Sugar tax shake-up: How proposed changes could impact you

A consultation to reduce the minimum sugar content required in a qualifying drink for it to be subject to the Soft Drinks Industry Levy (“SDIL”) is currently open. Proposals also include removing exemptions for milk-based drinks and milk substitutes.

What is the Soft Drinks Industry Levy?

The SDIL is a tax applicable to the production and importation of pre-packaged soft drinks containing added sugar. The SDIL incentivises producers and importers of sugary soft drinks to remove added sugar from their products and promote low sugar alternatives.

The SDIL currently applies to qualifying drinks with 5g total sugar per 100ml. SDIL is charged at its standard rate (£1.94 per 10 litres) on drinks with 5g to 7.9g total sugar per 100ml (lower band), and at a higher rate (£2.59 per 10 litres) for drinks with 8g or more total sugar per 100ml (higher band).

Various drinks, such as alcohol replacements (i.e. de-alcoholised beer and wine, such as alcohol-free beer), are exempt from the levy. Other exemptions include drinks that are at least 75% milk, or a milk substitute containing at least 120mg of calcium per 100ml.

What is happening now?

In 2024, a review of the SDIL was announced in order to identify opportunities to improve its effectiveness at reducing sugar in soft drinks.

On 28 April 2025, HMRC and HM Treasury jointly issued the “Strengthening the Soft Drinks Industry Levy consultation”. The consultation does not propose to change the fundamental scope or design of the SDIL. However, it does seek views on the following three steps:

• reducing the minimum sugar content at which the SDIL applies to qualifying drinks from 5g to 4g. The SDIL standard rate would apply from 4g to 7.9g total sugar per 100ml
• removing the exemption for milk-based drinks whilst introducing a ‘lactose allowance’ to account for the natural sugars in the milk component of these drinks
• removing the exemption for milk substitute drinks (i.e. soya, almond oat drinks) with ‘added sugars’ beyond those sugars derived from the principal ingredient, such as oats or rice

It has also been confirmed that the standard and high rates of the SDIL will increase each year over the next 5 years (starting 1 April 2025) to account for inflation between 2018-2024, and future yearly CPI increases.

Why is this consultation taking place?

• sugar reduction: Existing data shows that there are 866 products between 4g and 4.9g of total sugar per 100ml. In effect, the introduction of the SDIL in 2018 created a “target” for a product’s sugar content of just below 5g per 100ml. By requiring a reduction in sugar content by a further 1g per 100ml, Government is clearly hoping to encourage further reformulation by producers and importers looking to avoid the SDIL, particularly those whose products contain between 4g and 4.9g of sugar per 100ml
• milk-based exemption: These are currently exempt from the SDIL due to historical concerns that teenagers were not consuming enough calcium. Government is now of the view that when weighed against the harms of excess sugar, the extent to which these milk-based drinks contribute to calcium intake does not justify their exemption to the SDIL. Importantly for producers, a lactose allowance will be introduced into the SDIL to ensure a drink with a higher milk content receives a greater allowance for naturally occurring lactose
• milk substitute drinks: These types of drink are currently exempt from the SDIL provided they contain 120mg of calcium per 100ml. Given the proposal to remove the milk-based exemption to the SDIL, the consultation also proposes to remove the exemption for milk substitute drinks, regardless of their calcium content

What do I need to do now? 

If introduced, there is expected to be a two-year period between the consultation and the implementation of these changes to the SDIL, with changes taking effect on 1 April 2027.

That said, producers and importers should now be taking proactive steps to review their product range and consider the extent to which those products previously outside of the SDIL’s scope would be caught by the SDIL in light of the new proposals. This is particularly important for those producers and importers that reformulated their existing products to contain between 4g – 4.9g of sugar per 100ml prior to the introduction of the SDIL in 2018.

Those with milk-based drinks and milk substitute drinks in their product range should consider the extent to which their products contain sugar beyond the proposed “lactose allowance” (for milk-based drinks) or beyond those deriving from the principal ingredient (for milk-based substitutes). This will provide a good indication on the extent to which the proposals will impact certain products.

Those impacted may wish to provide feedback to the consultation. The consultation runs until 21 July 2025, and you can respond to the consultation by using the online form. 

Check if your drink is liable for the Soft Drinks Industry Levy - GOV.UK may be a useful resource for those yet to consider the extent to which their products are liable for the levy (note, this does not account for the proposed changes to the SDIL).