United Kingdom: Update February 2022

United Kingdom Free Trade Agreement

On 17 December 2021 Australia and the United Kingdom (UK) signed the Australia – United Kingdom Free Trade Agreement. It is a landmark agreement, and one of the first to be finalised with the UK since Brexit. For wine, the FTA will see the elimination of import tariffs on entry into force. This creates a level playing field for Australia’s wine exports with our major competitors from Continental Europe.  Wine Australia has estimated that the tariff elimination represents a saving of approximately AUD $43million per year for the Australian wine sector.

Wine sector specific trade technical issues (eg carbonation, sweetening etc) are not included as part of the FTA, however it does provide a platform for future dialogue to continue to work together on technical issues. This work will continue through ongoing discussions and negotiation of Australia and UKs Wine Agreement and the existing processes established to amend it.

The FTA will need to undergo the usual ratification process within Australia and the UK after which it will enter into force. No timeframe is available for the finalisation of the ratification process, however it is expected to be completed during the course of 2022. 

UK budget announcement – Alcohol tax reform

Unfortunately, the good news of the signing of the FTA was tempered by the earlier announcement, on 28 October 2021, by UK’s HM Treasury and HM Revenue and Customs, that the UK is considering an overhaul of the excise tax system for alcohol.

A consultation paper outlining the proposal, suggested a number of changes that would negatively impact Australian and other imported wines. These included proposing a new structure of alcohol duty whereby:

  • all categories are taxed based on the amount of alcohol they contain.
  • wine and sparkling wine between 8.5 per cent ABV and 22 per cent ABV would be taxed at £25.88/litre pure alcohol.
  • wines falling within bands of 0.5 ABV being applied individual duty rates based on the percentage ABV of the individual band.

Implementation of this proposed duty regime would result in a significant increase in the duties payable on still wine above 11.5 per cent ABV, which is a major concern for Australian wine imports of which 97per cent are above 11.5per cent. The resulting impact would be an 11 per cent increase in duties payable on Australian wine or £82 million (~AUD$150million) per annum.

While foreign countries are not often able to influence or be involved in domestic tax arrangement our FTA negotiations, Australian wines investment in the UK and strong trade relations with the UK provide some justification for our engagement. Australian Grape & Wine has therefore invested a significant amount of time at the end of 2021 and beginning of 2022 reposing to this proposal.  This included:

  • Coordinating Australian wine company responses and agreement on a common Australian wine sector messaging.
  • Briefing Ministers Tehan, Littleproud and others on the potential impact of these changes and encouraging their direct engagement with their UK counterparts.
  • Media engagement
  • Working with Wine Australia and federal government departments to align Australian Government messaging with the interests of the sector.
  • Coordination of state wine associations, and state governments, in particular the South Australian Government when Premier Marshall met with UK Foreign Secretary, Liz Truss during a recent visit.
  • Alignment of the Australian comments with Domestic industry through the UK Wine and Spirits Trade Association, Wine Great Britan and other international colleagues.

Australian Grape & Wine’s submission to the consultation was lodged on 30 January and is available here. While it is clear that the UK Treasury will likely look to retain any increased tax revenue that is associated with the current proposal, it is hoped that these efforts and, those of other Australian wine businesses who engaged in this consultation, will help to mitigate the impact of the current proposed tax changes on our Australian wine exports.

You can read Tony Battaglene’s detailed analysis of the UK Tax Reform here.

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