Understanding Excise Duty: A Guide for UK Businesses

Excise Duty Explained for Retailers, Manufacturers and Logistics Providers

If your business handles alcohol, tobacco, fuel or vaping products, excise duty is already shaping how you store stock, move goods and manage cash flow.

This guide explains what this tax is, which products it covers, how it differs from customs duty and VAT, and the practical steps you can take to keep your duty liability under control.

What is excise duty?

Excise duty is a tax charged on the manufacture, production or import of specific categories of goods, rather than on general sales or business profits. In the UK, this currently covers alcohol, tobacco and certain energy products, with vaping products joining the list from October 2026 under a new excise duty on vaping products.

The tax doesn’t apply the moment goods are made or land in the country. Instead, UK excise duty becomes due at a specific ‘duty point’: the moment goods are released for consumption. This happens when goods leave an approved duty-suspension arrangement, are found to be held without duty having been paid or are imported without immediately being placed under suspension.

Operationally, this distinction affects how excise duty is planned and paid. Goods can sit in the UK, fully in your possession, without any duty being owed yet, provided they remain under an approved suspension regime such as an excise warehouse. The moment they leave that regime for sale or use, the duty point is triggered, and the goods become subject to duty liability.

Understanding this timing is central to managing bonded stock correctly.

How does excise duty impact retailers, manufacturers and logistics providers?

Excise duty touches different parts of the supply chain in different ways, which is why it needs to be understood by more than just a finance team:

• Retailers and wholesalers feel the impact through landed cost and cash flow, particularly where alcohol, tobacco or fuel stock is released from suspension gradually against demand rather than all at once. Wholesalers selling alcohol to other businesses also need to register under the Alcohol Wholesaler Registration Scheme and check their suppliers’ registration status before buying.
• Manufacturers encounter duty liability from the point of production, not just at import. A distillery, brewery or vaping liquid manufacturer needs to manage duty timing from the moment goods are made. From October 2026, vaping manufacturers will face entirely new registration and duty obligations before their first sale.
• Logistics providers and third-party logistics (3PL) operators often hold excise-bonded stock on behalf of multiple clients. This requires strict client-by-client stock separation, systems capable of supporting electronic movement reporting and audit-ready records, since much of the direct duty liability for missing or incorrectly released stock sits with whoever holds the excise warehouse

Across all three groups, this tax touches multiple operational disciplines, including storage, movement, record-keeping and timing, directly shaping day-to-day duty liability.

Excise duty vs customs duty vs VAT

It’s easy to blur these three taxes together, especially when they can all apply to the same physical goods at different points. Understanding custom duty vs excise duty, and VAT vs excise duty, helps clarify where each obligation sits.

The key practical difference is that excise duty applies to a narrow, defined list of product types and is usually charged per unit rather than as a percentage of value, while customs duty and VAT apply far more broadly and are calculated differently. All three can apply to the same imported goods, layered on top of each other at different points in the process.

Which goods are subject to excise duty?

UK excise duty currently applies to four broad categories of goods, each with its own excise duty rate structure and rules:

Excise duty on alcohol

Excise duty on alcohol applies to beer, cider, wine, spirits and other fermented products above a minimum strength threshold. Since August 2023, the UK has used a single alcohol-by-volume (ABV) based rate structure, meaning the rate increases in line with a product’s strength rather than depending on the type of drink it is. Reduced ‘draught’ rates apply to certain lower-strength beer and cider sold in on-trade containers.

Because rates are tied closely to product characteristics like ABV, getting the excise duty rate right depends on accurate product data being maintained and checked, not just applied once at setup, and forms a core part of ongoing excise management.

Excise duty on tobacco products

Tobacco excise duty applies to cigarettes, cigars, cigarillos, hand-rolling tobacco and other tobacco products, charged per 1,000 cigarettes/sticks or per kilogram depending on the product.

Rates for excise duty on tobacco products increased in November 2025, with a further increase due from October 2026. Because the tax component on tobacco is high relative to other goods, HMRC applies particularly strict controls and due diligence expectations to anyone handling it, and traceability from receipt through to dispatch is essential.

Excise duty on fuel and energy products

Petrol, diesel, kerosene and other hydrocarbon oil products are subject to duty at a specific excise duty rate per litre depending on the fuel type.

A temporary cut to main road fuel duty rates has been in place since March 2022, but this cut is due to be gradually unwound in stages from September 2026 through to March 2027, when rates are expected to return to pre-2022 levels.

Excise duty on vapes and vaping products

Excise duty on vapes is the newest addition to the UK excise regime. From 1 October 2026, a new Vaping Products Duty (VPD) will apply to all vaping liquid, regardless of whether it contains nicotine. This vape duty will be charged at a flat rate per 10 millilitres of liquid, in addition to VAT.

If you currently manufacture, import, store or sell vaping liquids, you should treat this as a new excise category requiring its own registration, record-keeping and warehousing arrangements, rather than an extension of existing alcohol or tobacco processes.

Vaping Duty Stamps Scheme

Alongside Vaping Products Duty, HMRC is introducing a Vaping Duty Stamps scheme, also live from 1 October 2026. This requires a physical duty stamp on the retail packaging of individual vaping products to show that duty has been accounted for.

Businesses have been able to apply for stamp approval since 1 April 2026, and a transition period will allow existing unstamped stock to continue being sold until 31 March 2027. Any new duty-liable stock purchased after 1 October 2026 must carry a valid stamp, and from 1 April 2027, all vaping products outside an approved duty-suspension regime must be stamped.

Import duty, tariff codes and excise classification

Every product entering the UK needs a commodity code (sometimes referred to as ‘import duty tariff codes’ or ‘UK import duty tariffs’), which determines customs duty, VAT treatment and any trade measures that apply. This classification is based on what the product is made of, how it’s produced and how it’s packaged.

For excise-liable goods, there’s an extra layer of classification on top of the standard commodity code.

HMRC requires a separate ‘tax type code’ that identifies the specific excise category and rate that applies; for example, distinguishing beer from spirits or leaded from unleaded fuel. The commodity code alone doesn’t always capture the relevant details for excise purposes, such as alcohol strength or intended use.

Practically, this means that:

• Getting the commodity code right affects customs duty and VAT.
• Getting the tax type code right affects the excise duty rate
• Getting either wrong can misstate liability across both taxes at once.

Businesses that import and export goods across multiple product variants (like different ABV bands, different fuel grades, different tobacco formats) need classification accuracy at the individual product level, not just at a broad category level, to avoid underpaying or overpaying duty.

Excise warehouse, bonded stock and duty liability

An excise warehouse (also called a tax warehouse) is a secure HMRC-approved premises where excise-liable goods can be held in duty suspension, meaning duty isn’t due while the goods remain within the regime. Stock held there is generally referred to as ‘bonded stock’.

This is separate from a customs (bonded) warehouse, which suspends customs duty and VAT on non-excise goods, though the same physical goods can pass through both types of regime at different stages.

HMRC describes approval as being available ‘subject to conditions’, including who is authorised to store, receive, dispatch or account for the goods, whether movements need electronic reporting and how discrepancies are handled. If you intend to receive, store and dispatch excise goods in duty suspension, your premises need approval as an excise warehouse, and you need separate approval to operate as an authorised warehousekeeper.

Duty liability can be triggered by:

• Removing goods from duty suspension for home consumption, such as supplying retail stores.
• Shortfalls, losses or missing stock that can’t be accounted for.
• Non-compliant movements, such as dispatch without the correct electronic reporting process.
• Mixing duty-suspended and duty-paid goods without the right approval in place.

Failing to meet excise warehouse authorisation conditions can lead to penalties, restrictions or withdrawal of approval. For example, goods may be liable to forfeiture or your business may become liable for duty on stock you cannot account for.

Managing excise duty well starts here. Bonded stock should be treated as its own controlled inventory class rather than folded into general stock management, with separate physical or system-based locations, clear status flags (duty-suspended, duty-paid, export under suspension) and structured processes for investigating discrepancies in bonded stock.

Duty management software and best practices

Good excise duty management is less about knowing the rules and more about building processes that apply them consistently, every time, across every movement. A few practices make the biggest difference:

• Map duty points and ownership. Document exactly where goods move from duty suspension to duty-paid status, and who is accountable at each step. Warehouse, finance, compliance and transport teams should all know their role, ideally supported by duty management software that gives everyone visibility of the same data.
• Keep rate tables under control. Because the excise duty rate varies by product and can change at fiscal events, rate tables should be version-controlled, with a clear owner and an evidenced update date.
• Reconcile frequently. A regular reconciliation between commercial systems and duty-suspended stock balances helps catch missed receipts, unclosed dispatches, duplicate entries and unexplained losses close to the point they occur, rather than at month-end.
• Apply due diligence. Checking supplier and customer authorisations, watching for anomalous pricing or volumes and having clear escalation rules for unusual movement requests all reduce counterparty risk.

This is where duty management software comes in.

Dedicated duty management software can centralise stock, movements and reporting so that inbound and outbound duty-suspended activity is tracked consistently, with built-in validation that reduces the risk of errors in submissions.

If you’re managing high volumes across multiple sites or product categories, this kind of structured excise management, supported by the right duty management tools, will help you stay audit-ready and prepared when HMRC asks questions.

Manage excise duty with confidence and control

Excise duty impacts how alcohol, tobacco, fuel and (soon) vaping businesses store stock, move goods and manage cash flow every day. Getting duty points, excise duty rates and excise warehouse conditions right consistently is what keeps duty liability predictable instead of a source of unexpected cost.

Langdon has spent nearly 40 years helping retailers, manufacturers and logistics providers across the UK and Ireland manage the complexities of customs and excise duty.

Our duty management software gives you the tools to track bonded stock, manage excise and customs declarations and defer duty in a controlled way, while our Consultancy and Bureau teams can support you directly if you need expert guidance or a fully managed service.

DMS Excise is an ingenious, purpose-built solution for excise warehouse operators and businesses dealing with duty-suspended stock. Trusted to manage over £1 billion in excise duty liabilities, DMS Excise allows you to control inbound and outbound duty-suspended movements in one streamlined system that optimises your cash flow and helps you unlock duty savings.

If your business is preparing for changes like the new Vaping Products Duty, or you want tighter control over your existing alcohol, tobacco or fuel duty obligations, speak to the Langdon team today at info@langdoncustoms.com to talk through your requirements and see DMS Excise in action.

Excise duty FAQs

What is excise duty?

Excise duty is a UK tax charged on the manufacture, production or import of specific goods, rather than on general sales or profits. It currently applies to alcohol, tobacco and certain energy products, with vaping products joining the list from October 2026. Duty becomes payable at the ‘duty point’, when goods are released for consumption.

What is excise duty on alcohol?

Excise duty on alcohol is a UK tax charged on beer, cider, wine, spirits and other fermented products above 1.2% ABV. Since August 2023, rates have been based on a product’s alcohol-by-volume strength rather than its drink type, so stronger products attract a proportionally higher duty rate.

How much is excise duty on alcohol?

Rates vary by alcohol-by-volume (ABV) band. For example, alcohol between 8.5% and 22% ABV is charged at £29.54 per litre of pure alcohol, and alcohol over 22% ABV at £32.79 per litre. Lower ABV bands, including reduced draught rates, attract lower rates. Always check current HMRC rates before calculating liability.

How do you calculate excise duty on alcohol?

Alcohol duty is calculated using the formula: duty rate per litre of pure alcohol × ABV (as a decimal) × volume in litres. For example, a 10-litre keg at 5% ABV, taxed at £21.78 per litre of pure alcohol, would incur duty of roughly £10.89. Always confirm the correct band-specific rate first.

Is there excise duty on non-alcoholic beer?

No. UK alcohol duty only applies to products above 1.2% ABV. Beer, cider or wine marketed as ‘non-alcoholic’ or ‘alcohol-free’ typically falls below this threshold and is, therefore, outside the scope of excise duty, though it remains subject to VAT like other retail goods.

Who pays excise duty on alcohol?

Liability generally falls on the manufacturer or importer, or on whoever holds or releases the goods from an excise warehouse’s duty suspension. If alcohol is found being held outside duty suspension without duty paid, HMRC can hold the party in possession of the goods liable.

How much is excise duty on cigarettes?

UK cigarette duty is charged per 1,000 cigarettes rather than by value. Rates increased to £471.93 per 1,000 cigarettes from 26 November 2025, rising further to £518.75 per 1,000 from 1 October 2026. Note: cigarette duty may include additional value-linked elements, so confirm the full rate structure with HMRC before calculating.

What is excise duty on tobacco products?

Excise duty on tobacco products is a UK tax charged on cigarettes, cigars, cigarillos, hand-rolling tobacco and other tobacco products. Tobacco excise duty is typically charged per 1,000 sticks or per kilogram depending on the product, with rates increasing periodically, including a further rise from October 2026.

What is a vaping duty stamp?

A vaping duty stamp is a physical mark required on the retail packaging of vaping products from 1 October 2026, showing that Vaping Products Duty has been accounted for. Businesses could apply for stamp approval from 1 April 2026, with a transition period for existing stock running until 31 March 2027.

Do I need an excise warehouse for bonded stock?

If you want to store excise-liable goods like alcohol, tobacco, fuel or (from October 2026) vaping products without paying duty upfront, you need HMRC approval to operate an excise warehouse, plus separate authorisation as a warehousekeeper. This lets you hold bonded stock in duty suspension until release.