How will Alcohol Duty Reform affect the hospitality industry?

As of 1 August 2023, the government has implemented a new, ‘simpler system’ which is expected to have a significant impact on producers, consumers and the hospitality industry. These changes include a freeze on duty rates for beer, spirits, and most ciders, while wine duty rates will increase in line with inflation.

With little more than a month to go before the Government is set to increase wine duty by 20% and spirits duty by over 10% there has been mix of mix of concern and cautious optimism from the UK Hospitality industry. While some businesses have welcomed the reduction in duties on beer, cider, and spirits, others have expressed concern that the increase in wine duties could have a negative impact on their sales. Many in the industry have also called for further support and relief measures to help them recover from the financial impact of the COVID-19 pandemic.

In a recent press release The Wine and Spirit Trade Association is calling on Government to scrap alcohol tax hikes and help bring down inflation.  Miles Beale, Chief Executive of the Wine and Spirit Trade Association, has said:  “We are careering towards an extremely tough period for wine and spirit businesses with tax hikes and other costs, including a prolonged cost of living crisis for their consumers, persistently high inflation – especially for food and drink – and rocketing prices for glass, leaving little room for many businesses to turn a profit. Inevitably some won’t be able to stay afloat, with SMEs most at risk.

What is the likely impact of the changes on the UK Hospitality Industry?

Overall, the impact of these changes on the UK hospitality industry is likely to be mixed. Whilst the freeze on duty rates for some drinks will provide stability for businesses, the increase in wine duty rates may have a negative impact on those that rely heavily on wine sales. On a positive note, the reform should reduce the administrative burden for businesses, encourage innovation and bring relief to smaller producers.  The impact of the changes remains to be seen but the industry should be prepared to adapt to any potential challenges. It is certainly no stranger to these; below is a summary of the changes.

Standardised Alcohol Duty Bands

The introduction of standardised Alcohol Duty bands is a positive step towards streamlining the taxation process in the hospitality and leisure sector. By categorising alcoholic products based on alcohol by volume (ABV), the new duty rates aim to bring clarity and consistency, ensuring that producers and consumers alike have a clear understanding of the tax implications associated with each product.

Small Producer Relief

If you’re a small producer you may be able to pay a lower rate of Alcohol Duty on any product with an alcohol by volume (ABV) of less than 8.5%.

Draught Relief

Draught products have long been a staple in pubs, bars, and restaurants, forming an integral part of the hospitality experience. With the introduction of Draught Relief, the tax burden on draught alcoholic products under 8.5% ABV packaged in containers of at least 20 litres is significantly reduced, encouraging establishments to continue offering draft beverages whilst incentivising the adoption of sustainable practices within the industry.

Transitional Arrangements for Wine Producers and Importers

Recognising the challenges faced by wine producers and importers in adapting to the new Alcohol Duty structure, the government has implemented transitional arrangements to ease the transition. These businesses are allowed to use an ‘assumed strength’ of 12.5% ABV when calculating the duty on wines with an ABV between 11.5% and 14.5% ABV. This provides a grace period of 18 months, until 1 February 2025, for producers and importers to adjust their practices accordingly and help minimise disruption to the wine industry.

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