Policy paper

Alcohol Duty — penalties for late filing and payments

Published 13 July 2026

Who is likely to be affected 

This measure will affect producers of alcoholic products who are required to submit an alcohol duty return and who fail to submit their return on time or fail to pay on time.   

General description of the measure 

This measure introduces HMRC’s reformed late submission and late payment penalties known as Penalty Reform to Alcohol Duty requirements.   

Penalty Reform introduces a new points-based penalty regime for late submission of tax returns. It gives those who are occasionally late the opportunity to correct their filing habits to prevent financial penalties, while continuing to penalise those who repeatably fail to meet their filing obligations.  

The reformed late payment penalties are designed to encourage timely payment as the penalty amount is determined by the amount outstanding and the length of time it remains unpaid.  

Penalty Reform has already been rolled out for VAT and Income Tax Self Assessment (ITSA). It is designed to make sanctions for failing to file or pay on time simple, fair and effective to protect public finances by incentivising compliance and to strengthen confidence in the tax system.   

It will penalise the small minority who persistently fail to comply by missing filing and payment deadlines, while being more lenient on those who occasionally miss their filing obligations.    

The current penalty regimes for late submission, late payment and interest are inconsistent across taxes and duties, meaning HMRC penalises the same behaviour in different ways.   

Alcohol duty taxpayers would have to miss 5 submission deadlines within a 24-month rolling period to reach their points threshold and incur a financial penalty.   

Late submissions  

A point is awarded for each failure to file a return on or before the filing date. On reaching the points threshold a £200 penalty is incurred.   

The points threshold for Alcohol Duty return is 5 points (for monthly obligations). Once the points threshold has been reached, each subsequent failure to file on time incurs a £200 penalty. Points are reset once the end of the relevant compliance period has been reached. This is determined by the number of points a taxpayer has incurred and their filing frequency.  

Late payment   

Even if the taxpayer is late paying their tax, there is no late payment penalty if the liability is paid within 15 days of the due date. If tax is paid between 16 and 30 days after the due date, the first penalty is 3% of the outstanding amount. If any tax remains unpaid 30 days after the due date another 3% of the outstanding amount at day 15 plus 3% of the outstanding amount at day 30 is applied.   

A second late payment penalty is charged at a rate of 10% per annum, calculated on a daily basis on the total unpaid tax incurred from day 31. To avoid a penalty or penalties, the taxpayer will need to either pay or approach HMRC to agree a ‘time to pay’ arrangement.   

Policy objective 

This new approach ensures the compliant majority or those who occasionally fail to meet their filing obligations will not be treated in the same way as those who demonstrate persistent poor compliance.   

Penalty Reform introduces a common approach, providing greater consistency, fairness and certainty in the system, making it easier for taxpayers to comply with their submission and payment obligations and making late payment penalties more proportionate to the lateness of payment.   

For alcohol duty taxpayers, the penalties will provide a sanction to encourage compliance with their monthly obligations. However, as the late submission penalties are points-based they also take a proportionate approach by not applying a financial penalty to those who are occasionally miss their obligation.   

Background to the measure 

Penalty Reform has been developed through three consultations. The first consultation, Making Tax Digital: Tax administration, ran from August to November 2016.   

This consultation proposed models for a late submission penalty, as well as options for a separate late payment penalty. Initial comments were also sought in this consultation for alignment of the HMRC interest rules.   

The second consultation, Making Tax Digital: sanctions for late submission and late payment, ran from March to June 2017. Here, further models were proposed for a late submission penalty and a late payment penalty.   

The third consultation, Making Tax Digital: interest harmonisation and sanctions for late payment, ran from December 2017 to March 2018.   

This consultation focused on aligning interest for monies owed to and by HMRC as well as proposing another model for the late payment penalty.   

The intention to align late submission and payment penalties for Alcohol Duty was included in the new alcohol duty system: consultation response in September 2022 .

Detailed proposal 

Operative date 

Penalty Reform for alcohol duty is anticipated to replace existing penalties by appointed day order in Spring 2027. This is contingent on the further IT development of the necessary systems and will be updated in due course.  

Current law  

Current penalties used in Alcohol Duty for late filing and late payment can be found in Schedule 55 to The Finance Act 2009 and section 9 of The Finance Act 1994, and follow an approach of initial penalties and daily penalties.  

Proposed revisions 

Amend Schedules 24 and 26 to the Finance Act 2021 to include Alcohol Duty returns required to be submitted and paid by regulations made under section 88 of Part 2 of The Finance (No.2) Act 2023.  

Late submission penalties (Alcohol Duty)  

When a taxpayer misses an Alcohol Duty return submission deadline, they will incur a penalty point. Points accrue separately for each tax regime where the penalty reform applies.  

A  taxpayer becomes liable to a fixed financial penalty of £200 only after they have reached the points threshold.  

The level of the points threshold for monthly returns is 5 points.   

Total points can be reset to zero once both of the following conditions are met: 

• returns must be submitted on or before the due date for a continuous 6-month period
• all  alcohol duty returns due within the previous 24 months must have been submitted

If a taxpayer continues to miss submission deadlines after reaching the points threshold and being issued with a penalty, they will be liable for a further £200 penalty for each additional missed obligation. This applies even if a previous penalty has already been paid.  

As with other tax penalties, a taxpayer will not be liable to a penalty point or financial penalty if they have a reasonable excuse for failing to submit on time. There is also a right of appeal against both points and penalties.  

Legislative framework  

The Finance Act 2021 introduced a new framework for the points-based late submission penalty regime, setting the fixed penalty at £200.

Late payment penalties (alcohol duty)  

Legislation aligns late payment penalties across the main taxes and duties and replaces previous sanctions. The new late payment penalty consists of two separate charges.

First penalty — this penalty can be prevented or limited by quick payment or engaging with HMRC to enter a Time to Pay arrangement.  

Second charge  — A second penalty will also become payable from day 31 and will accrue on a daily basis at 10% per annum of the amounts outstanding. As with the first penalty, taxpayers can pay or agree a Time to Pay arrangement with HMRC to limit the size of the penalty.  

If a Time to Pay arrangement is agreed, the penalty will stop accruing from the date the arrangement is agreed. If a Time to Pay arrangement is broken the second penalty will be charged as if the arrangement was never in place.  

Days after payment due date	Action by taxpayer	Penalty
0 to 15	Payments made or taxpayer proposes a time to pay that is eventually agreed.	No penalty is payable.
16 to 30	Payments made or the taxpayer proposes a time to pay that is eventually agreed.	The penalty will be calculated as 3% of what was due at day 15.
Day 31	No payment made, no time to pay agreed.	The penalty will be calculated as 3% of what was due at day 15, plus 3% of what was due at day 30.
Day 31 +	No payment made, no time to pay agreed	Daily penalty rate accrues which is calculated at 10% per annum from day 31 onward.

Notice of penalty  

Both the first and second charges will be notified to the business.  

Any penalty must be paid or appealed within 30 days of the notice.  

As with other penalties, taxpayers will not incur a late payment penalty where they have a reasonable excuse, and they retain the right to appeal.  

Summary of impacts 

Exchequer impact (£ million) 

2026 to 2027	2027 to 2028	2028 to 2029	2029 to 2030	2030 to 2031	2031 to 2032
Empty	Empty	Empty	Empty	Empty	Empty

The final costing will be subject to scrutiny by the Office for Budget Responsibility and will be set out at a future fiscal event.   

Macroeconomic impact 

This measure will be formally assessed once costings have been certified by the Office for Budget Responsibility but is not expected to have any significant macroeconomic impacts. 

Impact on individuals, households and families 

The Alcoholic Products Producer Approval and the associated duty returns are only a requirement for those manufacturing alcoholic products commercially. Therefore, there is no impact on individuals as this measure only affects businesses. Any impacts to individuals classed as sole traders have been addressed in the impacts to businesses. 

Equalities impacts 

This measure may apply to individuals regardless of their protected characteristics. HMRC does not currently hold data on the protected characteristics of individuals impacted by this measure and so cannot assess if there are any disproportionate impacts.  

Administrative impact on business including civil society organisations 

This measure is expected to have a negligible impact on around 3500 domestic alcoholic products producers who will need to familiarise themselves with the change to the alcohol duty regime. Penalty Reform has been introduced for VAT from 1 January 2023 so most alcoholic products producers who are also registered for VAT will be familiar with the regime.    

This measure is not expected to disproportionately impact civil society organisations.   

In the short-term, customers may need to become familiar with the new late payment and late submission penalty regimes. HMRC will aim to reduce this impact by carrying out pre-implementation publicity providing guidance.   

In the longer term, customer experience is expected to improve as the change brings other penalty regimes into closer alignment reducing complexity for producers.   

It is not expected that there will be any continuing costs for compliant businesses.   

Operational impact (£ million) (HMRC or other) 

HMRC will need to implement further changes to IT systems and strategic platforms for these penalties. The funding for these enhancements has already been accounted for in the broader Alcohol Duty reform budget. There may be a requirement for additional staff to support the rollout and ongoing management of these changes. Work is still underway to quantify the exact resource required.  

Other impacts 

A Justice Impact Test will be sent to the Ministry of Justice.   

Other impacts have been considered and none has been identified.    

Monitoring and evaluation 

This measure will be monitored through information collected from HMRC’s systems including data on the issuing of penalties, points accrued and appeals and reviews.   

HMRC will monitor implementation closely to inform any future changes that may be necessary.   

Further advice 

If you have any questions about this change, contact Alcohol Policy by email: mailbox.alcoholpolicy@hmrc.gov.uk.