UK alcohol VAT refers to the 20% Value Added Tax charged on alcoholic drinks in the United Kingdom under the VAT Act 1994. Consumers and businesses pay VAT on beer, wine, spirits and cider at the standard rate, alongside the separate Alcohol Duty administered by HMRC.
UK alcohol tax combines VAT with duty charges that vary by alcohol strength, following the post–August 2023 reform that introduced a strength-based duty system.
VAT on alcohol applies to all retail and hospitality sales, including pubs, supermarkets and import transactions, making the total price a function of both the 20% VAT rate and the specific duty band for the product.
Examples such as 12% ABV wine, standard beer and bottled spirits highlight how VAT and Alcohol Duty interact to determine the final shelf price.
The Two-Pronged Attack: VAT and Alcohol Duty
To truly understand the cost of a drink in the UK, you must grasp that there are two main forms of tax levied on nearly all alcoholic beverages: Alcohol Duty (often referred to as Excise Duty) and VAT on alcohol.
1. Alcohol Duty (Excise Duty)
This tax is applied by HM Revenue and Customs (HMRC) at the point of production or importation. It is a specific, volumetric tax, meaning it is levied based on the quantity of pure alcohol in the product, measured by its Alcohol by Volume (ABV). It is not an ad valorem tax (a tax based on value).
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How much is UK alcohol tax? The amount is highly variable and depends entirely on the type of drink (beer, cider, wine, spirits) and its strength (ABV), based on a reformed system introduced in August 2023. Stronger drinks incur a significantly higher duty charge. For example, the duty rate per litre of pure alcohol differs for a low-strength beer compared to a high-strength spirit.
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The Key Takeaway: Alcohol Duty is a mandatory step in the tax calculation process and forms part of the base price before the final layer of tax is added.
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2. Value Added Tax (VAT)
Once the manufacturer or importer has paid the Alcohol Duty, and the distributor or retailer has added their profit margin, the final tax applied to the total selling price to the consumer is the Value Added Tax (VAT).
Is VAT on Alcohol 20%? The Standard Rate Explained
To address the central question: Is VAT on alcohol 20%?
Yes, absolutely. All alcoholic beverages sold in the United Kingdom, including beer, wine, cider, and spirits are subject to the UK’s Standard Rate of VAT, which is 20%.
This rate applies universally, whether you are buying a bottle of wine from a supermarket, ordering a pint at a pub, or purchasing a bottle of whisky from an off-licence.
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Standard-Rated Supply: Under UK tax legislation, alcoholic drinks are explicitly categorised as a standard-rated supply for VAT purposes. Unlike some foodstuffs which are zero-rated, there are no exceptions or reduced rates for alcoholic beverages.
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Is there a 12.5% VAT rate in the UK? The answer is no for alcohol now. The rate of 12.5% was a temporary, reduced rate introduced by the UK Government for the hospitality and tourism sectors (including food, non-alcoholic drinks, and accommodation) during the COVID-19 pandemic. This temporary rate, which also followed an initial 5% reduced rate, ended in March 2022, and all supplies in the hospitality sector including the sale of alcohol reverted to the standard 20% VAT rate.
How is VAT on Alcohol Calculated?
Crucially, VAT on alcohol is applied to the final, total price of the product, which already includes the Alcohol Duty. This is a form of ‘tax on a tax,’ and it is why the UK tax take on alcoholic drinks is so substantial.
Calculation Example (Simplified):
| Component | Calculation | Amount (£) |
| Cost of Product (Excl. Tax) | (Manufacturer’s Cost + Profit) | £5.00 |
| Alcohol Duty | (Based on ABV and Type) | £3.00 |
| Base Price for VAT | (Cost + Duty) | £8.00 |
| VAT on Alcohol (20%) | £8.00 x 20% | £1.60 |
| Total Consumer Price | (Base Price + VAT) | £9.60 |
This example illustrates that the VAT on alcohol is not just charged on the cost of the liquid, but on the duty itself, further contributing to how much is UK alcohol tax.
Is There a VAT on Liquor? The Spirits & Wine Category
The term ‘liquor’ generally refers to spirits or strong alcoholic drinks. Is there a VAT on liquor? Yes, just like all other alcoholic products, liquor and spirits are subject to the standard 20% VAT rate.
However, the major impact on the price of liquor is the Alcohol Duty component, as spirits typically have a high ABV (e.g., 40% ABV vodka). Under the new duty system, drinks over 22% ABV are taxed at the highest duty rate per litre of pure alcohol. This substantial duty charge is then compounded by the VAT on alcohol applied at the end of the supply chain.
For businesses dealing with spirits and wine, particularly those importing or producing, understanding the precise duty calculation is critical for accurate pricing before applying the final VAT on alcohol charge.
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The Rationale and Policy Behind Alcohol Taxation
The UK government’s policy of imposing both a high Excise Duty and the 20% VAT on alcohol is rooted in several objectives, consistent with international taxation principles for “unnecessary” or “harmful” goods (often called ‘Sin Taxes’):
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Revenue Generation: Both taxes contribute billions to the Exchequer, funding public services.
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Public Health: The high cost is intended to discourage excessive consumption and reduce alcohol-related harm, a key policy measure cited by public health bodies.
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Consistency: Applying the standard 20% VAT rate across all alcohol categories simplifies the tax system compared to having reduced rates, even though it ensures that VAT on alcohol remains high.
Summary of UK Alcohol Tax Rates
| Tax Type | Rate/Mechanism | Applies To | Role in Pricing |
| Alcohol Duty | Volumetric, based on ABV and product type. | Production/Importation | Forms part of the initial base price. |
| VAT on Alcohol | Standard Rate of 20% | Final Sale to Consumer | Applied to the selling price including Alcohol Duty. |
The Bottom Line
In conclusion, the answer to is there VAT on alcohol in the UK? is a definitive yes, and is VAT on alcohol 20%? is equally firm. Every purchase of an alcoholic beverage contributes significantly to government revenue through this two-layer taxation system.
For consumers, the price seen on the shelf or menu is the final price, including both the duty and the VAT on alcohol. For businesses, understanding the exact duty rules and correctly applying the standard 20% VAT is essential for compliance with HMRC.
Disclaimer: The content on AccoBee.co.uk is for informational purposes only and do not constitute tax or financial advice.
We recommend consulting a certified tax professional or the HM Revenue and Customs Dept (HMRC) for accurate guidance. AccoBee.co.uk is not responsible for any decisions made based on the information provided.