The Health Lobby has won a significant victory, as the Chancellor gets busy with the Fizzy and introduces the Misuse of Sugar Act 2016*.
What might his new tax mean for Soft Drinks Producers?
Just for the taste of it…
Following Mr Osborne’s new tax levies on sugary fizzy drinks, announced in March’s Budget, is it now beholden on soft drinks producers to reinvent their recipes, primarily: just for the taste of it?
The soft drinks industry is big business, but if the money is to keep flowing from customers’ pockets and, at the same time, the Health Lobby and the public are to see any genuine and measurable longer term benefits from the new sanctions, the streams of Soda are going to have to carry a lot less sugar than they used to. At the same time, producers will not want to lose trademark flavours that have won them legions of customers.
Research in to how to keep the flavour, whilst losing (some of) the sugar, may initially induce a headache one wouldn’t normally expect from a soft drinks overdose, but also presents an opportunity, for those developing new recipes and processes, to recoup significant sums in Research and Development Tax Relief awards.
Sugar Police to Clamp-down on Class A Producers
The Tax levy will be imposed on the larger Soft Drinks producers and importers on the basis of the volume of sugary liquid they produce. Two bands of tax have been proposed: the lower band or Class B will potentially raise 18p per litre, on drinks with between 5 grams and 8 grams of sugar per 100 millilitres. The higher band – let’s call that Class A, will see producers taxed 24p per litre on those substances that have in excess of 8 grams per 100 millilitres*. No fine has as yet been proposed for third party distributors or consumers, but parents and schools are expected to educate youngsters on the potential harmful effects of sugar misuse.
That’s the basic arithmetic and, as the Chancellor has made clear that the underlying purpose of the tax is to enhance the health of younger people and remove the current easy options for them to source their sugary fix, it likely follows that sanctions will be fairly rigorously pursued against producers.
That leads to the question: will producers just pass on the tax costs in increased prices on the shelves or engage in research and development to comply with the underlying desire that sugar in drinks is reduced and the health of the nation’s youth thereby improved?
Celebrity Pop Stars caught in the spotlight
The popular Lucozade Energy, lurking in chiller cabinets in dark corners in Gyms all over the country and which some might argue is clearly designed and openly marketed to give you a sugar rush when you need a boost, is one product that falls in to the Class A tax bracket. Full strength Coca-Cola and Pepsi are two others and, (in a move that could well re-ignite the thirst for an autonomous regime north of the border), so is Irn-Bru. Quite clearly we are talking very high volume producers here and perhaps, when you hear the names involved it’s not surprising that the government estimates raising £520 million from this initiative.
Those big name “celebrity” drinks manufacturers could invest in Research and Development projects to try to overcome the problem of retaining the flavours everyone enjoys and, at the same time, might possibly enhance their own reputations. Smaller producers, some of whom may not fall foul of the taxation scheme, could also examine ways and means to tackle the bad-taste dilemma.
And…A Spoonful of cash might help the medicine go down.
Potentially, where expenditure can be shown to have been outlaid on such work, whether ultimately successful or not, there may be a channel via which an application for R & D Tax Relief can be lodged with HMRC.
Applying for Research and Development Tax Relief is not straightforward, but that’s where Cooden Tax Consulting comes in. We’re fizzing with ideas and advice to assist all sorts of enterprises and, of course, ensure that your business remains healthy and productive.
There’s no Scchhhhhh about it – the message is loud and clear. We can add a tonic to your returns and surely that’s something worth raising an alcohol free lemonade shandy to. If you think you might be a Fan – ta. The holidays are coming, sooner than you think, so get Sprite on it and give us a call today. Too much….? Well, we have no wish to either see you over-taxed, or to over tax your capacity for puns and we therefore promise you and George: we’ll reduce the sugary drinks content next time!