As part of the Budget for 2016 the UK government announced a new levy on soft drinks companies from April 2018. The Soft Drinks Industry Levy is to be charged on producers and importers of soft drinks that contain added sugar where the total sugar content is 5 grams or more per 100 ml. A higher rate of levy is to apply to drinks with 8 grams or more per 100 ml. The tax will not apply to drinks where no sugar is added; or to alcoholic drinks with alcohol content above 0.5% ABV that cannot be lawfully sold in a shop to under-18s.

The UK government has stated that the levy differs from a consumption tax as it is explicitly aimed at encouraging producers to bring down the sugar content in their products, reduce portion sizes and help customers choose low sugar and sugar-free brands.

Scope of the levy

The levy is to apply to UK producers and UK importers of soft drinks with added sugar including imports from EU countries. There will be a relief or exemption for the smallest operators or for low volumes of production or imports. The levy is to commence from April 2018. The legislation will define the sugars that if added to products will bring them within the scope of the levy.

The levy will be applied to liquids on the basis of their ready-to-drink composition. Pre-packaged cordials, squashes and syrups that are diluted for drinking will be taxed by reference to their composition at the recommended diluted volumes. This would also apply to the pre-packaged ‘bag in box’ syrups that may be purchased by pubs and restaurants for dilution on the premises before serving.

The liability for the levy would arise at the point of production or importation if the product is not to be used in any further manufacturing. For UK-based production this is likely to be the point at which the product is packaged. For imports the levy would become due when the products are imported into the UK, however products such as syrups imported for use in commercial manufacturing processes would not be taxed when they enter the UK because the final soft drink product will be taxed at a later point.

Small operators

The legislation would include an exemption for the smallest operators, to balance the administrative costs of HMRC against the revenue collected by enforcing the levy below the threshold. One option is to exclude small importers and small producers from the levy if the volume imported or produced is below a certain level. If exceeding that level they would become liable for the levy on all production or imports.

Alternatively a universal relief could be provided on the first portion of liable products, so a certain volume of products would be disregarded each year on a rolling twelve month basis, or the relief could take the form of a specified annual exempt amount expressed in pounds sterling.

Registration

Producers and importers liable for the tax would be required to register with HMRC from 2018. They would be required to report information on their taxable products and pay their tax liability on a quarterly basis. Businesses producing or importing less than the threshold would need to monitor their production volumes. These businesses would be required to register if they are expected to go above the threshold within a rolling twelve month period.

Producers or importers would also be able to deregister if they no longer trade in or produce added sugar soft drinks, or if they fall under the threshold for a certain period of time.

Enforcement

Businesses would be required to test the sugar content of their products on at least an annual basis to demonstrate that the sugar content in the products corresponds to the levels declared on the product packaging. The results of the testing would be kept as part of the business records. HMRC is considering a requirement for this testing to be undertaken by an independent party and is asking for comments on this from interested parties.

Enforcement powers are also likely to include the authority to require producers of dilutable cordials to pay the levy at a standard dilution ratio if HMRC considers the dilution ratio has been set to avoid the levy. Dilution ratios will be monitored to ensure that producers are not changing the stated dilution ratio just to avoid the levy, without changing the product.