As promised in the last Budget, the Treasury and HMRC have launched a consultation on major changes to the alcohol duty system: Alcohol duty review: Call for evidence.
While most of us only give a thought to such things once a year when the Chancellor announces whether or not to increase taxes on alcohol, tobacco or petrol, excise duties in the UK are surprisingly complex.
Unlike VAT, excise duty is payable when the alcohol is manufactured or imported, rather than at each stage in the supply chain, so is generally dealt with by producers rather than retailers and consumers. However, beer, cider, wine and spirits are subject to individual duty regimes with different rates and methods of calculation, and each type of alcohol has its own rules for submitting returns, paying duty and obtaining HMRC approval to produce them.
At this stage, the consultation seeks stakeholder views at a high level on the current regime and how it might be reformed. HMRC and the Treasury will use this information to make more specific proposals at a later date, however, the questions already posed indicate that the review will affect not just alcohol producers and importers, but could also have a significant impact on retailers and the hospitality industry.
The consultation document begins by asking whether the existing alcohol duty regime is effective in meeting the government’s aims of raising revenue and protecting public health, and in tackling avoidance and evasion. It also asks whether the UK should apply a standard method of taxation and compliance to all categories of alcoholic drinks (ie a single excise duty return and HMRC approval process) and if stakeholders agree with the government’s view that alcohol should always be taxed according to strength.
The Treasury and HMRC then go on to ask whether there is a case to tax alcohol differently according to where it is sold, e.g. by applying a lower rate of excise duty or VAT to alcohol sold in pubs and restaurants to alcohol sold in supermarkets and shops. Suggestions of how this could be achieved include a lower VAT rate for sales in pubs and restaurants or a separate licence fee to sell alcohol which is set at a higher rate for supermarkets/shops than for pubs, restaurants and producers.
The plans to reform the system have initially been welcomed by alcohol producers, who favour a unified system for compliance and approvals. However, the proposal to tax alcohol differently according to where it is sold means this is also an important consultation for pubs and restaurants who may be able to lower their prices as a result. In the long term, this could help them recoup some of their losses caused by the current pandemic, as people may be more inclined to go out if alcohol is cheaper. It is likely to be at least two or three years before any practical changes from this review take effect though, so the proposals may be cold comfort for hospitality businesses who are struggling to stay in business over the next few months.
On the other hand, supermarkets and off licence profits from alcohol sales could be hit in the future if they have to pay an expensive licence fee, and this extra expense may be passed on to the consumer, pushing prices up.
The consultation period ends on 29 November 2020. All stakeholders should study the proposals and consider their position carefully.