Who is likely to be affected
UK producers of soft drinks, importers of soft drinks, retailers of soft drinks and consumers who buy soft drinks in the UK.
There will be an exemption for the smallest producers and also operators importing of soft drinks from the smallest producer abroad.
General description of the measure
This is a new levy that applies to the production and importation of soft drinks containing added sugar.
The levy will apply to the producers and importers of these types of drinks. It will have a lower rate which will apply to added sugar drinks with a total sugar content of 5 grams or more per 100 millilitres and a higher rate for drinks with 8 grams or more per 100 millilitres.
It will not apply to any drink where no sugar is added.
Alcoholic drinks with an Alcohol by volume of up to 1.2% are included in the levy. The government will make provision to exempt certain drinks that fall within this category from the levy.
A levy on soft drinks will contribute to the government’s plans to reduce childhood obesity by removing added sugar from soft drinks. The levy encourages producers of added sugar soft drinks to:
- reformulate their products to reduce the sugar content
- reduce portion sizes for added sugar drinks and importers to import reformulated drinks with low added sugar to encourage consumers of soft drinks to move to healthier choices
If they do this, producers and importers of added sugar soft drinks can pay less or even escape the charge altogether.
Background to the measure
At Budget 2016 the government announced the introduction of a new levy on soft drinks that contain added sugar to help tackle childhood obesity. HM Revenue and Customs (HMRC) and HM Treasury (HMT) launched a consultation on the design and implementation of the levy in August 2016 and have now set out a response confirming the broad policy design.
The levy will take effect from April 2018.
The levy is new so there is no current law.
Legislation will be introduced in the Finance Bill 2017 that will set out:
- the scope of the levy by reference to the type of product, added sugar and sugar thresholds
- what drinks are not within scope of the levy
- who will be liable to register in relation to the levy and who will need to pay the levy
- liability for registering and paying the levy by defining the taxable person when that person is an importer
- provisions for an export credit scheme
- who will benefit from exemptions
- how the levy will be paid, collected recovered and enforced
- the levy rates for the 5g and 8g thresholds
Summary of impacts
Exchequer impact (£m)
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These figures are set out in table 2.1 of Budget 2016 and have been certified by the Office for Budget Responsibility. More details can be found in the policy costings document published alongside Budget 2016. There will be revisions to these figures which will be set out in table 2.2 of Budget 2017.
The implementation of a soft drinks industry levy is expected to add around a quarter of a percentage point to Consumer Price Index growth in 2018 to 2019.
The costing accounts for a behavioural response whereby producers reformulate their product mix by lowering sugar content, promoting lower sugar alternatives, and reducing portion sizes. It also accounts for the behavioural responses resulting from any change to the associated prices.
Impact on individuals, households and families
The levy is expected to have a positive impact on the health of individuals in the UK. Excess sugar consumption is associated with obesity and excess weight, which increases the likelihood of individuals developing a wide range of serious health problems, such as type 2 diabetes, heart disease and a number of cancers. These health conditions can have major costs for individuals and families and can reduce individuals’ quality of life and ability to work.
The financial impact of the levy on individuals and households will depend on how many producers and importers are able to reformulate and avoid the charge and whether or not those who are unable to do so pass on the charge to the consumer.
The levy is not expected to directly impact on family formation, stability or breakdown.
Overall the levy is expected to have a positive impact on the health of individuals in the UK. The measure may have an impact on people with Type 1 or Type 2 diabetes or those with lactose intolerance. Alternative, levy free, options are available so it is anticipated that any impact will be minimal. HMT and HMRC will undertake ongoing monitoring of the levy.
Impact on business including civil society organisations
This measure is expected to have an impact on businesses. UK producers and importers of soft drinks within the scope of the levy will incur one-off costs of familiarisation with the new rules and training for staff, registration with HMRC, and developing the required reporting framework to complete tax returns. There will also be on-going costs including completing, filing and paying quarterly returns, keeping appropriate records (including those required to claim the export credit), and amending returns. It is expected that businesses will already keep most of these records as good business practice. There will also be new registrations and de-registrations each year.
The overall impact will depend upon how many businesses register for the levy. The impact on the estimated 300 UK producers of soft drinks is expected to be negligible.
Small and micro business assessment: the smallest businesses with low volumes of productions or importing from the smallest producers will be exempt from the levy.
Operational impact (£m) (HMRC or other)
HMRC expects to incur one-off capital costs to develop the system for collecting the levy. There will also be on-going resource costs for HMRC to implement this change and monitor compliance.
Health impact assessment: the levy is expected to have a positive impact on the health of individuals in the UK. Reformulation should help reduce obesity, which is a health condition that increases the likelihood of individuals developing a wide range of related serious health problems.
This includes type 2 diabetes, heart disease and a number of cancers and other diseases that can reduce an individuals’ quality of life and ability to work.
Justice Impact Test: in line with other taxes there will be civil penalties for failing to comply with the levy, including penalties for failure to register, and failure to file returns and pay the levy. HMRC is considering a new criminal offence for avoiding the levy. A full Justice Impact Test will be completed.
Other impacts have been considered and none have been identified.
Monitoring and evaluation
The measure will be monitored through information collected from tax returns, and will also be kept under review through communication with affected taxpayer groups.
If you have any questions about this change, please contact Lorna Horton on Telephone: 03000 574225 or email: firstname.lastname@example.org.