Budget 2021: UK alcohol tax reforms might not apply in NI

UK government plans to reform alcohol taxation might not apply in Northern Ireland due to the protocol.

The new system, due to start in 2023, will mean higher duty for stronger alcohol, the chancellor said.

The Institute for Fiscal Studies (IFS) has pointed out that EU rules on alcohol duty continue to apply in Northern Ireland.

IFS associate director David Phillips said the structure of alcohol taxes in NI must still conform to EU rules.

The protocol keeps Northern Ireland in the EU single market for goods and as part of that EU excise duty rules continue to apply.

The EU sets a minimum rate of tax for alcoholic drinks but it is open to member states to apply tax at a rate higher than the minimum.

More relevant to Chancellor Rishi Sunak's proposed reforms is the structure of EU alcohol duties.

In simple terms, it means that wine or cider cannot be taxed in proportion to their alcohol content but beers and spirits can be.

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The chancellor is proposing to change to a system which would mean higher taxes on fortified wines, like Buckfast, and lower taxes on lighter wines, like rose.

Mr Phillips suggested the government could apply some of the reforms in Northern Ireland or separate the Northern Ireland and Great Britain alcohol tax regimes.

But he added that could "further entrench the checks and complexity for trade in alcohol products".

'Flexible settlement'

The protocol does make a provision that the EU and UK may review the application of excise duty rules to take into account "Northern Ireland's integral place in the UK's internal market".

That implies that some sort of special arrangement could be negotiated.

The treasury consultation document on the reform says: "Government is aware that under Article 8 of the Northern Ireland Protocol this directive and other EU legislation continue to apply in Northern Ireland.

"Accordingly, the government has announced in its command paper of 21 July 2021 that it is seeking a more flexible settlement regarding excise laws applicable in Northern Ireland.

"The government will continue to discuss the application of these reforms to Northern Ireland with the EU during the consultation period of the review."