VAT’s the Problem: Stop taxing tax

South Cheshire CAMRA backs the call for a 10% hospitality VAT rate, and asks the Chancellor to end VAT on beer duty in the Budget on 28 October.

Every pint you buy in a South Cheshire pub or taproom carries two taxes before it reaches your hand: beer duty, paid by the brewer, and 20% VAT on the price at the bar.

VAT is charged on the whole price, duty included, so drinkers pay tax on tax.

On a £5 pint of 4.2% ABV draught bitter, around £1.30 goes straight to the Treasury.

Sean Ayling of Tom’s Tap and Brewhouse, Crewe’s only brewery, feels it from both sides of the bar:

“The VAT problem for hospitality is just as true for breweries. Our raw ingredients don’t carry VAT, so there’s nothing we can set against the VAT we collect for the government. Then there’s the duty. It’s built into the selling price of the beer, so that gets VAT charged on it too. I’m not sure how you get round that, but it does seem unfair to pay tax on tax.”

Sean Ayling, Tom’s Tap and Brewhouse

Sean shared his costings for two typical brews. The first is perhaps the best case for a small brewer: a 4.2% ABV pale ale brewed as an efficient double batch of about 836 litres. It costs around 63p a pint to brew, of which 11p is duty, and VAT at the bar adds around 83p more. That is about £1.46 in costs and tax before the bar pays its own staff, rent, business rates and spiralling energy bills, plus the recent rise in employer National Insurance, and before either the brewer or the bar owner earns a wage.

A stronger 7% ABV beer, brewed as a smaller 382 litre batch, costs £1.14 a pint to brew, nearly twice as much, because overheads are spread over fewer litres and the recipe needs more ingredients.

Small Producer Relief, which replaced Small Brewers Relief in 2023, cuts the duty paid by the smallest producers on drinks below 8.5% ABV, with the discount tapering away as a brewery grows.

For a brewer of Tom’s size it brings the duty down to £4.61 per litre of alcohol against a standard rate of £22.58, so duty on that 7% ABV pint is only around 18p.

The strong beer penalty

At 8.5% ABV and above, duty jumps to £30.62 per litre of alcohol and small brewers lose their relief altogether. At that rate, a pint at 8.4% ABV pays about 22p in duty; at 8.5% ABV it pays about £1.48, nearly seven times as much. Imperial stouts, barley wines and old ales are some of the most skilled and costly beers to brew, and they are hit the hardest.

Draught relief tilts the field further. Duty is cut for draught beer, but only in containers of 20 litres or more and only below 8.5% ABV. That suits a multinational filling thousands of kegs of the same lager, but it does nothing for a specialist brewer whose stronger, limited-run beers often go out in 10 litre kegs, bottles and cans, none of which get the draught discount.

Emperor’s Brewery, guest at a recent meet the brewer night at Tom’s, set out what that means in practice.

Emperor’s brews nothing but imperial stouts, many aged in spirit barrels and packed with expensive ingredients like cacao, coffee and maple syrup.

Brewers of a similar size abroad face nothing like that.

A small American brewery pays around a penny a pint in federal duty on the same beer, and a small German brewery about 6p. UK brewers are simply not competing on a level playing field.

Faced with that gap, and with post-Brexit trade costs on top, Emperor’s now brews some of its strongest beers in the EU, both to supply European drinkers and to stay competitive.

Pricing out the pioneers

Small independent brewers have always been at the heart of British beer. They kept porters, stouts and milds alive when the big brewers dropped them, and they created the hop-forward pale ales and barrel-aged beers drinkers now take for granted. That innovation, and the artisan skill behind it, depends on brewers being free to take risks on small batches and strong, complex beers.

The tax system now punishes exactly those risks. When the duty on a pint of strong stout is more than three times the cost of brewing a pint of pale ale, and every pint pays VAT on that duty, small brewers either stop brewing the beers that make their name, move production abroad, or close.

Without change, the UK will lose the breweries that keep its vibrant beer culture alive.