How to work out the dilution ratio of your drink, and what records you need to keep about the dilution ratio for the Soft Drinks Industry Levy.
Your liable drink is a diluted drink if the concentrated liquid must be mixed with water, crushed ice, carbon dioxide, or a combination of these to become a prepared drink.
The packaging can display information that allows the sugar content of the prepared drink (per 100 millilitres) to be calculated. This will determine the dilution ratio, if your drink is liable for the Soft Drinks Industry Levy, and how much you’ll have to pay.
The dilution ratio is the amount of concentrated liquid compared to the amount of one or more of the following:
- crushed ice
- carbon dioxide
For your concentrated drink to be prepared as drinkable, it must be diluted according to the dilution ratio (or the nutritional information that allows the ratio to be calculated) on the packaging.
You must keep any evidence to show how you’ve worked out your drink’s dilution ratio. You may need to provide it to HM Revenue and Customs (HMRC).
Records you must keep to support a dilution ratio
You must get and keep records to support the dilution ratio of your liable drinks. These records must include details about any changes in the dilution ratio, including:
- when the change was made
- what the change was
- why the change was made
HMRC may ask you to produce these records when they consider whether a main purpose of stating a particular dilution ratio of your drink is to avoid or reduce your drink’s liability to the levy. If you don’t produce these records when asked, HMRC will consider this when deciding if they’ll impose a dilution ratio.
The types of evidence that could support a change in dilution ratio include:
- results of third party taste tests showing a preference for the dilution ratio
- a nationwide advertising campaign telling consumers how the drink should now be diluted
- expert opinion explaining the reason for the ratio
- a declaration from an independent chemist explaining why the ratio has changed
- a change of the bar code (a new bar code would be needed if the drink’s formulation is significantly changed)
If HMRC doesn’t accept the dilution ratio
If there’s a difference between your drink’s dilution ratio and the ratio of similar drinks on the market, HMRC will look at your supporting evidence and decide whether to accept it.
If HMRC doesn’t accept it, you’ll be asked to explain why the dilution ratio is different to that of similar drinks. If HMRC finds your explanation unsatisfactory, they’ll determine and impose a dilution ratio.
HMRC will notify you, in writing, of their decision. You’ll then be able to request a review of their decision or appeal.
When HMRC will determine and impose a dilution ratio
HMRC will determine and impose a dilution ratio for your drink if:
- you haven’t printed a dilution ratio on your packaging, and HMRC can’t work out a dilution ratio using the information on the packaging
- they believe that the dilution ratio on the packaging has been set to avoid or reduce your drink’s liability to the levy
How HMRC will determine a dilution ratio
The text in this section will have the force of law under regulation 3(1)(a) of the Soft Drinks Industry Levy Regulations 2018 from 6 April 2018.
If HMRC decides to impose a different dilution ratio for your drink, they’ll consider the following when determining the ratio:
- the dilution ratio of the drink before any change to the dilution ratio
- the dilution ratio of similar drinks on the market
- the taste preferences of the target markets for the drink
- how users dilute the drink
- the operation of machinery or equipment that’s designed to be used with the drink
How HMRC will consider if the purpose of a dilution ratio is to avoid or reduce levy liability
The text in this section will have the force of law under regulation 3(1)(b) of the Soft Drinks Industry Levy Regulations 2018 from 6 April 2018.
In this section and the next section, the references to a ‘dilution ratio of a drink’ mean the dilution ratio that’s either stated on, or worked out using information on, the packaging of the drink.
HMRC will consider the following when deciding whether a main purpose of stating a particular dilution ratio of your drink is to avoid or reduce your drink’s liability to the levy:
- whether there’s been any change in the dilution ratio, and if so:
- the timing of the change
- whether the change results in a lower liability to the levy
- whether the change can be justified by reference to any reformulation
- whether the dilution ratio is different from the dilution ratio of similar drinks previously produced by you
- whether the dilution ratio is different from the dilution ratio of similar drinks on the market
- whether the dilution ratio is different from the dilution ratio stated on packaging of the same or similar drinks produced by you to be sold outside the UK
- if the dilution ratio is different to that stated on previous or similar drinks, or drinks sold outside the UK, whether the difference:
- results in a lower levy liability
- can be justified by reference to reformulation
- can be justified by reference to any differences in market positioning or the tastes of the target market
- whether the dilution ratio is different from the dilution ratio stated on or worked out by reference to any non-packaging material relating to the drink, like instruction leaflets or marketing material
- whether a substantial number of users of the drink that dilute the drink routinely use a different dilution ratio
- whether any machinery or equipment designed to be used with the drink dilutes the drink in a way that’s inconsistent with the stated dilution ratio
- whether the drink, when prepared according to the dilution ratio stated on the packaging, would produce a palatable beverage
- whether, and the extent to which, the person liable for the levy, or any other person, has cooperated with HMRC’s enquiries, including by providing any evidence requested by HMRC
- any evidence provided to HMRC in relation to the dilution ratio, whether or not that evidence was requested by HMRC