Glossary · UK
What is Excise Duty?
A UK tax charged on specific goods such as alcohol, tobacco and fuel, in addition to VAT, usually included in the shelf price.
Full Definition
Excise duty is a tax charged on the production, import or sale of specific categories of goods in the UK -- principally alcohol, tobacco products, and hydrocarbon oils such as petrol and diesel -- on top of, and calculated separately from, standard VAT. Unlike VAT, which is a percentage of the sale price, most excise duties are charged as a fixed amount per unit of the product (for example, a set amount per litre of pure alcohol, per cigarette, or per litre of fuel), meaning the duty charged does not automatically rise and fall with the retail price the way VAT does, though rates are reviewed and typically increased at fiscal events such as the Budget, sometimes in line with inflation and sometimes as a deliberate revenue-raising or behaviour-changing measure (particularly for tobacco and, more recently, for higher-strength alcohol under reformed alcohol duty rates). Excise duty is included within the shelf price a consumer pays and then VAT is charged on top of the VAT-inclusive price including the duty, so in practice a portion of the final price of a bottle of spirits, a packet of cigarettes or a tank of fuel represents duty, a further portion represents VAT charged on that duty, and the remainder is the underlying cost of the product itself. Businesses that produce, import or hold these goods for commercial purposes are subject to specific excise registration, warehousing and reporting obligations enforced by HMRC, separate from their normal VAT and corporation tax obligations.