Most of the conversation around the changes to the Alcohol Duty System in the UK has been around how it affects breweries and cideries, and for good reason: Pubs do not pay Duty.
Contrary to what the government led pubs to believe during the Covid lockdowns when they said pubs could claim back the duty on beer they couldn’t sell, it is the producers who pay the duty, not the pubs.
This is not changing, but a new part of the duty system means that pubs will now have to be aware of the duty that is paid on the products they order, and that it is the correct amount.
The Government decided that the best solution to supermarkets being able to undercut pubs was to introduce a Draught Relief on the amount of duty paid on suitable containers, rather than say reducing the amount of VAT that a pub pays. The aim is good, the solution is not simple and really doesn’t seem to solve anything.
As it stands, and industry bodies and consumer groups are trying to get it changed, a new relief on the amount of duty paid can be applied to any alcoholic drink below 8.5% vol destined to be served from a container of at least 20 litres that is designed to be connected to a draught dispense system and is for consumption on the premises. Yeah, simple. So let’s look at those stipulations in a bit more details to understand what it all actually means.
Draught relief can be applied to any beer, cider, wine, spirit or the new “other fermented products” (mead, sake, fruit ciders) that are 1.2% and above, but below 8.5%
So the stronger DIPAs, TIPAs and Imperial Stouts do not qualify for this new rate. In fact any drink of 8.5% or more doesn’t get any duty relief now regardless of the size of the brewery, putting it into the “financially unviable” category for a lot of producers. So we may well see a lot less of them about, and they’ll be much more expensive when we do.
Initially the government stipulated a 40l container and were shocked to find out that a lot of beer and cider is sold in 30 and 20 litre containers, because a lot of it isn’t just sold by their mate’s but by smaller independents. Thankfully this has been changed before implementation and it now applies to 20l and up. Which means that it doesn’t apply to the smaller 10 or 5 litre bag in boxes of cider or the 10 litre KeyKegs and those 5 litre mini-kegs.
The container doesn’t have to be connected to a draught system, it just has to be able to be connected to one. So all kegs are fine, and casks on hand pulls are fine, and bag-in-boxes and casks on gravity pour are also fine because they can connect; as long as they’re at least 20 litres.
This is where it gets even less simple.
If you sell draught products for take-out it’s now considered “Repackaging” and any product sold like this is not eligible for Draught Relief. And because it’s the producer that pays the duty, the whole container it comes from must be full duty paid, because pubs aren’t set up to monitor how much of the container is sold on and off premises and to pay HMRC the difference.
This means that if you hook up a 30 litre keg of beer and sell a single 1 litre take-out from that keg, it must have had the full duty paid on all 30 litres.
So what’s the practical upshot of all this?
For the majority of cases there won’t be any difference. The new Draught Duty Relief will offset the recent rise in Alcohol Duty, but a lot of producers are seeing their base Duty Rates going up anyway, so expect an increase in costs from August.
The other thing that you may notice is that all casks and kegs will have a “Draught Duty Paid” sticker on them, or possibly a “Full Duty Paid” one.
Pubs that currently offer takeouts of draught products will still be able to do so, but only from containers that have had the full duty rate paid.
This means that when placing an order for beer, pubs will need to specify whether the container is to be draught or full duty paid, producers will then need to pay the correct duty on it, mark the container with the correct duty paid, and have that information on the invoice too.
If the drink is ordered through a wholesaler, then that’s another extra step of invoices that will need to list the correct duty paid.
If a pub orders in and puts on a container that is Draught Duty Paid, and sells some of that as take-out, then it is the pub that is liable for a fine. This includes if they serve the drink to a customer who then puts it into a take-out container themselves as it is the act of repackaging that is now illegal without a licence, and therefore an activity that licensees will need to “deal with” in HMRC’s words.
Some breweries have decided to just pay the full duty on all their casks and kegs as the draught relief is quite minimal. The smallest breweries are now able to claim a 90% duty relief, so the additional draught relief is negligible. With the lowest rate of duty being £2.10 per % per litre and the lowest Draught Relief rate being £1.91 per % per litre, a 30l keg of 4.5% beer would be liable to £2.83 duty at full rate and £2.57 at Draught Relief rate. A saving of £0.26 on the keg, or about half a pence per pint.
For the average microbrewery the new full duty rate of alcohol on beer will be around £9.80 per % per litre, and the new Draught Relief rate will be £8.91 per % per litre.
Which means for a 30 litre keg of 4.5% beer it will cost £13.23 at full rate and £12.03 with the new Draught Relief. That is a saving of £1.20.
That is the actual effect of the government’s help for pubs to compete with supermarkets, £0.02 a pint.
For a craft brewery that has a higher average abv due to the DIPAs and Imperial Stouts that they produce they’ll be paying more duty. For them the new fullduty rate will be £12.57 per % per litre and the new Draught Relief rate will be £11.41 per % per litre.
So from them a 30 litre keg of 4.5% beer will be liable to £16.96 of Duty at full rate and £15.40 at the new Draught Relief rate. A saving of £1.56 a keg, or £0.03 a pint. Even with the VAT added on the “saving” of the Draught Relief is less than £2 per keg
Some breweries have said that they’re not going to bother with doing different duty rates and that all their beer in casks and kegs will be draught duty paid having decided that it’s just not worth it for all the additional work of separating and marking Full Duty and Draught Duty containers as well as the additional information needed on the invoice trail.
But those 2ps add up, and for one of the largest breweries eligible for the new Small Producers Relief they add up to roughly £140,000 a year; and this is on top of the £150,000 they’re standing to save with the new system favouring breweries that produce lower abv beers.
Some wholesalers have also said that they’re not going to bother sourcing separate draught or full rate beers, and will just order in what the breweries produce.. Which means a large reduction in choice for pubs and bars that wish to offer take-outs.
All this makes offering draught take-outs a hassle for a lot of pubs. It means that pubs will have to think carefully about their draught take–out options, whether to limit them to one or two of their range of taps, or limit their entire range to only full duty paid, or to drop take-outs completely. CAMRA have already published new guidance for their festivals to ban take-outs completely – even to volunteers at the end of the festival – until they can sort out the legal ramifications, and see about getting them changed.
Either way we’re about to see a huge change and a lot of our flagons and growlers are going to be gathering dust for a while, with the knock on effect of the supermarkets filling the gap in availability – exactly the opposite of what this new law set out to achieve.