Duty review could hit cheap liqueurs

12 November, 2010

A potential ruling by HMRC could see the duty on dozens of cream liqueur and RTD products increase sharply.

The change could reclassify cheaper products in those categories that currently pay only made wine duty, making them liable to higher spirits duty instead.

The ruling would enforce a European Commission interpretation of a Dutch court decision – involving the drinks supplier Siebrand and upheld by the European Court of Justice. It appears to set a precedent that products with a wine base that are fortified with spirit should be treated as spirits for tax purposes if the final product has the

organoleptic characteristics of a spirit.

A senior trade source said the Siebrand case was “not without faults in that it was based on a narrow understanding of production techniques”.

The Gin & Vodka Association is pressing for a meeting with HMRC in early December to put its case to maintain the status quo.

Any HMRC ruling that follows Siebrand is likely to face a legal challenge by a consortium of UK and Irish producers of such products, who would see their current price advantage over spirit-based cream liqueurs and RTDs evaporate.

Sainsbury’s is currently selling the 14% abv O’Gradys cream liqueur for £4.35 for a 70cl bottle alongside 17% Baileys at £12.99.

One source close to the case said: “A ruling by HMRC is imminent. If the UK follows the EC position it will change the rules and a lot of independent producers will be affected.”?HMRC said it is reviewing its classification policy. Although it is expected to target RTD and cream liqueur-type products, it’s possible the spotlight could also fall on more traditional categories such as fruit wine and British fortified wine, plus tonic wines such as Buckfast.

Bob Rishworth, director of Halewood International, whose Irish Meadow cream liqueur would be hit, said: “The implications are worrying for lots of people. We could reduce the cost of production by using spirit instead of wine but it wouldn’t balance out the increase in duty.”?The issue could eventually drag in imported fortified products such as port, sherry and Pineau des Charentes if the affected UK producers seek a judicial review and plead they are being discriminated against.

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