Showcasing the British spirit

Spirits excise duty – a time for change

Just over a year ago, the British Distillers Alliance helped its members to write to MPs and interested influencers to lobby for a fairer excise duty rate for small spirits producers (including those who produce new products from spirits – gin and so forth). This initiative stalled in the tentacles of Brexit and political developments but is ripe for renewal. What was not surprising is that the initial replies from the Treasury to MPs via ministers were partial and unhelpful as well as disingenuous and, in some cases not true; the Treasury never wants to co-operate where duty reductions are involved! We shall see….

The case for a reduced duty rate for spirits is urgent now there are many more small distillers, rectifiers and compounders who toil under the highest alcohol; excise duty rate and which usually has to be paid “on the day” – no “credit terms” from HMRC (unless a deferment account is acquired, which initially requires a “doubled-up” guarantee). This is a massive constraint on business stability, never mind growth.

The big spirits producers have set up the UK Spirits Alliance, which is really a front to lobby for the old “unitary taxation” argument ie all alcohol taxed at the same rate per degree of pure alcohol rather than the various structures and rates that currently prevail in the UK for various alcohol regimes. This would, perforce, require a review of the entire

UK alcohol duty structure which is a bigger issue than can be considered here. Let’s focus on small producers instead, who look enviously at the progressive beer duty available for small brewers, which provides a generous and helpful “tax break” (and being conscious of the Treasury review into the reduced rates and some divergence of views about the impact on competition within lower-volume sectors).

.Currently, under EU rules, and in contrast to beer production, there is almost no availability of effective reduced rates for small spirits producers. The current EU alcohol duty structure requires Member States to impose duty on ethyl alcohol (spirits) subject to a minimum rate of 5.5 euro per litre of pure alcohol. Member States are not limited as to the rates they may apply above this minimum (ass is evident from the UK’s £28 quid plus rate!). The Alcohol Structures Directive 92/83/EC Article 22 provides for a limited reduction in the full rate for small distillers and states.

• The reduced rates, which may fall below the minimum rate, shall not be applied to undertakings producing more than 10 hectolitres of pure alcohol per year. However, Member States which applied reduced rates on 1 January 1992 to undertakings producing between 10 hectolitres and 20 hectolitres of pure alcohol per year may continue to do so.

• The reduced rates shall not be set more than 50 % below the standard national rate of excise duty.

The UK had no real need to consider applying reduced rates and, even if the reduced rate were to be applied, there would be little benefit for most small producers given the limitations of the available reduction.

The proposal from the EU Commission last year for revision of the Alcohol Structures Directive does not carry through the EU’s own recognition of the need for more internal competition using (effective) reduced rates for all small producers. Small spirits producers’ reduced rates remain ineffective and ineffectual.

Post EU membership, the UK will be able to set its own rates, including reduced rates in whatever form and level the government may choose (or be persuaded to choose). The government can be lobbied with a commercial/ economic case as well as one based on levelling the playing field. As I noted earlier, however, the Treasury will be set against any change, so we need to be persuasive with both carrot and stick. The BDA has carried out some initial work into the possible reduced rates structure for spirits and the progressive beer duty rate is a helpful example although the spirits sector is not directly comparable with the various sizes of UK brewers. Independent small distillers are all tiny relative to the majority of the dominant spirits producers.

Finally, if the Treasury is so dead set against reduced rates, how did it agree to Progressive Beer Duty? Well, that is a story in itself. For more of that you’d need to purchase a book called “Power Trip” by Damian McBride. It makes fascinating reading!

By Alan Powell

Alan Powell is a specialist excise duties consultant, formerly a Policy official within HMCE’s HQ teams. He is excise duties advisor to the Chartered Institute of Taxation, honorary advisor to the UK Warehousing Association and founded the British Distillers Alliance as a conduit for consultation with, and representation to, Government bodies and to assist and advise on technical matters.

For further information: www.britishdistillersalliance.com

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The British Distillers Alliance (BDA)

The British Distillers Alliance (BDA) is a non-profit making body which provides a professional service for independent and craft businesses in the spirits production industry and supply chain. The BDA represents distillers, rectifiers and compounders and those in related sectors.

Its aims are to:

• Promote the interests of members within the spirits production industry;

• Represent members' interests to UK government and international bodies;

• Provide prompt expert technical and legal advice;

• Encourage exchange of information of mutual benefit to members

BDA membership is currently free and aimed at small and start-up distillers and associated businesses. Membership will fill the gap for new and small businesses who need close assistance whilst establishing themselves.

Although larger and more mature businesses may be eligible to join, this will be at the BDA's discretion.