In a bid to tackle childhood obesity, Finance Act 2017 introduced the Soft Drinks Industry Levy, commonly known as the Sugar Tax, which takes effect in the UK from 6 April 2018.
The levy will apply to the producers and importers of beverages containing added sugar. There are two bands under the levy: a 24p per litre levy for beverages with 8g of sugar per 100ml, and an 18p per litre levy for drinks with 5g of sugar per 100ml (‘liable drinks’).
Alcoholic drinks will not escape the levy as drinks with an alcoholic volume of up to 1.2% are also included.
There are exemptions and the levy will not apply to drinks where no sugar is added. The list of exemptions include certain milk-based drinks, milk substitute drinks, alcoholic substitute drinks and soft drinks which are for use for medicinal or other specific purposes.
There is also an exemption for “small producers”. These are businesses that package their own drinks, that have produced less than one million litres of liable drink in the last 12 calendar months and that will not produce more than one million litres in the next 30 days.
In terms of administering the levy, businesses must register with HMRC and report the levy to HMRC in quarterly returns. These will be fixed quarterly returns ending June, September, December and March. Payment will be required by businesses in the same quarterly periods.
The UK is not the first to implement a so called Sugar Tax. Similar taxes have worked in five other countries (such as Denmark, France and Mexico) with some methods reducing consumption of fizzy drinks by up to one quarter.
The financial impact of the levy on individuals and households will depend on how many producers and importers are able to reformulate their products in order to reduce the charge and whether or not those who are unable to do so will pass on the charge to the consumer.
Given that the levy was announced in the 2016 Budget, this has afforded beverage producers time to reformulate their products and many big name brands have already made the necessary changes. In some ways, the Sugar Tax has already worked before it has begun.
Where the levy applies, the Government has been encouraging drinks manufacturers to pass on the charge to retailers. This makes sense, as surely by not ultimately passing the cost on to the consumer, the purpose of the levy would fail.
Finally, the Government’s commitment that amounts raised under the levy are to go to fund additional school activities has been broadly welcomed. It is unclear as to whether this money will be added to local government budgets or paid directly to schools but this is one area where there is a rare popular support for taxes.