Is VAT chargeable on Alcohol?

You walk into a shop, grab a bottle of wine or a pint and pay at the till. Part of that price includes taxes. But which taxes? And why do some of them feel hidden?

It’s not just the brand or the quality. 

A big chunk of what you pay goes straight to the government.

Alcohol in the UK is taxed in more than one way. There’s VAT. And then there’s alcohol duty. And they’re not the same thing. But they both hit your wallet.

Let’s break it down!

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Is Alcohol Subject to VAT in the UK?

Yes, alcohol is subject to VAT in the UK, just like most goods and services. Alcoholic drinks are charged the standard 20% VAT rate.

Whether you are buying a pint at your local pub, a bottle of wine from the supermarket, or spirits from an off-licence, VAT is already included in the price you see. Businesses selling alcohol collect this VAT on behalf of HMRC. And then they pass it along through their VAT returns.

So, when you pay £10 for a bottle of gin, a portion of that already goes to the government as VAT.

But here’s where people often get confused: VAT is not the only tax on alcohol. There is also something called alcohol duty. This is a separate tax charged on the product itself. And it is based on how much alcohol it contains.

VAT vs Duties

First, a clear distinction:

• VAT (Value Added Tax) as mentioned above, is a tax on consumption. It’s added at the end, on top of the subtotal (which already includes duties).
  
• Duties (or excise duties/alcohol duty) are taxes specifically designed for “sin goods” like alcohol, tobacco, and fuel. These are levied earlier in the supply chain.

So yes, alcohol in the UK is subject to both. You pay the alcohol duty and then VAT on top of that.

What Is Alcohol Duty And Why Does It Exist?

Alcohol duty is meant to:

• Discourage excessive drinking (public health aim)
• Raise revenue for the government
• Ensure that taxes reflect alcohol strength etc

How duty is calculated

The alcohol duty is based on the amount of pure alcohol in the product. You can say that the duty depends on how strong the drink is (its ABV = Alcohol By Volume).

1. Find out how many litres of finished product you have.
2. Work out how many litres of pure alcohol it contains.
3. Use the duty rate (depending on the ABV band) in £ per litre of pure alcohol.
4. Multiply and round down to the nearest penny. 

Example:

Suppose you have a 1 litre bottle of spirits at 40% ABV:

• Duty on the pure alcohol portion is calculated first.
• After you add that duty to the base price, VAT is charged at 20% on the sum (base + duty).
• So the final price includes both these taxes.

This stacking effect means duty + VAT together can be a significant part of the cost. 

Recent Changes In Alcohol Duty

• From 1 February 2025, duty on non-draught products increased in line with inflation (forecasted RPI of 3.65%). 
• Also, there was a reform in how wine duty works. wine in the common 11.5 – 14.5% ABV range is treated as 12.5% for duty calculation. 
• New “draught reliefs” (lower duty for qualifying draught alcohol) were introduced for some products.

We can say that the duty regime is now more structured around pure alcohol amounts. And there are special rules (e.g. draught, small producer relief) to soften the burden in certain cases.

VAT Rates on Different Types of Alcohol

While the VAT rate for alcohol is a consistent 20% in the UK, the total amount of tax you pay (VAT plus duty) can differ significantly depending on the type and strength of the drink, because of the way duty is calculated.

VAT on Beer

Beer is one of the most commonly bought alcoholic drinks in the UK. And it is taxed like the rest. Whether it’s a lager, ale, stout, or craft brew, VAT is 20%. This VAT is added on top of the retail price, which already includes alcohol duty.

So if you’re paying £4 for a bottle of beer, approximately £0.67 of that amount is VAT (since the £4 price already includes VAT).

And remember, stronger beers also carry higher alcohol duty. This means the total tax (duty + VAT) can be quite a chunk of the price.

VAT on Wine

Wine, whether it’s red, white, rosé, or sparkling, also gets hit with the standard 20% VAT.

A £10 bottle of wine will include about £1.67 in VAT (as the £10 price already includes VAT).

As of February 1, 2025, sparkling wines (like champagne or prosecco) no longer have a higher duty than still wines of the same strength. The duty is now based solely on the alcohol content (ABV), just like still wines. However, the VAT remains a constant 20%.

VAT on Spirits

Spirits like whisky, vodka, gin, rum, and tequila are taxed at 20% VAT too.

A £20 bottle of whisky includes around £3.33 in VAT (as the £20 price already includes VAT).

Because spirits have a higher alcohol content (ABV), they also carry the highest alcohol duty. This, combined with the 20% VAT, makes them more expensive overall compared to beer or wine.

So when you’re buying spirits, you’re often paying more in both duty and VAT compared to other drinks.

VAT on Cider and Other Drinks

Cider, perry, and other fruit-based alcoholic drinks are also taxed at 20% VAT. Even if the drink is lower in alcohol or comes in a can, the VAT rate doesn’t change.

Some ciders have lower alcohol duty, but VAT stays the same.

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Do you pay VAT on Tobacco Products?

Tobacco products are subject to VAT in the UK. The government classifies tobacco products into two categories: cigarettes and cigars. The VAT rate on cigarettes and cigars is currently 20%. This means that the price of the tobacco product includes both the cost of the product and the VAT of 20%.

When it comes to tax on tobacco products, there are several other factors to consider:

1. Duty: In addition to VAT, tobacco products are also subject to duty, which is a tax imposed by the government on the amount of tobacco used to produce the product. Duty is paid in advance by the manufacturer or importer before the product is released for sale.

2. National Health Service (NHS) Levy: The NHS levy is a tax that is imposed on certain types of tobacco products. This includes cigarettes, to raise funds for the National Health Service. The levy is in addition to VAT, duty, and other taxes and is payable by the manufacturer or importer.

3. Special duties: Some tobacco products, such as flavoured cigarettes or cigars, may also be subject to special duties. Which are additional taxes imposed by the government to deter the use of the product or to raise additional revenue.

VAT Treatment of Vapes

The UK government has specific regulations and rules for the treatment of products such as vapes and electronic cigarettes when it comes to VAT treatment. VAT is a consumption tax levied on goods and services sold in the United Kingdom. It is calculated based on the sale price of a product and is payable to the authorities on the sale of the product.

In the case of vapes and electronic cigarettes, they are classified as “liquids for vaping” and are subject to VAT at the standard rate of 20%. This means that the seller of the vape or electronic cigarette must collect VAT from the customer and account for it to the HMRC. The seller must also provide details of the sale to the authorities and pay the collected VAT to them.

What About Alcohol-Free or Low-Alcohol Drinks?

This is where things get a little different. Drinks with less than 1.2% ABV don’t pay alcohol duty. But they still get charged 20% VAT in most cases.

VAT Charges on Alcohol Import or Wholesale

Wholesalers importing spirits must pay both duty and VAT at the border. For a pallet of whisky worth £10,000, VAT at 20% adds £2,000.  The duty charges can exceed £8,000 depending on strength and volume.

Can You Reclaim VAT on Alcohol for Clients?

Businesses cannot reclaim VAT on alcohol bought for client entertainment. HMRC blocks this to stop companies from claiming tax relief on hospitality benefits.

The only time VAT on alcohol can be reclaimed is if it is used for resale (e.g., by a pub or shop). Staff parties, client dinners, or gifts of alcohol do not qualify for VAT recovery.

The Bottom Line

In the UK, alcohol is subject to VAT at the standard rate of 20%. This applies to all types of drinks, including wine, beer, spirits, and cider. Even non-alcoholic versions are charged 20% VAT, but they are not subject to alcohol duty. 

Duty itself is separate and calculated on the strength and volume of the drink. VAT is then applied on top of that duty. This means you effectively pay tax on a tax. 

Next time you buy a drink, you’ll know exactly how much of that price is tax.

Disclaimer: The information provided on AccountingFirms.co.uk is for informational purposes only and should not be considered as financial advice. Always consult with a professional accountant to ensure compliance with UK laws and regulations.