This guide gives UK businesses a practical, detailed overview of the Soft Drinks Industry Levy (SDIL) — how it works, who is liable, what products are in scope, current and upcoming rates, and how to register, file and pay. It is written for finance leaders, tax managers, product and compliance teams in producers, importers, bottlers and own-label retailers. It reflects HMRC guidance and current reform proposals as at 8 September 2025.
What this article is about: You’ll learn (1) the scope rules and definitions that determine whether a drink is liable, including sugar content thresholds per 100ml and the main exemptions; (2) registration triggers, day-to-day controls and record-keeping; (3) returns, payment mechanics and credits; and (4) the strategy horizon, including the confirmed annual uprating of SDIL rates from 1 April each year from 2025 and the live consultation on strengthening the regime (possible threshold changes and the review of milk-based drink exemptions), with decisions expected around Autumn Budget 2025.
Context and purpose of the levy: SDIL is a UK levy on producers and importers of soft drinks with added sugar. It is charged by reference to the sugar concentration of the finished drink, using two bands: a lower band for drinks with at least 5g but less than 8g of sugar per 100ml, and a higher band for drinks at or above 8g per 100ml. It is not a consumer tax at point of sale, but a supply-side levy intended to encourage reformulation. Since its introduction in April 2018, government guidance and independent analysis have documented material product reformulation and sugar reduction outcomes.
What’s changing: From 1 April 2025 the SDIL rates are uprated annually on 1 April. Uprating is set each year by Treasury Order (usually laid in February) and then takes effect from April; rates are not automatically indexed, so businesses must check HMRC updates every year. In parallel, HMT/HMRC are consulting on strengthening SDIL, including lowering the minimum sugar threshold for liability, introducing a third band for very high sugar products, and revisiting exemptions for milk-based drinks and substitutes. Final policy is expected to be confirmed at Autumn Budget 2025 with potential implementation from April 2026. Businesses should plan for April increases and the possibility of wider scope mid-decade.
How to use this guide: Work through Section A to scope your product portfolio and identify the correct banding or exemption. Section B sets out liability, registration and operational controls. Section C covers returns, payments, credits and records. Section D focuses on reformulation and governance, and what to do about the confirmed uprating and potential threshold/exemption changes. Where helpful, we signpost the primary legislation and HMRC notices you’ll need for audit-ready compliance.
Section A: Scope, definitions and rate bands
Understanding the scope of the Soft Drinks Industry Levy is the first step in determining liability. HMRC guidance and regulations define precisely which drinks are caught, how sugar content is measured and the applicable rates. Businesses must apply these tests rigorously before registering and filing returns.
1. Purpose and mechanics of the levy
The SDIL applies to producers and importers of soft drinks that contain added sugar. The levy is charged on the volume of finished product packaged in the UK or imported for sale. It is a supply-side tax: although it may increase retail prices, liability rests with the producer or importer. The policy goal is to reduce sugar consumption and incentivise reformulation.
2. Drinks in scope
A drink is within scope if it meets three criteria:
- It is a soft drink intended for human consumption.
- It has added sugar (including sucrose, glucose, fructose or other sugar-based sweeteners).
- Its sugar content is at least 5g per 100ml in the ready-to-drink state.
This includes bottled, canned and draught products, as well as dilutable concentrates where the sugar content is measured in the diluted form according to the directions for use. Ready-to-drink energy drinks, carbonated beverages, sweetened iced teas and lemonades are typical examples.
3. Rate bands and thresholds
The levy has two bands applied per litre of finished drink:
- Lower rate: drinks with ≥5g but <8g of sugar per 100ml.
- Higher rate: drinks with ≥8g of sugar per 100ml.
Annual uprating from 1 April: From 1 April 2025, SDIL rates are reviewed and uprated annually by Treasury Order to maintain effectiveness in real terms. There is no automatic indexation; businesses must check the new rates each year (typically published in February for effect from 1 April) and update forecasts, price files and contracts accordingly.
4. Exemptions and carve-outs
The following categories are outside scope or benefit from reliefs:
- 100% fruit or vegetable juice, even where naturally high in sugar.
- Drinks with ≥75% milk content (note: plant-based “milks” such as soya, oat or almond are not milk for this exemption).
- Alcoholic substitutes where the product contains more than 1.2% ABV.
- Small producer relief: UK producers packaging <1 million litres of liable drinks in a rolling 12 months do not pay the levy; importers cannot claim this relief.
- Infant formula and certain medicinal products under specific regulatory definitions.
Businesses should evidence exemption status with recipes, supplier attestations and, where relevant, laboratory analysis.
5. Drinks currently out of scope but under review
HM Treasury is consulting on changes that may affect scope, including lowering the 5g/100ml threshold, introducing a third band for very high sugar content (for example >10g/100ml), and revisiting exemptions for milk-based and substitute drinks. Producers of flavoured milks, milkshake powders and plant-based substitutes should monitor developments and model outcomes ahead of potential changes from April 2026.
Section A summary: Scope decisions hinge on added sugar and sugar content per 100ml. Most carbonated and sweetened ready-to-drink products are caught. Exemptions remain significant for juices and high-milk drinks, but policy proposals may narrow these carve-outs. With annual rate uprating each April, accurate classification and evidence are vital for compliance and forecasting.
Section B: Liability, registration and operations
Once a product is confirmed as within scope, businesses must determine who is liable, when registration is triggered and how to manage day-to-day compliance. This section explains the operational rules HMRC applies to producers, importers and bottlers.
1. Who is liable and when
Liability rests with the person who packages the drink in the UK, or who imports packaged drinks for sale. This can be:
- UK manufacturers and bottlers, including those producing under contract for brand owners.
- Importers bringing chargeable drinks into the UK.
- Retailers or supermarkets with own-label drinks produced by contract packers.
Group companies must establish clearly which entity is liable, particularly where bottling, importing and distribution functions are split.
2. Registration triggers
Businesses must register with HMRC if they expect to package or import more than one million litres of liable soft drinks in a 12-month period. Producers below this threshold are treated as small producers and do not pay the levy, though they must still keep volume records. Importers must register regardless of volume and cannot rely on the small producer exemption. HMRC may require notification from small producers even if no levy is payable.
3. Calculating chargeable volume
Chargeable volume is measured in litres of finished drink, not concentrate. For dilutable products, the sugar content is assessed in the diluted state according to directions for use, and the duty is calculated on the finished litres that would result. Evidence must include laboratory test results (mandatory if HMRC requests), supplier specifications and production records. Multi-packs must be declared by the total litres contained.
4. Imports and duty points
For imports, the duty point is when the drinks are released into UK circulation — typically at the point of customs clearance or release into free circulation. Drinks stored in bonded warehouses are not liable until released into the UK market. Importers should align customs declarations and levy returns to avoid discrepancies.
5. Commercial considerations
Although the levy is technically a tax on producers and importers, in practice it is often passed through the supply chain to retailers and consumers. Businesses need clear policies on how the levy is reflected in invoices, contracts and pricing models. This includes updating terms with retailers and managing how costs are disclosed to customers.
Section B summary: The liable person is the UK packager or importer. Registration is mandatory above the one-million-litre threshold for producers and for all importers regardless of volume. Businesses must accurately calculate finished drink volumes, align customs and levy reporting, and ensure commercial agreements reflect levy pass-through. Robust registration and liability controls are essential to avoid HMRC penalties.
Section C: Returns, payments, credits and record-keeping
Once registered, businesses must submit accurate returns, make timely payments and retain the right records. HMRC’s compliance focus is on whether companies can demonstrate the accuracy of their declarations and justify any reliefs or credits claimed.
1. Accounting periods and deadlines
The SDIL is reported quarterly in line with HMRC accounting periods. Returns must be submitted and payment made within 30 days of the period end. Online filing is mandatory through HMRC’s SDIL portal, and businesses receive a unique reference number for each return.
2. Content of the return
The return requires disclosure of:
- Total liable litres packaged or imported.
- Breakdown of volumes across the lower and higher rate bands.
- Any reliefs claimed (exports, spoilage, reformulation).
- Adjustments for errors or corrections from prior periods.
Returns must reconcile to production logs, import data and sales figures. Late or inaccurate submissions can result in assessments and penalties.
3. Credits and reliefs
Credits reduce liability where drinks are exported, lost or destroyed before sale, or reformulated below the sugar threshold. To claim a credit, businesses must keep detailed evidence such as export documents, destruction certificates, or lab test results demonstrating new sugar levels. HMRC may disallow credits if the supporting evidence is insufficient or not contemporaneous.
4. Record-keeping obligations
Registered producers and importers must retain:
- Laboratory analyses of sugar content (mandatory if HMRC requests).
- Recipes, specifications and supplier certificates.
- Production logs and bottling run sheets.
- Import and customs documentation.
- Sales and distribution records.
Records must be accessible and retained for at least six years. HMRC expects contemporaneous documentation, not retrospective estimates.
5. Penalties and HMRC powers
HMRC may impose penalties for late filing, under-declaration or failure to register. Interest applies on late payments. Penalties are imposed under the Finance Act 2017, and HMRC has the power to assess retrospective liabilities if non-compliance is discovered. Businesses can avoid penalties if they can show they had a reasonable excuse and took corrective action promptly. Persistent non-compliance may trigger audits, assessments and reputational risk.
Section C summary: Compliance with SDIL relies on timely quarterly returns, correct calculation of banded volumes, and robust evidence for any reliefs claimed. Record-keeping is critical: HMRC will expect laboratory results, recipes, production and import documentation to be available for inspection. A strong control environment reduces the risk of penalties and ensures audit-ready compliance.
Section D: Strategy, reformulation and upcoming changes
Beyond day-to-day compliance, businesses must manage SDIL strategically. Rate increases and potential scope changes mean that tax planning, reformulation and governance are becoming board-level issues.
1. Reformulation strategies
The levy’s central purpose is to incentivise sugar reduction. Many manufacturers have reformulated to reduce sugar content below the 5g or 8g thresholds, moving products into lower bands or outside the levy altogether. Strategies include replacing sugar with non-caloric sweeteners, developing new recipes, or launching zero-sugar variants. Reformulation requires balancing compliance benefits against brand, taste and consumer acceptance.
2. Labelling and consumer communication
Changing recipes and reducing sugar content can affect labelling requirements, health claims and product marketing. Businesses must ensure that labelling complies with food information regulations while communicating changes to consumers and retailers effectively. Poorly managed reformulation can result in consumer backlash, even if it reduces levy liability.
3. Interaction with wider cost stack
The SDIL is only one part of the broader indirect tax and regulatory landscape. VAT, excise rules and the Packaging Extended Producer Responsibility (EPR) regime all add to product costs. Finance teams must model the combined impact when assessing margins and pricing strategies.
4. Policy horizon and uprating
From 1 April 2025, SDIL rates are reviewed and uprated annually by Treasury Order to maintain effectiveness in real terms. The mechanism accounts for inflation since 2018 and will continue to be applied each April. In addition, HM Treasury and HMRC are consulting on strengthening the levy. Options under review include lowering the 5g sugar threshold, introducing a third band for very high sugar content, and revisiting exemptions for milk-based and plant-based drinks. Final decisions are anticipated at Autumn Budget 2025, with possible implementation from April 2026. Businesses should plan now for these potential reforms.
5. Governance and internal controls
SDIL compliance and planning require cross-functional oversight. Finance, R&D, supply chain and marketing teams must work together. Boards should receive periodic reports on levy exposure, reformulation projects and regulatory changes. Documented governance helps demonstrate a reasonable excuse if errors occur and provides assurance for auditors and investors.
Section D summary: SDIL is both a compliance obligation and a strategic lever. Reformulation, labelling, consumer communication and cost modelling are central to managing its impact. With annual uprating now confirmed and wider reforms under consultation, businesses must treat the levy as a long-term regulatory risk and opportunity, embedding governance at board level.
FAQs
Which beverages are currently exempt from SDIL and why?
Exemptions apply to 100% fruit and vegetable juices, drinks with at least 75% milk, alcoholic substitutes above 1.2% ABV, infant formula and certain medicinal products. These categories are excluded either because of their nutritional profile, regulatory status, or because government policy has chosen not to target them.
Do small producers have to register or pay? How is the threshold applied?
Small producers packaging less than one million litres of liable drinks annually do not have to pay the levy, though they must keep records. Importers cannot use this relief — they must register and pay regardless of volumes. The one-million-litre threshold applies across all products packaged in a rolling 12-month period, and HMRC may still require notification from small producers.
How do we measure sugar content for concentrates and diluted drinks?
For dilutables such as squashes or syrups, the sugar content is assessed in the diluted state according to the manufacturer’s directions for use. HMRC expects laboratory test results or supplier specifications to evidence compliance. Duty is calculated on the litres of finished drink that would result once diluted.
How are imports treated and when does the duty point arise?
For imports, the duty point is when drinks are released into UK circulation, typically at the point of customs clearance or when removed from a bonded warehouse. Importers must align levy declarations with customs paperwork to ensure consistency.
How do credits work for exports or spoilage?
Where drinks are exported, destroyed or reformulated below threshold before sale, credits may be claimed to reduce liability. Businesses must keep evidence such as export declarations, destruction certificates, or lab test results showing reduced sugar content. HMRC may disallow claims without adequate documentation.
What SDIL changes are expected from 2025 onward?
Rates will be uprated annually from 1 April 2025, reflecting inflation. HM Treasury is also consulting on strengthening the levy, including lowering the sugar threshold, introducing a new band for very high sugar drinks, and revisiting milk-based drink exemptions. Policy changes are expected at Autumn Budget 2025 with possible implementation from 2026.
Conclusion
The Soft Drinks Industry Levy is now an established feature of the UK tax and regulatory framework. It is more than a narrow excise: it has shaped product development, pricing and consumer choice since 2018. From April 2025, annual uprating ensures the levy retains its effectiveness in real terms, while consultations signal that scope changes are firmly on the policy horizon.
For businesses, the compliance checklist is clear:
- Scope each product against HMRC definitions and sugar thresholds.
- Register with HMRC if liable, noting the one-million-litre threshold for producers and the absolute liability for importers.
- Maintain accurate testing and records to substantiate returns and any reliefs claimed.
- File quarterly returns and pay on time, ensuring reconciliation to production, import and sales data.
- Plan strategically for reformulation, labelling, cost modelling and board-level oversight.
By embedding robust controls and monitoring policy developments, businesses can remain compliant while optimising product portfolios and safeguarding margins. The levy should be approached not only as a tax but also as a regulatory signal shaping future beverage innovation.
Glossary
| Added sugar | Any sugar added during manufacture, such as sucrose, glucose, fructose or other sugar-based sweeteners, but not naturally occurring sugars in fruit or milk. |
| Chargeable volume | The litres of finished drink subject to SDIL, measured in ready-to-drink form, including the diluted volume for concentrates. |
| Dilutable drink | A concentrate or syrup that is mixed with water before consumption, assessed for SDIL purposes in its diluted form. |
| Duty point | The point at which levy liability arises, e.g. when packaged for UK sale or when imported into UK circulation. |
| Exempt drink | Drinks outside the levy scope, including 100% juice, high-milk drinks, alcohol substitutes above 1.2% ABV, infant formula and medicinal products. |
| Higher rate | The SDIL rate applying to drinks with sugar content at or above 8g per 100ml. |
| Lower rate | The SDIL rate applying to drinks with sugar content of at least 5g but less than 8g per 100ml. |
| Milk-based exemption | Relief for drinks containing at least 75% milk, though this exemption is under policy review. |
| Small producer | A producer packaging less than one million litres of liable drinks annually; exempt from paying the levy but still required to keep records. |
| Sugar content per 100ml | The standardised measure HMRC uses to determine whether a drink falls into the lower or higher band. |
| Uprating | Annual increases in levy rates, from April 2025 onwards, intended to maintain effectiveness in real terms. |
Useful Links
| GOV.UK – Soft Drinks Industry Levy overview and guidance | https://www.gov.uk/soft-drinks-industry-levy |
| GOV.UK – Annual uprating of SDIL rates from April 2025 | https://www.gov.uk/government/publications/soft-drinks-industry-levy-rates |
| GOV.UK – Consultation on strengthening the SDIL | https://www.gov.uk/government/consultations/strengthening-the-soft-drinks-industry-levy |
| Legislation – The Soft Drinks Industry Levy Regulations 2018 | https://www.legislation.gov.uk/uksi/2018/41/contents/made |
Author
Gill Laing is a qualified Legal Researcher & Analyst with niche specialisms in Law, Tax, Human Resources, Immigration & Employment Law.
Gill is a Multiple Business Owner and the Managing Director of Prof Services Limited - a Marketing & Content Agency for the Professional Services Sector.
