The Alcoholic Products (Repayment Interest Rate) (Alcohol Duty) Regulations 2025, effective September 1st, 2025, establish a repayment interest rate for alcohol duty based on the Bank of England rate.
The rate is calculated as the higher of 0.5% per annum or the Bank of England rate minus 1%, with an initial rate determined by the Bank of England rate on or before August 21st, 2025.
Any rate changes apply retroactively to interest accrued before the effective date.
These regulations aim to ensure fairness and transparency in alcohol duty repayments.
Arguments For
Fairness and Transparency: The regulations link the repayment interest rate to the Bank of England rate, providing a transparent and market-sensitive mechanism for calculating interest on alcohol duty repayments.
Economic Efficiency: Linking the rate to the Bank of England rate helps ensure the cost of borrowing for businesses accurately reflects prevailing market conditions.
Legal Basis: The regulations are enacted under the powers granted by section 197 of the Finance Act 1996, providing a clear legal framework.
Predictability: Establishing a clear and consistent method for determining the repayment interest rate allows businesses to better plan their finances.
Consistency with broader financial policy: Linking the rate to the UK's key interest rate indicator reflects alignment with wider economic management goals.
Arguments Against
Complexity: The calculation of the repayment interest rate, using a formula referencing the Bank of England rate, might be complex for some businesses to understand.
Potential for unintended consequences: Fluctuations in the Bank of England rate could lead to unpredictable changes in the repayment rate for businesses.
Administrative burden: Implementing and monitoring the regulations might create a minor administrative burden for HMRC.
Limited impact: The changes might be relatively small, offering limited impact in broader economic scenarios.
Alternative approaches: Other approaches to setting the repayment interest rate, such as a fixed rate could improve simplicity and predictability, though at the expense of responsiveness to market fluctuations.
The Treasury make these Regulations in exercise of the powers conferred by section 197(1), (2)(i) and (3)(b) and (f) of the Finance Act 1996¹.
The UK Treasury created these regulations using the authority granted by sections 197 (1), (2)(i), (3)(b), and (3)(f) of the Finance Act 1996.
This act provides the legal basis for the regulations.
These Regulations may be cited as the Alcoholic Products (Repayment Interest Rate) (Alcohol Duty) Regulations 2025 and come into force on 1st September 2025.
These regulations are officially titled "Alcoholic Products (Repayment Interest Rate) (Alcohol Duty) Regulations 2025" and became effective on September 1st, 2025.
In these Regulations—
“alcohol duty” has the meaning given in section 47 of the Finance (No. 2) Act 2023 (alcohol duty: charge)²;
“Bank of England rate” means the official bank rate as announced at the relevant meeting;
“operative date” means the 13th working day following the relevant meeting;
“relevant meeting” means the most recent meeting of the Monetary Policy Committee of the Bank of England³;
“repayment interest rate” means the rate of interest applicable for the purposes of Parts 2 and 3 of Schedule 3 to the Finance Act 2001 (interest payable on repayments etc.)⁴ for the purposes of alcohol duty;
“working day” means any day other than a Saturday, a Sunday, Christmas Day, Good Friday or a day that is a bank holiday under the Banking and Financial Dealings Act 1971⁵ in any part of the United Kingdom.
The regulations define key terms. 'Alcohol duty' aligns with section 47 of the Finance (No. 2) Act 2023.
The 'Bank of England rate' refers to the official rate announced at the relevant Bank of England meeting. 'Operative date' is 13 working days after that meeting. 'Relevant meeting' specifies the latest Monetary Policy Committee meeting. 'Repayment interest rate' is defined by sections 2 and 3 of Schedule 3 to the Finance Act 2001.
A 'working day' excludes weekends, bank holidays, and Christmas.
Except where regulation 4 applies, the repayment interest rate is the higher of—
(a) 0.5% per annum, and
(b) the percentage per annum found by applying the following formula—
[Formula: Bank of England rate - 1]
The repayment interest rate is generally determined as the larger of 0.5% per annum or the result of subtracting 1% from the current Bank of England rate.
Regulation 4 provides a different calculation for an initial period.
The repayment interest rate found in paragraph (1) applies on and after the operative date.
The calculated repayment interest rate applies from the 'operative date' onwards.
This regulation applies from the coming into force of these Regulations up to and including the day before the first operative date after the coming into force of these Regulations.
The repayment interest rate is to be the percentage per annum found by applying regulation 3(1) as if the reference in that regulation to the Bank of England rate were a reference to the official bank rate announced at the meeting of the Monetary Policy Committee of the Bank of England on, or most recently before, the 13th working day before the coming into force of these Regulations.
This regulation sets the initial repayment interest rate.
It applies from when these regulations begin until the day before the first 'operative date'.
The initial rate is calculated using the formula in regulation 3(1), but replaces the current Bank of England rate with the rate from the Bank of England meeting 13 working days before the regulations began.
Where the repayment interest rate changes in accordance with these Regulations with effect from an operative date, the change has effect in respect of interest running from before that date as well as interest running from or after that date.
If the repayment interest rate changes, the new rate applies to interest incurred before and after the effective date of the change.
Signatures: Anna Turley, Nicholas Dakin, Two of the Lords Commissioners of His Majesty's Treasury, 4th August 2025
These regulations were signed by Anna Turley and Nicholas Dakin, two Lords Commissioners of His Majesty's Treasury, on August 4th, 2025.
Explanatory Note (This note is not part of the Regulations) These Regulations specify the rate of interest that has effect for the purposes of Parts 2 and 3 of Schedule 3 to the Finance Act 2001 (c. 9), which deals with interest on amounts payable by His Majesty’s Revenue and Customs (“HMRC”), for the purposes of alcohol duty (the “repayment interest rate). The repayment interest rate set by these Regulations is determined by reference to the official bank rate as announced at the most recent meeting of the Monetary Policy Committee of the Bank of England. Regulation 3 sets the repayment interest rate on sums payable by HMRC and provides a minimum rate of interest. Regulation 4 sets the initial repayment interest rate that will apply on the coming into force of these Regulations. Regulation 5 provides that where the repayment interest rate changes, the revised rate has effect from the date of the change in relation to interest that began to run before the effective date of the change as well as interest beginning to run on or after the date of the change. This is in exercise of the power conferred by section 197(3)(f) of the Finance Act 1996 (c. 8). A Tax Information and Impact Note covering this instrument will be published on the website at https://www.gov.uk/government/collections/tax-information-and-impact-notes-tiins.
The explanatory note summarizes the regulations.
It clarifies that the regulations specify the interest rate on repayments to HMRC for alcohol duty, ties it to the Bank of England rate, outlines the role of regulations 3, 4, and 5, and notes the retroactive application of rate changes.
It also points to the publication of a related Tax Information and Impact Note online.