During last November, customs officials seized a record quantity of wines and spirits from smugglers attempting to sell them on the open market in the UK. In essence it is not difficult to see why - some people will attempt to bring spirits into the UK without paying duty or taxes, since the duty rates have been steadily increasing over the last few years. And these increases are on top of what were already the third highest duty rates in Europe, with only Finland and Ireland paying more.
The current rate of duty on spirits which we have to pay is £23.80 per litre of pure alcohol. Rates on wines are £225/100 litres and champagne £288.20/100 litres. If we equate this to the duty on a bottle of spirits at say 40% alcohol we have to add just over £6.66 a bottle - but the story doesn’t end there.
VAT is charged on the combined value of both the brandy cost and the duty; in effect double taxing alcoholic drinks in the UK. A costing preview of one of our very lowest cost armagnacs (it is one of superb quality), reveals that depending on the exchange rates at the time, we buy it at slightly less than the duty, making a combined price of £12.80. VAT on top of that raises the price to £15.36 and after we add in the cost of getting it and bonding the cost increases to £16.98. Packaging adds another £1.20, providing a gross total of £18.18. Financial experts will also recognise that we have to cost in our overheads, which means our margin is probably slightly less than a pound when we sell it to our trade customers.
Fortunately we sell a lot of brandies at rather more than £22.20 a bottle, but this exercise serves to indicate just how much of a bottle's value goes to HM coffers. Which leads us to ask the question, if duty rates were lower, would the Government collect more duty? UK rates are about 3 times that of many other EU countries...