Finance (No. 2) Act 2023

(1A) If an individual (“A”) disposes of an asset to another individual (“B”) in circumstances where any of subsections (1B) to (1D) applies, A and B are to be treated as if B acquired the asset from A for a consideration of such amount as would secure that on the disposal neither a gain nor a loss would accrue to A. (1B) This subsection applies where the disposal is made while A and B— (a) are married to, or are civil partners of, each other, and (b) are living together. (1C) This subsection applies where the disposal is made— (a) while A and B are married to, or are civil partners of, each other, (b) at a time when A and B have ceased to live together, and (c) on or before the earlier of— (i) the last day of the third tax year after the tax year in which A and B ceased to live together, or (ii) the day on which a court grants an order or decree for A and B’s divorce, the annulment of their marriage, the dissolution or annulment of their civil partnership, their judicial separation or, as the case may be, their separation in accordance with a separation order. (1D) This subsection applies where— (a) A and B have ceased to be, or are in the process of ceasing to be, married to, or civil partners of, each other, and (b) the disposal of the asset is in accordance with an agreement or order within subsection (2)(a) or (b) of section 225B (disposals in connection with divorce etc), but as if, in subsection (2)(a), after “partner” there were inserted “, or former spouse or civil partner,”.

• (3) In section 225B (disposals in connection with divorce etc)—

• (a) in subsection (1)(b), after “to” insert “someone other than”;

• (b) in subsection (3), after “disposal to” insert “someone other than”.

• (4) After section 225B insert—

(225BA) (1) This section applies where— (a) an individual (“A”) ceases to live with A’s spouse or civil partner (“B”) in a dwelling-house or part of a dwelling-house, (b) immediately before A ceases to live with B, the dwelling-house or part is A’s only or main residence, (c) A disposes of, or of an interest in, that dwelling-house or part to B (“the initial disposal”), and (d) the initial disposal is in accordance with a deferred sale agreement or order. (2) If— (a) in accordance with the deferred sale agreement or order A receives a sum in respect of a share of any profit made by B upon B’s disposal of, or of an interest in, the dwelling-house or part, and (b) the receipt of that sum would be treated (apart from this section) as a disposal falling with section 22 (disposal where capital sums derived from assets), that receipt is to be treated for the purposes of this Act as a gain attributable to the initial disposal but accruing to A at the time the sum is received. (3) In this section, a “deferred sale agreement or order” is an agreement or order of a court which— (a) is within paragraph (a) or (b), as the case may be, of section 225B(2) (agreements and orders of the court in relation to divorce etc), and (b) includes a term entitling A to receive a share of any profit made by B as mentioned in subsection (2)(a).

• (5) In Part 8 (supplemental), in section 288 (interpretation), in subsection (3), after “partner” insert “(however expressed)”.

• (6) The amendments made by this section apply in relation to disposals made on or after 6 April 2023.

Carried interest: election to pay tax as scheme profits arise

42

• (1) TCGA 1992 is amended as follows.

• (2) After section 103KF insert—

(103KFA) (1) An individual (“A”) may make an election under this section in respect of an investment scheme (“the relevant scheme”) if— (a) section 103KA applies in relation to A and the relevant scheme, or (b) it is reasonable to expect that it will apply in relation to A and the relevant scheme. (2) Subsection (3) applies for a tax year (“the relevant tax year”) where an election made under this section has effect for that tax year. (3) A chargeable gain is deemed to arise to A in the relevant tax year and is to be treated as accruing to A immediately before the end of the relevant tax year. (4) The amount of the gain is the amount given by reducing— (a) the amount of carried interest that would arise to A in the relevant tax year in the circumstances mentioned in subsection (5), by (b) the sum of chargeable gains deemed to arise to A under this section in respect of the relevant scheme in previous tax years. (5) Those circumstances are that— (a) all of the investments held by the relevant scheme in the relevant tax year, and previously held by the scheme, whose disposal would be relevant to A’s entitlement to carried interest, were disposed of in the relevant tax year, (b) the amount realised on the disposal of each investment that was not actually disposed of in, or before, the relevant tax year were the amount of the costs to the relevant scheme in acquiring that investment, (c) all income that was received by the scheme (whether before or during the relevant tax year) and that would be relevant to A’s entitlement to carried interest, were received in the relevant tax year, and (d) all profits realised by the scheme as a result of those disposals and the receipt of that income were distributed to its investors in the relevant tax year. (6) Where— (a) distributions were made by the scheme to external investors before the relevant tax year, and (b) the timing of those distributions affects the amount of carried interest that actually arises to A, the amount of carried interest to be presumed to arise in the circumstances mentioned in subsection (5) is to reflect the fact those distributions were made before the relevant tax year. (7) But if reflecting that fact would lead to a presumption that an amount of carried interest had arisen before the relevant tax year, any such amount is to be presumed to arise in the relevant tax year. (8) A chargeable gain treated as accruing to an individual under subsection (3) is a chargeable gain accruing on the disposal of an asset situated outside the United Kingdom only to the extent that the individual performs investment management services in respect of the relevant scheme outside the United Kingdom. (9) An election under this section— (a) must be made by notice given to an officer of Revenue and Customs, and (b) may not be revoked. (10) A notice making an election— (a) must state the first tax year for which it is to have effect, and (b) may not be given after 31 January following the end of that tax year. (103KFB) (1) Where an election has been made under section 103KFA in relation to an investment scheme (“S”) that is associated with another investment scheme, the election applies in respect of the other scheme (whether or not the conditions for an election to be made in respect of the other scheme were met at that time). (2) “Associated”, in relation to two or more investments schemes, is to be construed in accordance with section 809FZZ of ITA 2007. (103KFC) (1) The accrual of a chargeable gain treated as accruing to an individual under section 103KFA(3) does not prevent the individual or any other person being charged to tax (whether income tax, capital gains tax or any other tax, and including as a result of section 103KA) in relation to carried interest that arises to the individual under arrangements with the relevant scheme. (2) But subsection (3) applies where an individual— (a) has made an election under section 103KFA, (b) has accrued a chargeable gain treated as accruing under section 103KFA(3), (c) has paid (and has not been repaid) an amount of capital gains tax that is attributable to that chargeable gain, and (d) is charged to tax (whether income tax, capital gains tax or another tax) in relation to carried interest that— (i) arises to the individual under arrangements with the relevant scheme, and (ii) arises in or after the tax year in which a gain first accrued under that section. (3) The individual may make a claim for one or more consequential adjustments to be made reducing the tax mentioned in subsection (2)(d). (4) On a claim under subsection (3) an officer of Revenue and Customs must make such of the consequential adjustments claimed (if any) as are just and reasonable. (5) The value of any consequential adjustments made must not exceed the lesser of— (a) the amount of capital gains tax paid as mentioned in subsection (2)(c), and (b) the tax charged as mentioned in subsection (2)(d). (6) Consequential adjustments may be made— (a) in respect of any period, and (b) by way of an assessment, the modification of an assessment, the amendment of a claim, or otherwise. (7) No claim may be made under section 103KE (carried interest: avoidance of double taxation) in respect of tax charged as a result of the accrual of a chargeable gain treated as accruing to an individual under section 103KFA(3). (103KFD) (1) Subsection (3) applies where— (a) an individual has made an election under section 103KFA, (b) the individual has accrued a chargeable gain treated as accruing under section 103KFA(3), and (c) the conditions in subsection (2) are met. (2) Those conditions are that— (a) all, or substantially all, of the investments of the relevant scheme have been disposed of, (b) the amount of carried interest that has arisen to the individual in respect of the relevant scheme since the beginning of the first tax year in which a gain is treated as accruing under section 103KFA(3) is less than the sum of chargeable gains treated as accruing to the individual under that section, and (c) no further amount of carried interest can reasonably be expected to arise to the individual under arrangements with the relevant scheme. (3) The individual is to be treated as accruing a loss immediately before the end of the tax year in which the conditions in subsection (2) are first met. (4) The amount of that loss is the amount given by subtracting— (a) the amount of carried interest that arose to the individual in respect of the relevant scheme since the beginning of the first tax year in which a gain is treated as accruing under section 103KFA(3), from (b) the sum of the chargeable gains that have accrued under section 103KFA(3) (including any gain that accrues in respect of the tax year in which the loss accrues). (5) Where a loss has accrued to an individual as a result of subsection (3)— (a) section 103KFA(3) does not apply (in relation to the individual and the relevant scheme) for any tax year after the tax year in which the loss accrued, and (b) if carried interest arises to the individual in respect of the relevant scheme after the loss accrued, the individual may not make a claim under section 103KFC(3) in respect of tax charged in relation to it. (103KFE) (1) This section applies where an election was made by an individual under section 103KFA and the main purpose, or one of the main purposes, of making the election is to cause a loss to be treated as accruing to the individual under subsection (3) of section 103KFD. (2) Any such loss that would (in the absence of this section) accrue to the individual under that subsection is to be counteracted by the making of such adjustments as are just and reasonable. (3) Any adjustments required to be made under this section (whether or not by an officer of Revenue and Customs) may be made by way of— (a) an assessment, (b) the modification of an assessment, or (c) amendment or disallowance of a claim, or otherwise.

• (3) In section 1H (the main rates of CGT), in subsection (9)—

• (a) omit the “or” at the end of paragraph (a), and

• (b) after that paragraph insert—

(aa) under section 103KFA(3) (gains on deemed carried interest where election made), or

.

• (4) The amendments made by this section have effect for the tax year 2022-23 and subsequent tax years.

Relief on disposal of joint interests in land

43

• (1) In section 248A of TCGA 1992 (roll-over relief on disposal of joint interests in land: conditions), at end insert—

(8) Section 248B applies in relation to cases where, immediately before the disposal, the land is held by a partnership comprising the landowner and the co-owner or co-owners (whether the partnership is formed in Scotland or elsewhere) as it applies in relation to other cases (and the partners are regarded as the landowner and the co-owner or co-owners for the purposes of this section and section 248B).

• (2) In section 248E of TCGA 1992 (relief on disposal of joint interests in private residence), at end insert—

(9) This section applies in relation to cases where, immediately before the disposal, the land is held by a partnership comprising the landowner and the co-owner or co-owners (whether the partnership is formed in Scotland or elsewhere) as it applies in relation to other cases (and the partners are regarded as the landowner and the co-owner or co-owners for the purposes of this section).

• (3) The amendments made by this section have effect in relation to disposals made on or after 6 April 2023.

Part 2 — Alcohol Duty

Chapter 1 — Charge to alcohol duty

Alcoholic products

Meaning of “alcoholic product”

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• (1) In this Part, “alcoholic product” means any of the following—

• (a) spirits,

• (b) beer,

• (c) cider,

• (d) wine, and

• (e) any other fermented product.

• (2) But a product listed in subsection (1) is not an alcoholic product if it is of an alcoholic strength of 1.2% or less.

• (3) Schedule 6 defines each category of alcoholic product (and makes further provision in connection with the definitions).

Alcoholic strength

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• (1) The “alcoholic strength” of an alcoholic product is the ratio, expressed as a percentage, of—

• (a) the volume of the alcohol contained in the product, to

• (b) the volume of the product (inclusive of the alcohol contained in it).

• (2) The alcoholic strength of any alcoholic product is to be determined by reference to the product as at 20°C.

• (3) The Commissioners may by regulations make provision about the means of ascertaining the alcoholic strength, weight or volume of any alcoholic product or other substance (including products or substances that are not in liquid form at 20°C) for the purposes of this Part.

• (4) Regulations under subsection (3) may, in particular, include provision for ascertaining the alcoholic strength, weight or volume of anything contained in a bottle or container by reference to information given on the bottle or container or in documents relating to it.

• (5) In this Part, “alcohol” means ethanol.

Categories of alcoholic products: regulations

46

The Treasury may by regulations—

• (a) amend Schedule 6;

• (b) provide that a beverage of an alcoholic strength exceeding 1.2%, of a description specified by or under the regulations, is to be treated as being an alcoholic product of a particular category listed in section 44 (whether or not it would otherwise fall within another category listed in that section).

Charge and rates

Alcohol duty: charge

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• (1) An excise duty (“alcohol duty”) is charged on alcoholic products that are produced in, or imported into, the United Kingdom.

• (2) But subsection (1) is subject to the exemptions in Chapters 4 and 6.

Rates

48

• (1) Alcohol duty is charged at the rates shown in Schedule 7.

• (2) But subsection (1) is subject to—

• (a) section 50 (draught relief), and

• (b) section 54 (small producer relief).

Excise duty point and payment

49

• (1) Alcohol duty is to be paid, and the amount chargeable is to be determined and become due, in accordance with provision made by or under—

• (a) section 88;

• (b) section 1 of F(No. 2)A 1992.

• (2) In this Part, “excise duty point” has the meaning given by section 1 of F(No. 2)A 1992.

Chapter 2 — Draught relief

Qualifying draught products: reduced rates

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• (1) Alcohol duty is charged on qualifying draught products at the reduced rates shown in Schedule 8 (instead of at the rates shown in Schedule 7 (the “full rates”)).

• (2) But a person liable to pay alcohol duty on qualifying draught products may, for the purposes of section 52(2), elect for duty to be charged at the full rates.

Alcoholic products qualifying for draught relief

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• (1) “Qualifying draught products” means alcoholic products that—

• (a) are of an alcoholic strength of less than 8.5%, and

• (b) at the excise duty point are contained in, or are being transported to a place in the United Kingdom for the purpose of being transferred to, a large draught container.

• (2) But alcoholic products that are produced in the United Kingdom by a person otherwise than in accordance with an approval under section 82 are not qualifying draught products.

• (3) A “large draught container” means a container which—

• (a) is of a capacity of at least 20 litres, and

• (b) incorporates, or is designed to connect to, a qualifying system for dispensing individual drinks.

• (4) For the purposes of subsection (3)(b), “qualifying system” means—

• (a) a pressurised gas delivery system, or

• (b) a pump delivery system.

• (5) The Commissioners may by regulations—

• (a) amend subsection (3)(a) so as to specify a different capacity;

• (b) amend subsection (4) so as to add or remove, or to vary the description of, a qualifying system.

Repackaging qualifying draught products

52

• (1) For the purposes of this section, qualifying draught products are “repackaged” if—

• (a) they are transferred to containers that are not large draught containers, but

• (b) are not transferred in the course of serving a beverage for immediate consumption.

• (2) A person may not repackage qualifying draught products on any premises in the United Kingdom unless—

• (a) the repackaging is authorised, or

• (b) alcohol duty was charged on the products at the full rates, in accordance with an election under section 50(2).

• (3) Repackaging is “authorised” if it is carried out by a person who is—

• (a) approved and registered under section 100G of CEMA 1979 by virtue of regulation 3 of the Warehousekeepers and Owners of Warehoused Goods Regulations 1999 (S.I. 1999/1278), or

• (b) approved under section 82 (producers of alcoholic products).

• (4) Where the repackaging of qualifying draught products is authorised, an amount equal to the duty shortfall is treated, for the purposes of this Part, as an amount of alcohol duty charged on the repackaged products.

• (5) In this section and in section 53, the “duty shortfall” in relation to repackaged qualifying draught products is the difference between—

• (a) the alcohol duty payable on the alcoholic products under section 50(1) (draught products: reduced rates), and

• (b) the alcohol duty that would have been payable on the alcoholic products under section 48 (rates) if they had not, at the excise duty point, been qualifying draught products.

• (6) For the purposes of subsection (2), the Commissioners may by regulations require a person to provide, on the supply to another person of qualifying draught products in respect of which an election under section 50(2) has been made, information or documents, of a description specified by or under the regulations, as evidence that duty has been charged at the full rates.

Repackaging in contravention of section 52 (2)

53

• (1) This section applies if a person repackages qualifying draught products in contravention of section 52(2).

• (2) The Commissioners may—

• (a) assess as alcohol duty due from the person mentioned in subsection (1) an amount equal to the duty shortfall, and

• (b) notify that person or that person’s representative of any assessment under paragraph (a).

• (3) The conduct mentioned in subsection (1) attracts a penalty under section 9 of FA 1994, calculated by reference to the amount of duty referred to in section 52(5)(b).

• (4) Any alcoholic products, articles (including packaging or equipment) or substances in the person's possession, used (or which may be used) for or in connection with the repackaging, are liable to forfeiture.

Chapter 3 — Small producer relief

Main provisions

Small producer relief: discounted rates

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• (1) Alcohol duty is charged at the discounted rate on small producer alcoholic products produced in a particular production year (the “current year”).

• (2) The discounted rate, in relation to small producer alcoholic products, is equal to—

• (a) the standard rate, less

• (b) the duty discount for those products (determined in accordance with section 59 and Schedule 9).

• (3) In subsection (2)(a), the “standard rate”, in relation to alcoholic products, means—

• (a) the rate shown for products of that kind in Schedule 7, or

• (b) if Schedule 8 applies (and no election has been made under section 50(2)) in relation to the products) the rate shown for products of that kind in that Schedule.

• (4) For the purposes of this Chapter—

• (a) a “production year” is a period of 12 months beginning with 1 February;

• (b) the “previous year”, in relation to alcoholic products, is the production year immediately preceding the current year in relation to those products.

Small producer alcoholic products

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• (1) “Small producer alcoholic products” are alcoholic products that—

• (a) are of an alcoholic strength of less than 8.5%,

• (b) are produced on premises that are small production premises,

• (c) are not produced under licence, and

• (d) meet such other conditions (if any) as are specified by regulations made by the Commissioners.

• (2) Subsection (1) is subject to section 58 (exclusions).

Small production premises

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• (1) Production premises are “small production premises” in the current year in relation to alcoholic products if—

• (a) the production limit condition is met, and

• (b) the unlicensed product condition is met.

• (2) The “production limit condition” is met in relation to non-group premises if, in relation to those premises, neither of the following amounts exceeds the small production limit—

• (a) the alcohol production amount for the previous year;

• (b) the estimated alcohol production amount for the current year,

• (3) The “production limit condition” is met in relation to group premises if neither of the following amounts exceeds the small production limit—

• (a) the aggregate of the alcohol production amount, in relation to every set of premises in the production group, for the previous year;

• (b) the aggregate of the estimated alcohol production amount, in relation to every set of premises in the production group, for the current year.

• (4) The “small production limit” is 4500 hectolitres.

• (5) The “unlicensed product condition” is met—

• (a) in relation to non-group premises if the condition in subsection (6) is met in relation to those premises;

• (b) in relation to group premises if the condition in subsection (6) is met in relation to every set of premises in the production group.

• (6) The condition is that—

• (a) less than half of the alcohol production amount (if any), in relation to the premises, for the previous year was contained in alcoholic products produced under licence, and

• (b) the producer reasonably estimates that less than half of the alcohol production amount, in relation to the premises, for the current year will be contained in alcoholic products produced under licence.

“Alcohol production amount” etc

57

• (1) In relation to production premises—

• (a) the “alcohol production amount” for a production year is the total amount of alcohol contained in alcoholic products produced on those premises in that year, and

• (b) the “estimated alcohol production amount” for a production year is the producer’s reasonable estimate of the alcohol production amount for those premises in that year.

• (2) Subsection (1) is subject to subsections (3) to (6).

• (3) The reference in subsection (1) to the alcoholic products produced on a set of premises does not include a reference to any alcoholic products that are—

• (a) spoilt or destroyed before the excise duty point, or

• (b) produced in the course of producing a different alcoholic product on those premises or on any set of connected premises.

• (4) Subsection (5) applies where premises are in use for the purposes of the production of alcoholic products for part only (the “relevant part”) of a production year (including where premises begin to be used for those purposes part-way through a production year).

• (5) The alcohol production amount or (as the case may be) the estimated alcohol production amount is treated, for the purposes of this Part, as being the amount given by—

• (a) dividing the actual alcohol production amount, or (as the case may be) the estimate of that amount, by the number of days in the relevant part of the production year, and

• (b) multiplying the amount given by paragraph (a) by the number of days in the production year.

• (6) The Commissioners may, if satisfied that the circumstances are exceptional, agree with a producer that certain alcoholic products, or a certain quantity of alcoholic products, may be disregarded for the purposes of determining—

• (a) the alcohol production amount, or

• (b) the estimated alcohol production amount,

in relation to production premises for any production year.

Exclusions

58

Alcoholic products produced on any premises are not “small producer alcoholic products” if—

• (a) they are exempt from duty under any of sections 72, 76 or 77,

• (b) they are produced in the United Kingdom by a person otherwise than in accordance with an approval under section 82,

• (c) at the time they are produced, the alcohol production amount attributable to the premises (in the case of non-group premises) or the production group (in the case of group premises) for the current year has exceeded the small production limit, or

• (d) they are produced—

• (i) in the case of non-group premises, before the producer has estimated (for the purposes of section 57) the alcohol production amount attributable to the premises for the current year, or

• (ii) in the case of group premises, before the producer in relation to those premises or any connected premises has estimated (for the purposes of section 57) the alcohol production amount attributable to those premises or any connected premises for that year.

Duty discount for small producer alcoholic products

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• (1) The duty discount, in relation to small producer alcoholic products in a discount band, is the amount (in £ per litre of alcohol) given by the formula in subsection (2) and rounded up to the nearest penny.

• (2) The formula is—

$$C+(M(A-S))A$where—C is the cumulative discount for the discount band (in £);M is the marginal discount for the discount band (in £);A is the relevant production amount (in hectolitres);S is the start threshold for the discount band (in hectolitres).$

• (3) Where the alcoholic products are produced on non-group premises, the “relevant production amount” is—

• (a) the alcohol production amount, in relation to those premises, for the previous year, or

• (b) if that amount would be nil, the estimated alcohol production amount in relation to those premises for the current year.

• (4) Where the alcoholic products are produced on group premises, the “relevant production amount” is —

• (a) the aggregate of the alcohol production amount for the previous year, in relation to every set of premises in the production group on which alcoholic products were produced in that year, or

• (b) if there are no premises in the production group on which alcoholic products were produced in the previous year, the aggregate of the estimated alcoholic production amount, in relation to every set of premises in the production group, for the current year.

• (5) Small producer alcoholic products are in a particular discount band if the relevant production amount in relation to those products—

• (a) exceeds the start threshold for that band, but

• (b) does not exceed the end threshold for that band.

• (6) The start and end thresholds, cumulative discount and marginal discount for a discount band are the figures shown—

• (a) in relation to alcoholic products (other than qualifying draught products referred to in paragraph (b)) of a particular description, in the tables in Part 1 of Schedule 9, and

• (b) in relation to qualifying draught products (in respect of which no election has been made under section 50(2)) of a particular description, in the tables in Part 2 of Schedule 9.

Assessments where incorrectly low rate of alcohol duty applied

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• (1) This section applies if—

• (a) alcohol duty is charged on alcoholic products,

• (b) it appears at the excise duty point that the alcoholic products are small producer alcoholic products, and

• (c) it turns out that the alcoholic products were not small producer alcoholic products (including where circumstances were not as they appeared at the excise duty point or where circumstances subsequently changed).

• (2) This section also applies if—

• (a) alcohol duty is charged on small producer alcoholic products, and

• (b) the discounted rate that at the excise duty point appeared to be the correct rate turns out to be lower than the correct rate (including where circumstances were not as they appeared at the excise duty point or where circumstances subsequently changed).

• (3) The Commissioners—

• (a) may assess as being alcohol duty due from the liable person an amount equal to the duty shortfall, and

• (b) must notify that person or that person’s representative of any assessment under paragraph (a).

• (4) In this section “duty shortfall” means the difference between—

• (a) the actual amount of alcohol duty chargeable on the alcoholic products, and

• (b) the lower amount that, at the excise duty point, appeared to be the amount chargeable.

• (5) The reference in subsection (3) to the “liable person” is a reference to the person liable to pay the alcohol duty on the alcoholic products.

Mergers and demergers

Mergers: general provisions

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• (1) This section and sections 62 to 67 apply where a small producer (“SP1”) becomes connected with another small producer (“SP2”).

• (2) “Post-merger production group” means the production group that consists of—

• (a) every set of premises on which SP1 or SP2 produces alcoholic products, and

• (b) every set of connected premises,

and references to “post-merger production group premises” are to premises within paragraph (a) or (b).

• (3) In relation to the post-merger production group—

• (a) “Year 1” means the production year in which SP1 and SP2 become connected with one another,

• (b) “Year 2” means the production year immediately following Year 1,

• (c) “Year 3” means the production year immediately following Year 2, and

• (d) the “pre-merger year” means the production year immediately preceding Year 1.

• (4) Each of Year 1, Year 2 and Year 3 is a “merger transition year” in relation to the post-merger production group, unless any of the following apply—

• (a) section 65 (early termination of merger transition period),

• (b) section 66 (subsequent mergers), or

• (c) section 68(8) (demergers in a merger transition year).

Modified “small production premises” test

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• (1) This section (instead of section 56) applies in relation to a post-merger production group in a merger transition year.

• (2) Post-merger production group premises are “small production premises” in the current year in relation to alcoholic products if—

• (a) the adjusted post-merger amount, determined in accordance with section 64 does not exceed the small production limit (within the meaning of section 56(4)), and

• (b) in relation to each set of post-merger production group premises, less than half of the alcohol production amount (if any), in relation to those premises, for the previous year was contained in alcoholic products produced under licence.

Modified duty discount

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• (1) This section applies in relation to alcoholic products that are produced—

• (a) on post-merger production group premises, and

• (b) in a merger transition year.

• (2) For the purposes of section 59, references to the “relevant production amount” are references to the adjusted post-merger amount (and subsections (3) and (4) of that section do not apply).

• (3) Section 58(c) does not apply for the purposes of the application of section 55 or 59 in a merger transition year.

Adjusted post-merger amount

64

• (1) In Year 1, the adjusted post-merger amount is the alcohol production amount in relation to the larger producer’s premises for the pre-merger year, determined in accordance with section 57 (and the alcohol production amount attributable to the smaller producer for the pre-merger year is disregarded).

• (2) In Year 2, the adjusted post-merger amount is the total of—

• (a) the adjusted post-merger amount in Year 1, and

• (b) one-third of the production difference for Year 2.

• (3) In Year 3, the adjusted post-merger amount is the total of—

• (a) the adjusted post-merger amount in Year 1, and

• (b) two-thirds of the production difference for Year 3.

• (4) The amount of the “production difference” for a merger transition year is the difference between—

• (a) the aggregate of the alcohol production amount, in relation to every set of post-merger production group premises, for the previous year (determined in accordance with section 57), and

• (b) the adjusted post-merger amount in Year 1.

• (5) If the alcohol production amount attributable to SP1’s premises for the pre-merger year is greater than the alcohol production amount attributable to SP2’s premises for that year—

• (a) SP1 is the “larger producer”, and

• (b) SP2 is the “smaller producer”,

and vice versa.

• (6) If the amount mentioned in subsection (5) is equal in relation to both SP1’s premises and SP2’s premises, either SP1 or SP2 may be treated as the “larger producer” for the purposes of this section.

• (7) In subsections (1), (5) and (6), references to a person’s premises are references to—

• (a) the premises on which the person produces alcoholic products immediately before becoming connected with the other person mentioned in section 61(1), if those premises are (at that time) non-group premises, or

• (b) if those premises are group premises, the production group which, at that time, includes those premises (and the reference in subsection (1) to the alcohol production amount in relation to those premises is a reference to the aggregate of the alcohol production amount in relation to those premises and every set of connected premises).

Early termination of merger transition period

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• (1) This section applies in relation to a post-merger production group if, in a relevant year, Amount A is less than Amount B.

• (2) “Amount A” is the aggregate of the alcohol production amount, in relation to every set of premises in the group, for the production year immediately preceding the relevant year (determined in accordance with section 57).

• (3) “Amount B” is the adjusted post-merger amount in the relevant year.

• (4) Neither the relevant year, nor any subsequent production year, is a merger transition year in relation to the group.

• (5) Each of Year 1, 2 and 3 is a “relevant year” for the purposes of this section.

Subsequent mergers

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• (1) This section applies if—

• (a) a person who produces alcoholic products on group premises which are included in a post-merger production group (the “first post-merger group”) becomes connected with another person who produces alcoholic products (that are not exempt from duty under any of sections 72, 76 or 77), and

• (b) the producers mentioned in paragraph (a) become connected with one another in Year 1, 2 or 3 in relation to the first post-merger group.

• (2) Neither the production year in which the producers mentioned in subsection (1)(a) become connected with one another, nor any subsequent year, is a merger transition year in relation to the first post-merger group.

• (3) But subsection (2) does not prevent the application of sections 61 to 67 in relation to the post-merger production group that includes both of the producers mentioned in subsection (1)(a).

Simultaneous mergers

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• (1) Subsections (2) to (4) apply if, at the same time as SP1 becomes connected with SP2, SP1 also becomes connected with one or more other small producers (who are not already connected with one another).

• (2) References in sections 61 and 64 to SP2 include references to the other small producers becoming connected with SP1.

• (3) For the purposes of section 64—

• (a) the “larger producer” is the producer with a greater alcohol production amount attributable to the producer’s premises for the pre-merger year than any of the other producers mentioned in subsection (1), and

• (b) each of the other producers is a “smaller producer”,

(and this subsection applies instead of section 64(5)).

• (4) If the amount mentioned in subsection (3)(a) is equal in relation to any two or more of the producers mentioned in subsection (1), any one of them may be treated as the “larger producer” for the purposes of section 64.

Demergers

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• (1) This section applies if a demerger event occurs in relation to a production group.

• (2) A “demerger event” occurs, in relation to a production group, if a group producer (the “demerging producer”) ceases to be connected with at least one other group producer.

• (3) A “group producer” in relation to a production group means a person who produces alcoholic products on premises that are (immediately before the demerger event) included in the production group.

• (4) For the purposes of the application of sections 56 and 59 in relation to the demerger year, the alcohol production amount for the immediately preceding production year, in relation to production premises that were (immediately before the demerger event) included in the group, is treated as being nil.

• (5) If, before the end of the restricted period, the demerging producer becomes connected again with another group producer, none of sections 61 to 67 apply by reference to that connection.

• (6) For the purposes of subsection (5), the “restricted period” is the period of 7 years beginning with the date on which the demerger event occurs.

• (7) Subsection (8) applies if the demerger event occurs in Year 1, 2 or 3 in relation to a post-merger production group (the “relevant group”).

• (8) Neither the production year in which the event occurs, nor any subsequent year, is a merger transition year in relation to the relevant group.

• (9) References in this section to the “demerger year” are references to the production year in which the demerger event occurs.

Interpretation of Chapter 3

“Producer”, “production premises”, “group premises” etc

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• (1) This section applies for the purposes of this Chapter.

• (2) “Production premises” means premises (whether or not in the United Kingdom) on which alcoholic products are produced.

• (3) Production premises are “group premises” at a time in a production year (the “reference time”) if—

• (a) a person (“P”) who produces alcoholic products on the premises at the reference time or at any earlier time in that year, or

• (b) a person connected with P,

also produces alcoholic products on any other premises at the reference time or any earlier time in that year.

• (4) “Connected premises”, in relation to group premises, means premises on which alcoholic products are produced at the reference time or at any earlier time in the current year, by—

• (a) P, or

• (b) a person connected with P.

• (5) References to “the production group”, in relation to group premises, are references to the group consisting of—

• (a) the group premises, and

• (b) every set of connected premises.

• (6) Production premises are “non-group premises” at a time in a production year if, at that time, they are not group premises.

• (7) In this Chapter—

• (a) references to the “producer”, in relation to a set of premises, are references to the person who produces alcoholic products on those premises, and

• (b) references to a “small producer” are references to a person who produces small producer alcoholic products.

Connected persons

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• (1) References in this Chapter to a person being or becoming connected with another person are to be construed in accordance with section 1122 of CTA 2010.

• (2) But the Commissioners may, if they think it appropriate, treat two connected persons as if they were not connected with one another for the purposes of this Chapter.

Index of defined expressions: Chapter 3

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The following Table sets out expressions defined or explained for the purposes of this Chapter—

Expression	Provision
adjusted post-merger amount	section 64(1) to (3)
alcohol production amount	section 57(1)(a)
connected premises	section 69(4)
current year	section 54(1)
duty discount	section 59(1)
estimated alcohol production amount	section 57(1)(b)
group premises	section 69(3)
merger transition year	section 61(4)
non-group premises	section 69(6)
post-merger production group	section 61(3)
post-merger production group premises	section 61(2)
previous year	section 54(4)(b)
producer (in Chapter 3)	section 69(7)(a)
production group	section 69(5)
production premises	section 69(2)
production year	section 54(4)(a)
small producer	section 69(7)(b)
small producer alcoholic products	section 55
small production limit	section 56(4)
small production premises	section 56 (for general purposes); section 62 (in relation to a post-merger production group)
SP1 and SP2	section 61(1)
Year 1, Year 2 and Year 3	section 61(3)

Chapter 4 — Other reliefs and exemptions

General

Exemption: production for personal consumption

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Alcohol duty is not charged on alcoholic products which—

• (a) are produced, in the United Kingdom, by a person who produces alcoholic products only for the person’s own domestic use, and

• (b) are not spirits.

Research and experiments

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• (1) This section applies where—

• (a) alcohol duty is chargeable on alcoholic products produced in the United Kingdom, and

• (b) the Commissioners are satisfied that the alcoholic products are to be used only for the purposes of research into, or experiments in, the production of alcoholic products.

• (2) The Commissioners may remit or repay the alcohol duty.

Spoilt alcoholic products

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• (1) This section applies where—

• (a) alcohol duty is chargeable on alcoholic products, and

• (b) the Commissioners are satisfied that the alcoholic products have become spoilt or unfit for use.

• (2) The Commissioners may remit or repay the alcohol duty.

Alcoholic ingredients

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• (1) Subsection (2) applies where a person proves to the satisfaction of the Commissioners that—

• (a) alcohol duty is chargeable, and has been paid, on alcoholic products, and

• (b) the alcoholic products have been used as an ingredient in the production or manufacture of—

• (i) a qualifying food product, or

• (ii) a beverage of an alcoholic strength of 1.2% or less.

• (2) The person is entitled to repayment of the alcohol duty, on making a claim in accordance with this section (subject to subsection (7)).

• (3) In this section “qualifying food product” means—

• (a) vinegar,

• (b) chocolates containing alcohol, where 100 kilograms of the chocolates would not contain more than 8.5 litres of alcohol, or

• (c) any other food (for human consumption) which contains alcohol, where 100 kilograms of the food would not contain more than 5 litres of alcohol.

• (4) Alcoholic products that are converted into vinegar are treated, for the purposes of this section, as being used as an ingredient in the production or manufacture of vinegar.

• (5) Neither of the following is a qualifying food product for the purposes of this section—

• (a) a beverage, including a beverage produced or intended for consumption in frozen form;

• (b) a product that is intended for consumption as a substitute for a beverage.

• (6) A claim for repayment under this section—

• (a) must be in the form and manner, and contain the information, required by the Commissioners (either generally or in a particular case), and

• (b) except so far as the Commissioners otherwise allow, relate to duty paid on alcoholic products used as an ingredient during a period of 3 months ending not more than 3 years before the claim is made.

• (7) No repayment of duty may be made unless the Commissioners are satisfied that the repayment claimed does not relate to any duty which has been repaid or drawn back prior to the making of the claim.

• (8) The Commissioners may remit any alcohol duty chargeable—

• (a) on alcoholic products imported into the United Kingdom at a time when they are contained as an ingredient in a qualifying food product within subsection (3)(b) or (c), or

• (b) on alcoholic products used as an ingredient in the manufacture or production in an excise warehouse of a qualifying food product within subsection (3)(b) or (c).

Spirits

Imported medical articles

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• (1) Alcohol duty is not charged on spirits contained in medical articles imported into the United Kingdom.

• (2) “Medical article” means an article recognised by the Commissioners as being an article used for medical purposes.

Flavourings

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• (1) Alcohol duty is not charged on spirits contained in food and drink flavourings.

• (2) In this section—

• “food and drink flavourings” means any qualifying flavourings which are for use in—the preparation of food for human consumption, orthe preparation of any beverage of an alcoholic strength not exceeding 1.2%;

• “qualifying flavourings” means any products falling within commodity code 3302 of the customs tariff established by regulations made under section 8 of TCTA 2018.

General application of corporation tax administration

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• (1) This section applies where a person proposes to use spirits, on which alcohol duty is chargeable, either—

• (a) in the manufacture or preparation of medical articles, or

• (b) for scientific purposes.

• (2) This section also applies where—

• (a) a person proposes to use spirits, on which alcohol duty is chargeable, for the purposes of art or manufacture (other than the manufacture of medical articles), and

• (b) the Commissioners are satisfied that denatured alcohol would not be suitable for that use.

• (3) The Commissioners may authorise the person to receive the spirits, and permit the delivery of the spirits from relevant premises to that person, without payment of the alcohol duty.

• (4) In subsection (3), “relevant premises” means—

• (a) an excise warehouse, or

• (b) premises in respect of which a person is approved (including premises on which a person is authorised to hold alcoholic products without payment of duty) under section 82.

• (5) An authorisation under this section may be given subject to the conditions (if any)—

• (a) specified by the Commissioners in a notice published by them;

• (b) imposed by them in a particular case.

• (6) If a person fails to comply with a condition in respect of an authorisation, the failure attracts a penalty under section 9 of FA 1994.

• (7) Subsection (8) applies if—

• (a) the spirits are delivered to the person mentioned in subsection (3), and

• (b) the spirits are used otherwise than for the purpose in respect of which the authorisation was given.

• (8) The Commissioners—

• (a) may assess as being alcohol duty due from the person an amount equal to the alcohol duty that would have been charged on the spirits if, at the time of delivery, no authorisation under this section had been given, and

• (b) must notify that person or the person’s representative of the assessment.

• (9) In this section “medical article” has the same meaning as in section 76.

Company tax returns

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• (1) The Commissioners may remit any alcohol duty chargeable on spirits imported into the United Kingdom at a time when the spirits are contained in goods that are not for human consumption.

• (2) If it turns out that the goods containing spirits are for human consumption, the Commissioners—

• (a) may assess as being alcohol duty due from the relevant person an amount equal to the alcohol duty that would (apart from subsection (1)) have been charged on the goods, and

• (b) must notify the relevant person or that person’s representative of the assessment.

• (3) For the purposes of subsection (2), references to “the relevant person” are references to the importer.

Restrictions on use of certain articles

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• (1) If a person makes unauthorised use of an article to which this section applies—

• (a) that conduct attracts a penalty under section 9 of FA 1994, and

• (b) the article is liable to forfeiture.

• (2) This section applies to—

• (a) an article containing spirits which are exempt under section 76 from the charge to alcohol duty;

• (b) an article in respect of which spirits were used in the manufacture or preparation, where remission of alcohol duty on the spirits was obtained under section 78.

• (3) A person makes “unauthorised use” of an article for the purposes of this section if—

• (a) the person uses the article other than for medical or scientific purposes, and

• (b) the person has not complied with the requirements under subsection (4).

• (4) The requirements are that—

• (a) the person must obtain the written consent of the Commissioners to the use of the article other than for medical or scientific purposes, and

• (b) the person must pay to the Commissioners an amount equal to the duty shortfall.

• (5) In this section, the “duty shortfall” means—

• (a) the difference between the duty charged on the spirits contained in, or used in the manufacture or preparation of, the article, and

• (b) the duty which would have been chargeable had the article not been exempt under section 76 or the duty had not been remitted under section 78.

• (6) The Commissioners may make regulations for the purpose of enforcing this section.

• (7) Regulations under subsection (6) may, in particular, require a person carrying on any trade in which spirits or articles containing, manufactured or prepared with spirits are, in the opinion of the Commissioners, likely to be or have been used—

• (a) to give and verify particulars of the materials which the person is using or has used, or the articles the person has sold;

• (b) to produce any documents (of whatever nature) relating to such materials or articles.

• (8) If a person contravenes or fails to comply with any regulation made under subsection (6), the contravention or failure attracts a penalty under section 9 of FA 1994.

• (9) In this section, a reference to an article includes a reference to any part of that article.

Remission and repayment

Further provision about remission and repayment

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• (1) The remission or repayment of alcohol duty under any provision of this Chapter is subject to the conditions (if any)—

• (a) specified by the Commissioners in a notice published by them;

• (b) specified by or under regulations made by them;

• (c) imposed by them in a particular case.

• (2) If a person fails to comply with a condition in respect of the remission or repayment, the failure attracts a penalty under section 9 of FA 1994.

Chapter 5 — Regulated activities and approvals

Approval requirement: producers

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• (1) A person may not produce alcoholic products on any premises unless—

• (a) the production on those premises is in accordance with an approval given under this section by the Commissioners to the person, or