Post duty point dilution (PDPD), otherwise known as ‘wine dilution’, enables wine and made-wine producers to reduce the excise duty they pay by diluting the product after duty has been paid. Because the dilution increases the volume of wine or made-wine for sale, with no additional duty being paid, less duty is paid on that wine or made-wine than otherwise would be.
HMRC have introduced new measures that come into effect from 1 April 2020 that will impact any businesses involved in the production (including the bottling) of wine and made-wine products where dilution after the duty point occurs. These new duty changes will also impact retailers and consumers of such products.
Up until 1st April 2020, wine and made-wine producers were allowed, in certain circumstances, to pay duty on product before it was diluted for final sale to the consumer. HMRC believe the current situation carries significant legal and revenue risk for the Exchequer, and is leading to distortions in the duty market,. HMRC believe it undermines competition between those categories of alcohol products where PDPD is allowed and those where it is not, and also within categories where some producers choose not to use PDPD while others do.
UK legislation is silent on the issue and does not expressly prevent PDPD for wine and made-wine, although it is prohibited for all other alcohol products. HMRC intend that that duty is calculated only on finished product when released from production premises.
The changes will introduce new prohibitive sanctions for anyone diluting wine or made-wine once that product has passed a duty point.
Legislation will be introduced in Finance Bill 2019-20 to insert a new section to ALDA, applying penalties and forfeiture provisions on those that add water (or any other substance) to wine or made-wine after the duty point, if that addition would have resulted in a greater amount of duty being payable.
Altion Law specialises in HMRC and Excise matters. If you need advice or are concerned about the new duty requirements relating to Wine Dilution and how your business needs to prepare, please either submit a contact us form or call our team on 01908 414990.