From 1 August 2023, a new alcohol duty system will take effect. In its final consultation response, the Treasury describes this as ‘the biggest reform of alcohol duties for 140 years’.

The primary objectives of the reform are to:

a) Simplify a complex system.
b) Make alcohol taxation more rational and consistent.
c) Reduce the administrative burden of duty & compliance on producers.

The headline change is the introduction of standardised tax bands, based on alcohol by volume (ABV), as opposed to individual bandings for each product category. The overhaul also standardises how the rate of duty is applied. Currently, beer is charged per hectolitre per cent of alcohol, cider and wines per hectolitre of product, and spirits per litre of pure alcohol. The new alcohol duty system calculates duty liability on all products per litre of pure alcohol.

Small Producer Relief
The current Small Brewers relief for beer is being reformed and renamed as Small Producer Relief. As the change in name suggests, the relief is being extended to also cover small producers of all products under 8.5% ABV. The production limit is also revised to 4,500 hectolitres of pure alcohol.

Draught Relief
The reform introduces a new relief for products under 8.5% ABV that will be sold on draught. Products must be packaged in containers of at least 20 litres and either connect to a dispensing system or incorporate one.

Transitional arrangements for wine
As a result of industry feedback during the consultation stage, the change introduces a provision that treats all wine between 11.5% and 14.5% ABV as if it is 12.5% ABV for the purposes of calculating the charge to alcohol duty. This will be a temporary provision for 18 months from 1 August 2023.

Tax Type Codes
Accompanying these changes are new tax type codes – 49 in total, an increase from 35 in the current system. It is worth noting that 30 of the new codes relate to products that are eligible for Small Producers Relief, Draught Relief, or both. Another change is that the new code structure makes no reference to whether products are produced in the UK or imported from abroad.

From a software development point of view these changes pose a number of challenges.

Remapping of Tax Type Codes
Many products are straightforward to assign to a new tax type code, having one-to-one correlation. Where this is the case, we have communicated our proposed remapping to our clients for their agreement and will implement these changes on 1 August. However, some products that were previously applicable to a single tax type code can reasonably be mapped to multiple different tax type codes in the new structure, depending on the specific details of the product. The most extreme example being tax code 433 (low alcohol beverages, 1.2-4.0%) which could become any one of 10 new codes. Our product team have produced a comprehensive spreadsheet showing the new mapping possibilities for each current tax type code and the criteria for each. We are working with our excise clients to ensure we have a clear picture of where each product will sit come 1 August.

As a result of these classifications, there will be changes to stock balances between the July and August W1 returns. This has been discussed with representatives of HMRC and is considered necessary and acceptable.

Change of Calculation Methods
The standardisation of the calculation method to be per litre of pure alcohol necessitates changes in how our duty management system processes and outputs data for certain products. This will be ‘behind the scenes’ work as we already hold all the required information to perform the new calculations. This includes provision for calculations on wine to be made in line with the transitional arrangements for the period it is active. Significant work is going into testing to ensure a smooth transition for our clients.

If you would like to discuss the upcoming changes and how Langdon can assist in your bonded stock management (both customs and excise), please get in touch via