Beer Tax in the UK

Most consider beer expensive. The price of beer pays for materials, services, labour and investments in production, distribution and selling it to consumers. Beer consumption also contributes to the running of public services through the taxes included in the price of beer. But how much is ‘beer tax’ actually?

 

The taxes on beer are excise and value added tax (VAT). The former is an absolute duty of £18.37 for 1hl of beer after every per cent of alcohol. The latter is a relative duty: 20% added to the net price, or 16.67% of the price you actually pay for beer. The rate of excise is standard for beer with alcohol content between 2.8% and 7.5%. As for VAT, 20% is the general rate; exemption and lower rates only exist for certain services or products.

The excise on a pint (568ml) of beer of 4.5% ABV is 47p. When this pint is sold for £3, 47p is 15.6% of the price and the share of all taxes is 32.3% (15.6% + 16.67%). If the same pint is sold for £4, this number is 28.4%. It illustrates clearly the large margin the government has on beer.

Seeing the length and complexity in the supply chain of beer, efficiency is key to keep consumer prices at competitive level despite the levies and without driving the business into bankruptcy. Efficiency does not tend to be a strength among small businesses though, but this is recognised in the form of an excise discount for them, called the Small Brewers’ Relief.

The Small Brewers’ Relief scheme allows for a maximum 50% discount of the standard excise rate. Breweries with less than 5,000hl annual production benefit from this most (50%), but the discount decreases as the level of annual production increases, and ceases at 60,000hl, as illustrated on the chart below.

Beer Means Business - SBR Chart

 

What it practically means is that, the smallest brewers (<5,000hl production per annum) pay 23p excise on the exemplary pint, as opposed to the standard 47p. (In this case, the taxes on a pint of 4.5% beer sold at £3 and £4 account for 24.5% and 22.4% of the price respectively.)

NB: Other contributions to government revenues by the beer supply chain, e.g. non-product taxes, such as income taxes, corporate taxes, etc. are not assessed in this post.

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