol harm.
What is the rate of VAT on alcohol in the UK?
Like most consumer products, VAT is charged at 20% on all alcoholic beverages. Like duty tax, VAT rates are subject to change, although they have remained at 20% since 2011.
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