What additional taxes and duties will I have to pay when I choose to bottle my rum?
This depends on whether you are bottling your rum in the UK or exporting it internationally, including to the EU, which will also depend on whether the UK secures a Free Trade Agreement (FTA) with the EU.
Excise Duty and VAT are only payable when the cask leaves our biome (a bonded warehouse). If you choose to sell your cask whilst still ‘under bond’, Excise Duty and VAT are not payable. Whilst the rum is in the cask it is considered a wasting asset by HMRC (an asset with a predictable life of 50 years or less), and is not liable for Capital Gains Tax. When you bottle your rum, it is no longer a wasting asset (as it can’t evaporate in the bottle), and Capital Gains Tax may become payable. You will also need to get proper licences if you wish to sell your bottles and may need to pay income tax on the profits.
Excise Duty and VAT are calculated at the current rate at the time the rum leaves the biome (bonded warehouse), based on your purchase price of the cask, the final volume and strength of rum remaining in the cask. For example, if after 5 years of maturation, you have 120 litres of rum with an ABV (alcohol by volume) of 55%, using the current rate of Excise Duty (£28.74 per Litre of Pure Alcohol), the Excise Duty payable will be £1,896.84 (120 litres * £28.74 x 55% ABV). The VAT payable will be based on the new total of the original cask purchase price plus the Excise Duty, e.g. with a £5,500.00 cask purchase price + £1,896.84 Excise Duty = £7,396.84 + VAT at 20% = £1,479.37. The total price of the cask of rum, now geothermally matured for 5 years will be £8,876.21, or £73.96 per litre (at 120 litres) or £51.77 per 70cl bottle of rum, assuming it is bottled at a final cask strength of 55% (approximately 170 x 70cl bottles), which we believe offers very good value.
Under the new UK Global Tariff which takes effect from 01 January 2021, most spirits including rums attract a ‘nil’ percentage duty rate. Whether the UK reaches a Free Trade Agreement, (FTA), with the EU or whether the UK trades with the EU on WTO terms, it is not anticipated that customs duty will apply to our casks. (By way of note, and in the worst possible scenario, the customs duty on a 200-litre cask would be circa only £55.00).
For international exports, the cask is zero-rated for VAT and no VAT is due. If the cask remains duty suspended, Excise Duty and Customs Duty remain suspended.
This information is provided as guidance only. Although we are here to help to make things as easy, transparent and simple as possible, please always take professional legal advice with regard to your tax responsibilities.