The Lowdown On The New Excise Duty For Vapes – And What It Could Mean For Your Business
ADACT Medical forms non-commercial business partnership with BrightFinch to help customers find helpful solutions to navigate the complexities of the new exercise duty.
Damien Bové
As announced in the 2024 Spring Budget, a new excise duty is being introduced for vape products. It will allow HMRC to use existing enforcement powers and sanctions and will be chargeable at the point of manufacture (for those products made in the UK) or import. The new flat-rate excise duty will be applied to all vaping liquids at a rate of £2.20 per 10ml, which will place the UK 10th highest out of the 27 European countries that currently tax vape juice and will significantly increase the cost of all e-liquids and prefilled pods.
All businesses which are involved in the production or importation of vaping products are affected, as will any individuals who buy and use the same. Manufacturers, importers and distributors need to do their due diligence in order to become familiar with what this will mean for their businesses and mitigate any potential negative consequences.
The duty will come into effect on 1 October 2026. That may seem like a long time away, but now is the time to analyse your supply chain and assess your risks.
What does the new excise tax duty mean in practice?
The implications of the excise duty will depend on each organisation’s existing business model. Broadly speaking, in addition to payment up-front of the tax, there may be significant costs for additional administration and warehousing. Managing excise approval regulatory returns and reporting can be a significant challenge for businesses due to complex excise regulations and it can have a catastrophic effect on time and resources. However, it’s not all doom and gloom. Here’s why.
ADACT Medical and Brightfinch join forces to provide customer solutions set to protect business needs
ADACT Medical wants to signpost all its customers towards helpful solutions. Working with a professional and respected third party can help to mitigate the effects for your business. That’s why we have joined forces with Brightfinch to provide customer solutions set to protect business needs.
Brightfinch provides customs and international trade consultancy services to help businesses navigate the complex rules, analyse their supply chain and find solutions to maximise cash flow and save money. Their process is designed to reduce business’ compliance risk, improve cashflow and reduce duty liability wherever possible.
By outsourcing excise management to Brightfinch, an organisation can focus on running the business, leaving the intricacies of the new excise management and compliance to Brightfinch. Businesses may choose to manage excise returns and reporting in-house in an effort to save money but, in addition to costs like increased administration, improved security and use of bonded warehouses, there are often hidden charges that can arise from inefficiencies in processes, errors, or non-compliance. Working with a company like Brightfinch can reduce the risk of penalties through accurate and timely submissions to HMRC and optimise processes to minimise excise duties.
Why is the tax being introduced?
The new excise duty being introduced for vape products is expected to raise £525 million in revenue to fund public services such as the NHS and smoking cessation initiatives supporting a smoke-free UK. In addition, this latest duty is also to ensure that the UK is in line with other comparable economies - with the EU planning a standardised bloc-wide levy on vaping products. The government also wants to cut the number of non-smokers and young people that vape by reducing the affordability of vaping products.
In recognising the valuable role of vaping products in supporting individuals quitting smoking and to ensure the introduction of the duty on vapes does not make smoking more attractive, this new duty is being accompanied by an equivalent one-off increase of £2.20 per 100 cigarettes/50g of tobacco. The aim is to ensure that vaping remains a cheaper alternative to smoking tobacco products and hopefully deter people to revert back to smoking cigarettes.
The dangers of the ‘tax’
Many have said that the introduction of a ‘sin tax’ on vapes is counterintuitive and just adds to the mixed messages that successive governments have been disseminating about vaping. The new Tobacco and Vapes Bill bundled smoking and vapes under the same legislation giving the misleading impression that they yield similar risks and harms.
Sadly, a false impression of the mythical dangers of vaping has been building over time and research data after research data has shown that people mistakenly believe that vaping is as harmful or more harmful than smoking. Not only is that wrong, it’s also damaging to public health. There are smokers who don’t want to swap to vaping because they think it’s as dangerous or more dangerous than smoking. This is despite the proven fact that vaping is less harmful to the individual and those around them. Public Health England has declared that while vapes are not risk-free, they are at least 95% less harmful than cigarettes.[1]
As this is an excise tax, the manufacturer or importer pay the tax, then add it to the cost of the product. This enormous impact on cash flow could potentially mean that only businesses large enough to swallow the vast rises in upfront investment will be able to survive. And other knock-on consequences could be that funds available for research and development in this sector with reference to smoking cessation are likely to be depleted, as companies cut costs to maintain profitability. This would slow the development of safer and more effective vaping technologies.
All this, at a time when, vape manufacturers are already about to be hit with extra costs from the new pre-market testing requirements set out in the new Tobacco and Vapes Bill. There is a very real chance that only the largest or most established brands will have a chance of weathering the storm, reducing competition and consumer choice and potentially leading to further increases in costs down the line.
There is also huge potential for massive black-market growth. Consumers may turn to unregulated or illicit sources to find cheaper vaping products. The public health risks are significant as these products typically lack safety checks, increasing health risks due to unknown or poor-quality ingredients.
ADACT Medical And Brightfinch: How does the service solution work?
Broadly speaking, ADACT Medical’s customers span three distinct business models and each has specific needs:
Those that import their products from abroad
Those who manufacture in the UK using British constituents
Those who import ingredients but manufacture the final product in the UK.
Customs Warehousing:
Customs Warehousing is a special procedure that allows businesses to import goods to the UK for storage without paying import duties and VAT - provided the goods are later re-exported or diverted in an approved way. A Customs Warehouse (also known as a bonded warehouse) allows goods to be imported and moved to an approved facility under customs control. If goods are imported and re-exported, customs warehousing can be used to avoid paying import tax unnecessarily. For goods that are destined for the UK market, the service can help with cash flow because import duty & VAT is only payable once the goods are removed from the customs warehouse facility for UK distribution. Paying excise duty will be an enormous cash burden for many businesses, and one that could spell disaster for some.
BrightFinch can work with businesses to submit applications to HMRC, audit any existing authorisations against HMRC approval terms and complete and submit excise returns.
As an example, importing one million 10ml bottles and holding in a UK warehouse would attract a tax levy of £2.2 million. However, if half of these are to be re-exported to other countries and only 10 per cent are being released to retail now, Customs Warehousing would change the financial picture significantly.
500,000 bottles would not be liable for excise duty as they are only ‘passing through’ the UK.
400,000 bottles would only be liable for duty to be paid once they are released for consumption – duty will need to be paid but will not immediately and will not have such an impact on cash flow.
100,000 bottles will be released for consumption once duty is paid - £220,000.
Excise General Storage and Distribution Warehousing:
An Excise General Storage and Distribution Warehouse is an approved HMRC facility for the storage of excise goods, including vapes, under excise duty suspension. This allows businesses which manufacture vapes in the UK, using British constituents, to defer excise duty payments until the goods are released for consumption in the UK. This also avoids paying excise duties on goods for export, as the goods can be moved to the border under excise duty suspension.
Detailed records must be held for all goods entered and released from excise warehousing by the authorised excise warehouse keeper. Submissions need to be made to HMRC every month to detail all stock movements, receipts and removals. Excise duty must be paid before the products are released for consumption (wholesale/retail). By partnering with Brightfinch, they collect the necessary information, complete and submit the applications and respond to any HMRC questions.
Inward Processing:
For businesses which import the constituents needed for their manufacture of vapes in the UK, Inward Processing allows certain goods to be imported with relief from customs & excise duties, depending on the exact nature of the goods and processing conducted. Inward Processing provides businesses with many cost savings, however it also requires a complex knowledge of customs and attention to detail for HMRC reporting purposes. Non-compliance with inward processing can result in demands for duty and tax savings and fines from HMRC.
A bill of discharge is required for all inward processing movements. These need to be submitted to HMRC for each movement or on a regular monthly or quarterly basis depending on the approval. Accuracy of reporting needs to be spot-on or there can be severe penalties from HMRC. This is where working with Brightfinch can be invaluable. They also provide support and guidance on the various approval options available and help businesses to adapt their systems and internal processes in preparation for managing the approval.
Brightfinch can work as an extension to your businesses to reduce compliance risk, improve cashflow and reduce duty liability wherever possible. They can even undertake regular audits to keep you one step ahead of HMRC. The best news is the cost – you’ll be surprised at how cost-effective their fees are, especially when compared to the savings you’ll be making.
They welcome visits from customers and potential customers at their office in Manchester. To arrange a meeting or just to find out a bit more, their phone number is 0330 127 1030 or email at enquiries@brightfinch.com. www.brightfinch.com.
Disclaimer: ADACT Medical has no commercial links with Brightfinch. We simply want our customers to succeed in this rapidly evolving landscape and signpost businesses towards helpful solutions.
[1] PHE publishes independent expert e-cigarettes evidence review - GOV.UK