Is There VAT on Alcohol?

Alcohol is one of the most heavily taxed products in the UK, and it attracts VAT at the standard rate of 20%. Whether you’re buying a pint at the pub, a bottle of wine at the supermarket, or spirits in bulk for business use, VAT will be applied. In addition to VAT, alcohol is also subject to alcohol duty, making it more expensive than many other consumer products.

This guide explains how VAT applies to alcohol, how it differs from duty, when VAT can be claimed back as a business expense, and what rules apply to non-alcoholic alternatives.

What Is VAT?

VAT (Value Added Tax) is a tax on the consumption of goods and services. In the UK, the standard VAT rate is 20%, although some goods and services are reduced-rated (5%) or zero-rated (0%).

VAT is charged on the retail price of most alcoholic drinks sold in the UK. It is separate from excise duties, which are flat-rate taxes charged based on alcohol content.

What’s the VAT Rate on Alcohol?

Alcohol sold in the UK is subject to VAT at 20%. This applies across the board, including:

• Beer and cider

• Wine and fortified wine

• Spirits and liqueurs

• Premixed drinks and cocktails

• Alcohol sold in shops, pubs, restaurants or at events

VAT is charged in addition to alcohol duty, and the two taxes are applied separately.

Is VAT Chargeable on Alcohol?

Yes. VAT is chargeable at the point of sale, and the seller must include it in the final price. If you buy alcohol from a pub or shop, the price you pay already includes VAT. Businesses that are VAT registered must declare and pay this VAT to HMRC as part of their VAT return.

Claiming VAT on Alcohol as a Business Expense

If you’re VAT registered, you may be able to reclaim VAT on alcohol under certain conditions.

You can reclaim VAT on alcohol if:

• It is used in business-related hospitality, such as entertaining staff

• It is sold as part of your business activity (e.g. if you run a pub, bar or catering company)

• It is purchased for resale, such as retail sales of bottles, cans or drinks at events

You cannot reclaim VAT on alcohol provided as client entertainment, which HMRC treats as a non-deductible business expense. This includes taking a client for a drink, gifting bottles of wine, or offering free alcohol at a client function.

Examples: Claiming and Not Claiming VAT on Alcohol

Example 1:
A restaurant buys alcohol to serve with meals. The VAT on this purchase is reclaimable, as it is a cost directly related to taxable sales.

Example 2:
A graphic design agency buys wine for a Christmas party attended only by staff. This is staff entertainment, and the VAT can be reclaimed.

Example 3:
A business takes clients to a drinks reception and provides alcohol. This is client entertainment, and VAT cannot be reclaimed.

How Do You Reclaim VAT on Alcohol?

To reclaim VAT on alcohol:

1. Ensure your business is VAT registered

2. Retain a valid VAT invoice from the supplier

3. Confirm the alcohol was for a reclaimable purpose

4. Include it in your VAT return under input VAT

You should keep documentation that proves the business purpose of the purchase, especially if you’re claiming VAT on staff events or stock for resale.

What About Non-Alcoholic Beers, Ciders or Wines?

Non-alcoholic and low-alcohol alternatives are also subject to 20% VAT in most cases. HMRC considers drinks marketed as alcohol substitutes to be luxury items, not basic food or drink, and applies the standard VAT rate.

This includes:

• 0% beers and ciders

• Alcohol-free wines and spirits

• Low-alcohol shandies and mocktails

You can reclaim VAT on these drinks under the same rules as alcohol, depending on the purpose of the purchase.

Do You Pay VAT on Tobacco Products?

Yes. Like alcohol, tobacco products are subject to 20% VAT and excise duty. The combination of VAT and duty contributes to the high retail price of cigarettes, cigars and rolling tobacco in the UK.

Difference Between VAT and Alcohol Duty

VAT is charged as a percentage of the final retail price, while alcohol duty is a fixed rate based on the strength and type of alcohol. Both are collected by HMRC, but they are applied and calculated differently.

Alcohol duty is usually included in the wholesale cost of a product and is paid by the producer or importer. VAT is added at the final sale to the customer.

Summary

In the UK, VAT is charged at 20% on all alcoholic drinks, and it is usually included in the price you see in shops, bars and restaurants. Businesses can reclaim VAT on alcohol used for resale or staff purposes, but client entertainment is excluded.

Understanding the VAT treatment of alcohol is important for businesses in hospitality, retail, and event planning. Keep clear records, make sure your receipts are valid for VAT purposes, and know the difference between reclaimable and blocked expenses. If in doubt, speak to your accountant or VAT adviser.