The Soft Drinks Industry Regulations 2018 may not immediately spring to mind but it is more colloquially and widely recognised (by practitioners and the wider public alike) as the ‘Sugar Tax’ or the ‘Soft Drinks Industry Levy’, and comes on the back of much-publicised and similar schemes introduced in countries including Mexico and France.
Entering into force on 6 April 2018, the Sugar Tax is based on UK legislation and accompanying enforcement regulations which were approved by the UK Parliament in January 2018. Contrary to what the official name might suggest, the Sugar Tax was not brought about by an EU regulation or directive and has not been enacted (nor will it be transposed) by other European nations. This is not to say that the Sugar Tax won’t have an impact on goods caught under it and imported into the UK from other European nations and beyond.
Liability under the Sugar Tax is not necessarily incurred by the producers of soft drinks or the total output of soft drinks manufactured. Instead it applies to so-called ‘chargeable soft drinks’ which breach a minimum threshold of total sugar content. From April 2018, drinks which contain 5g or more of sugar per 100ml will have a tax of 18p per litre levied on them. For drinks containing 8g or more of sugar per 100ml, a tax of 24p per litre will be levied. Put into context, a significant proportion of household branded products deemed ‘chargeable soft drinks’ would fall within the higher rate bracket, meaning that an additional 48p would be added to each 2-litre bottle.
It is worth remembering that the Sugar Tax applies to both bottled drinks and so-called ‘BIB/syrup’ products (albeit the method of calculation for working out the tax payable for BIB/syrup is slightly different). This means that the Sugar Tax may result in an increase of prices downstream to products on supermarket shelves, as well as in restaurants, bars and clubs.
Certain sugar-containing drinks are classified as ‘exempt soft drinks’, falling outside the scope of the Sugar Tax regime. These include milk-based drinks, alcohol substitute drinks, soft drinks for a medicinal or other specified purpose, vegetable juice or fruit juice. With regards to the latter, a fruit juice will only fall outside of the scope of the Sugar Tax if it does not contain added sugar ingredients, as defined by s29 (1) the Regulations.
Liability to pay the Sugar Tax is not necessarily on the producer or supplier of the chargeable soft drinks. Where soft drinks are packaged in the UK, section 32 of the Act applies and the liability to pay the Sugar Tax falls on the person who packages the soft drink when it leaves their packaging premises. However, if the soft drinks are imported into the UK then section 33 of the Act will apply and the liability to pay the Sugar Tax falls on the ‘first recipient’ who receives the soft drinks at their business premises in the UK. Further, if a company imports the products for supply in the UK, pending the sale of the soft drinks under their respective supplier or sale agreements, then the liability to pay the Sugar Tax will likely be on the importing company as ‘first seller’ of the soft drinks.
The Sugar Tax gives pause for thought to practitioners in drafting and negotiating the various agreements and contracts in the consumer supply chain, together with the need to consider the effect of its imposition on upstream and downstream stakeholders in the vertical chain.
It is likely that the Sugar Tax (and potential future levies of such ilk) will continue to be widely debated and thus practitioners (in the UK, EU and further afield) will need to keep a watchful eye on the legislative development in this area and the impact it may have on their clients, so as not to leave a sour taste in the mouth.
The Law Society would like to thank our Junior Lawyers Division contributor, Sam Salter-Galbraith of Trethowans LLP, for authoring this article.
