By Capcon & Beavis Morgan
The UK hospitality sector is facing yet another financial challenge, as recent increases in alcohol duties, upcoming waste packaging recycling fees, and potential changes to the Soft Drinks Industry Levy (SDIL) add further strain to businesses. With these changes impacting both margins and operational costs, businesses must take proactive steps to adapt.
Marcus Jones, Managing Director at Capcon, and Neal Groves, Tax Partner at Beavis Morgan, the specialist accounting, tax and business advisory firm, share their insights on what these changes mean for hospitality operators and how businesses can mitigate the impact.
Alcohol Duty: A System Based on Strength
On 1 August 2023, the UK government introduced a new system for taxing alcohol based on its alcohol by volume (ABV), replacing the previous flat-rate duty system. This shift aimed to align taxation with alcohol strength, affecting wine, spirits, beer, and cider.
However, on 1 February 2025, alcohol duties rose again – this time by 3.6%, in line with the Retail Price Index (RPI).
Key Duty Increases at a Glance
- Spirits: The duty on a bottle of gin has increased by 32p.
- Wine: A 14.5% ABV bottle of wine now carries an extra 54p in duty, following an earlier 44p increase in August 2023. This means that, over an 18-month period, the duty on a 14.5% ABV red wine has risen by 98p.
- Beer & Cider: These are now also taxed based on strength, impacting pricing strategies for brewers and producers.
The Industry Impact
“For many hospitality businesses, these continued rises make it increasingly difficult to maintain competitive pricing,” says Marcus Jones. “Margins are already tight due to rising operational costs, and these additional duties only add to the financial burden on pubs, bars, and restaurants.”
With higher duty costs, many operators will face tough choices – either absorb the increases, pass them on to consumers, or adjust their product offerings.
Waste Packaging Recycling Fees: The Next Cost Challenge
From April 2025, businesses in the wine and spirits sector will also have to navigate new waste packaging recycling fees under the Extended Producer Responsibility (EPR) scheme.
What is EPR?
EPR shifts the financial responsibility for packaging waste onto producers, requiring them to cover the full cost of recycling and disposal. This will have a direct financial impact on businesses producing, importing, or selling packaged goods, including alcohol.
“For many businesses, this means a complete review of their packaging strategies,” explains Neal Groves. “Those using glass, plastic, or complex packaging materials could see substantial cost increases, making sustainable packaging solutions more attractive.”
How Hospitality Businesses Can Prepare
- Audit packaging use – Identify high-cost materials and explore alternatives.
- Work with suppliers – Negotiate more sustainable, cost-effective packaging options.
- Educate consumers – Communicate the value of sustainable packaging choices in marketing efforts.
Soft Drinks Industry Levy (SDIL): Increases & Potential Expansion
In addition to alcohol duties and waste packaging fees, businesses could also face increased costs from changes to the Soft Drinks Industry Levy (SDIL).
From April 2025, the SDIL will increase to account for inflation between 2018 and 2024. While exact figures have yet to be confirmed, businesses selling soft drinks will likely see higher costs.
Additionally, the government is considering extending the SDIL to milk-based and milk substitute drinks, which could have significant implications for coffee shops, cafés, and bars serving mixed beverages.
How Hospitality Businesses Can Stay Ahead
“Businesses have access to vast amounts of data to tackle these challenges, yet the real hurdle is turning it into actionable insights,” says Marcus jones. Constant pressures – staffing constraints, limited technical expertise, and difficulties in extracting usable information – often stand in the way of effective analysis. To drive smarter decision-making, it’s not just about having data; it’s about having the capability, resources, and expertise to interpret it efficiently.”
With these cost pressures mounting, hospitality businesses must take strategic steps to protect profitability:
- Review Pricing Strategies – Adjust menus and pricing to reflect higher duty costs without alienating customers.
- Optimise Product Selection – Focus on the most profitable items while managing rising costs.
- Streamline Stock Control – Reduce waste and inefficiencies to balance margins.
- Invest in Sustainable Packaging – Explore cost-effective, environmentally friendly solutions to offset EPR fees.
- Monitor Soft Drink Sales – Assess the impact of SDIL changes on your pricing and product mix.
- Seek Specialist Tax Advice – Understanding and managing the financial impact of these changes is crucial. Consulting a tax expert can help businesses navigate new regulations, identify cost-saving opportunities, and ensure compliance while maximising profitability.
Final Thoughts: Navigating the Changes
“While these cost increases present challenges, there are steps businesses can take to remain competitive,” says Marcus Jones. “Strategic stock management, pricing optimisation, and a focus on profitability are more important than ever.”
Neal Groves adds: “Operators should also be looking at tax-efficient strategies to manage their costs. Seeking professional advice early will help businesses prepare for these changes while maximising opportunities for relief where available.”
The hospitality sector is resilient, but with rising duties, packaging fees, and potential new levies, businesses need to plan ahead to protect their margins and maintain profitability.
For expert guidance on navigating these changes, get in touch with Marcus Jones at Capcon or Neal Groves at Beavis Morgan.
Further Reading & Resources
UK Parliament Alcohol Duty Overview: Click Here
Extended Producer Responsibility (EPR) Explained: Click Here
