Alcohol and tobacco products are some of the most heavily taxed products in the UK. There are a number of reasons why the government imposes various taxes and duties on these products when compared with many other consumer products.
These taxes and duties generate a large amount of revenue for the public purse, but they are also used as a way to deter excessive consumption of these products as a way of promoting public health.
VAT is one of these taxes that is levied on the supply of alcohol and tobacco in the UK – here is a brief summary.
Do you pay VAT on alcoholic beverages?
VAT at 20% is charged on all alcoholic beverages regardless of where they are purchased from and consumed. However, VAT incurred on purchasing alcoholic beverages for business purposes can be reclaimed as input tax by VAT-registered businesses unless the purchases relate to business entertainment.
Exports of alcoholic beverages are zero-rated provided the conditions for zero rating are met namely documentary proof of export is obtained within the specified time limits.
What about non-alcoholic beers, ciders or wines?
The VAT treatment of non-alcoholic beers, ciders and wines is exactly the same as for alcoholic beverages and VAT is chargeable at the 20% standard rate.
VAT at the standard rate is also charged on bottled water, fizzy drinks such as cola, lemonade, tonic water, fruit cordials and fruit squashes.
Do you pay VAT on tobacco products?
VAT at 20% is charged on all tobacco products. The VAT is calculated after tobacco duty has been added to the price of the product.
VAT treatment of vapes/electronic cigarettes
Vaping products are subject to VAT at the standard rate of 20%.
A reduced rate of 5% can be applied to pharmaceutical products designed to stop people from smoking tobacco and suppliers of vaping products believe that their products should be reduced rated under the same legislation. The argument is that vaping products provide are commonly used by smokers to help them stop smoking tobacco.
At the current date, there is no change in HMRC policy as the reduced rate only applies if the primary purpose of the product is to aid smoking cessation, therefore, VAT at 20% remains in place for vaping products.
VAT vs alcohol/tobacco duty
While both VAT and alcohol/tobacco duties are applied to the supply of the products mentioned in this article, they are entirely separate taxes.
- VAT is applied to most goods and services sold in the UK, with varying rates applied (including some exemptions).
- Alcohol and tobacco duties are taxes applied to specific products. The rate of duty is determined by the properties of the product, such as the strength (ABV) of an alcoholic beverage.
As an example, VAT is charged at 20% for the supply of beer, however, the duty will range from 8.42 pence to 24.77 pence per litre for each % of alcohol. Stronger alcoholic beverages, such as those with an ABV of 7.5%+, will have a higher rate of duty, but VAT will remain at 20%.
If you have any questions relating to any of the products mentioned in this article, we encourage you to get in touch with the Shorts VAT team, who are qualified and able to provide helpful advice that is tailored to your situation.
Learn about how VAT works for other goods and services
Lynne Gill
My area of expertise is land and property transactions but I have extensive knowledge of both domestic and international VAT and I love complex VAT queries. I have an Honours degree in Business Studies and a VAT legal and technical qualification from the Institute of Indirect Taxation.
View my articlesTags: VAT
