UK Vape Taxes: A Retailers Guide
Published by James Dunworth
On 6th March 2024, Jeremy Hunt delivered a blow for UK vape businesses by announcing a vape excise tax would be introduced on e-liquid on 1st October 2026.
The vape tax had been widely rumoured, but nevertheless, the extent and complexity of the tax came as a surprise to many.
While I’ve covered the impact of the vape tax on consumers on the Ashtray Blog, in this post I’ll be looking at the impact of the levy on shops and retailers.
Contents
How will the tax work?
Only e-liquid will be taxed at present, as the government believes the ban on disposable vapes means devices can be left alone for now.
The tax is not on the value of e-liquid, but on the amount of nicotine per ml that a bottle contains.
These tax levels per 10ml will be:
- 0mg nicotine: £1.00
- 0.1 - 10.9mg nicotine: £2.00
- 11 - 20mg nicotine: £3.00
Crucially, the tax levels will not be set when e-liquid is sold, and if you do not import or manufacture e-liquid you will not need to collect or pay the tax.
Instead, the tax will be levied either:
- At the point of import
- At the point of manufacture
- At the point it leaves an HMRC-registered factory or registered warehouse that has agreed a suspension of duty
What will the impact for vape businesses be?
Cash flow
One of the biggest problems with the legislation will be immediate cash flow after the tax introduction.
For every bottle of e-liquid you restock, you will need to pay the extra tax, which could be an average of £2.50, or slightly lower.
However, the tax will be collected from the manufacturer or supplier, not from you. What’s more, it won’t apply to products manufactured before 1st October 2026. Assuming we will be allowed to sell e-liquid manufactured before this date, an obvious mitigating strategy will be to stock up on e-liquid before the introduction of the vape tax.
Black market/thefts
The huge trend of illegal vapes is already a thorn in the side of legitimate retailers, accounting for an estimated one-third of sales.
The increase in the price of e-liquid will mean there is both more profit and more demand for black market alternatives. This will increase the opportunity for criminals and illegal sellers, and likely increase the amount of thefts.
Bonded warehouses and a potential track and trace system may help mitigate this, but it will also be worth reviewing and improving security systems in the run up to the tax.
Trends
The tax has been partially designed to influence vapers to move towards lower nicotine e-liquids. Vapers are likely to respond to this.
However, the government has either ignored or is not aware of research that shows that when vapers lower their nicotine levels, they vape more. That could increase the amount of e-liquid people consume.
It’s also possible that more vapers will move to 50/50 shortfills. A 50/50 shortfill is already cheaper than buying the equivalent amount of premixed e-liquid. Post tax, a 100ml shortfill would attract an extra £10.00 in tax, while 2 nicotine shots would cost £6.00 - equating to an extra £16.00 in tax. This compares to £24.00 for 12 x 10ml bottles of lower-strength e-liquid..
Demand
Research has shown that increases in vape taxes lead to reduced vaping and increased smoking.
The government has attempted to account for that by increasing the amount of duty on cigarettes. Unfortunately, they also make the incorrect assertion that 10ml of e-liquid is equivalent to 100 cigarettes, despite the fact that 10ml e-liquid contains a fraction of the amount of nicotine, and e-cigarettes deliver nicotine more slowly.
There’s also no mention of alternative nicotine products such as Heat Not Burn or nicotine pouches in the regulations. While there are questions on these in the consultation, if they are not taxed at a similar rate people may well move towards these products.
Therefore, it's likely that the e-liquid market will either grow more slowly or reduce in size, but it’s hard to anticipate exactly to what extent.
Brands
The increased expense of introducing e-liquids, both for manufacturers and retailers, is likely to lead to a more careful approach towards selecting brands. Risk aversion will mean fewer new vape juice brands will be successful, helping to consolidate existing well-known e-liquid brands.
Will the tax be adjusted?
As can be seen from errors and omissions in the vape consultation, this was clearly a hastily written piece of legislation. However, the government is running a consultation on the vape tax. This gives a chance for industry bodies and businesses to correct some assumptions, such as the assertion that 10ml e-liquid is equivalent to 100 cigarettes.
The existing government could also be replaced by Labour prior to the tax being implemented. A Labour government may or may not take a reasonable approach towards the vaping taxation, but it does at least give us the chance to engage with a new government which is hopefully not rushing a panicked budget through in a desperate attempt to salvage any chance of being reelected.
Wrapping up
During my 16 years in the vape industry, I’ve seen two attempts at medicalisation, attacks from the WHO and the implementation of the Tobacco Products Directive.
Vaping has come under serious threat on numerous occasions, but it’s still here.
It’s true that this vape tax is a frustrating, misguided (to say the least) and unwelcome blow for businesses and harm reduction, but it’s not the end of the industry. And it’s worth remembering that high levels of tax are present on many ‘sin’ products, which doesn’t stop people from using them.
At the same time, it’s key for the industry to engage with the government. If we can’t have the tax removed, then we need to push for a fairer regime based on sensible premises (i.e. one that doesn’t equate 100 cigarettes with 10ml of e-liquid!) in a way that works for our businesses and our customers.
In the meantime, if you haven’t already, it’s well worth considering joining an industry body such as the IBVTA which can both engage with consultations and advise on how to remain compliant with this, and other, vape legislation.