UK Vape Tax: What It Means for Vapers

UK Vape Tax: What It Means for Vapers

Published: 7th March 2024 
Last update: 1st November 2024

A vape tax previously tabled by the Conservatives has been confirmed by Rachel Reeves in the October 2024 budget. 

The tax will significantly increase the cost of e-liquid, but does simplify the complexity of the original plans introduced by the previous government. 

Contents

When will the vape tax be introduced?

The vape duty will come into force on October 1, 2026. This is unchanged from the original date suggested by the Conservative government. 

How much will the vape tax be?

The duty is now planned to be £2.20 per 10ml of e-liquid. 

This contrasts with original plans to vary the amount of tax applied depending on the amount of nicotine. This is likely due to two reasons: 

1. Opposition from scientists, who pointed out that it would encourage people to switch to lower nicotine products, leading to people vaping more overall in a subconscious attempt to obtain more nicotine. (See more information in the FAQs below).

2. Opposition from industry, who felt this would lead to a massive increase in complexity. 

We need to remember that VAT will also be applied - adding an extra 20% to the cost of the tax. 

The average price of a bottle of 10ml e-liquid will increase by £2.64, while a 2ml prefilled pod would increase in price by 53p. 

We’ve broken this down further to show the potential monthly increase in cost for several typical users:

10ml per day £79.02
10ml per 2 days £40
10ml per 3 days £26

How expensive will vaping be compared to smoking after the tax?

To justify the tax, the original consultation compared the amount of puffs from a 10ml bottle of e-liquid to that from 100 cigarettes.

It’s not clear what puff length they are measuring, or if they take into account the fact that vapers take long, slow drags from a vape compared to short sharp puffs from a cigarette.

However, we can look at the amount of nicotine.

According to Medical News Today, the average cigarette contains 11.9 - 14.5mg of nicotine. That means 100 cigarettes will contain between 1190 and 1450mg of nicotine. In comparison, the strongest e-liquid available contains 200mg of nicotine - less than 20% of that found in 100 cigarettes.

Vaping will still be cheaper than legal cigarettes, especially with a 10% increase in the cost of rolling tobacco in 2024 combined with a one-off increase in VAT on tobacco to try and maintain the financial incentive to switch from cigarettes to vaping.  

How will the vape tax affect nicotine-free e-liquids such as shortfills?

Nicotine-free e-liquid will be included in the tax. 

That’s because HMRC are taking the position that anything designed to be vaped should be taxed. 

That leads to a huge increase in cost. Accounting for VAT, a 50ml bottle will cost an extra £13.20, while a 100ml bottle will cost an extra £26.40 - and that’s before nicotine is added. 

The policy also leads to some areas of complexity. For example, two of the main ingredients, propylene glycol and vegetable glycerine, can be bought for purposes other than vaping. This means that they could be bought and mixed by vapers from non-vaping sources. 

Concentrates are also likely to be taxed, which also causes potential problems. Under a similar tax regime in Germany, we have seen a demand for stronger concentrates, which increases the risk of hazard from those concentrates. It also increases the motivation for mixing e-liquid with food-grade flavours, which have not been tested and approved for inhalation. 

What else do I need to know?

If you’re a vape business, you’ll need to understand that the tax is paid when goods are imported or manufactured, not when they are sold. This will require a huge investment by those vape businesses able to do so. 

For example, suppose your stock level is 10,000 bottles of 10ml e-liquid. With tax of £2.20 per 10ml bottle, you would need to pay £22,000 over and above your normal purchase cost to replace that stock.

If you manufacture e-liquid or hold e-liquid before tax is paid, your premises will need to be registered with and approved by the HMRC, with security information and other details supplied. 

The tobacco industry was also keen for the HMRC to implement a track and trace system which, because of the cost and complexity involved, could have eliminated smaller manufacturers. 

However, HMRC is now leaning away from this idea and towards using tax stamps instead. 

What will the vaping tax mean?

Smoking and vaping rates

When asked about the introduction of vaping taxes, British American Tobacco (BAT) chief executive Tadeu Marroco said: 

“I think that could be a good idea, I think that we need more regulation”.

That gives a clue to the likely impact on smoking rates. In other countries where taxes have been put in place, the results have led to an increase in smoking and a decrease in vaping. 

When a vape tax was applied to Italy, it led to a 70% decrease in the number of vapers, and an increase in the use of illegal and imported e-liquid The number of vape shops also fell from 4,000 to 1,000, costing approximately 10,000 retail jobs. (Source: Vaping 360)

Research in the USA found that a $1 tax leads to a significant decrease in vaping rates and an increase in smoking rates. (Source: Friedman and Pesko, 2022). A separate study, also by Pesko, found that vape taxes also increase smoking in pregnant women by 6%. (Source: Georgia State University, 2019).

The government hopes that keeping a differential between the price of cigarettes and vape products will deter people from reverting to smoking. However, research by Professor Notley found many young people who smoke do so using illegal tobacco, and already find it cheaper than vaping. 

Black market sales

According to Trading Standards, the black market already accounts for one-third of vapes sold in the UK. Tests have found that black market products are significantly more harmful than legal vapes. 

There’s little research into the effect of specific vape taxes on the black market. However, restrictions in Australia, where vapers are forced to have a prescription to vape, have meant an estimated 90%+ of vapers now buy vapes illegally. 

Effect on competition

The impact on smaller businesses will not just be increased tax and reduced demand - it’s also the complexity of dealing with regulations, and the need to pay the tax before goods are sold. 

This is likely to lead to reduced competition in the market, reducing choice and potentially further increasing costs - in effect, exactly what’s happened in the tobacco industry.

What happens next (and what can vapers do about it)?

There are still more details to be worked out about the tax. 

It’s also worth pointing out that while industry has been consulted on the tax, few vapers have had the opportunity to share their thoughts. 

So on that note, let’s end with some words from Louise Ross, Chair of the New Nicotine Alliance:

We urge all vapers and supporters of tobacco harm reduction to write to their MP, explaining briefly and respectfully how this proposed tax on vape liquids will have unintended consequences and will not help the cause of public health in any way. Also, please do share the NoVapeTax website with friends and let’s make an impact while we still can.

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FAQs

What’s the current rate of tax on vaping?

There is no specific tax rate on vape products at present, which means vapes are taxed at the standard 20% VAT rate. In theory, medically licensed vapes can be prescribed with a reduced rate of 5%. In practice, this doesn’t happen as no effective device has gained medical licensing. 

What will happen to people who make their own e-liquid?

The government is actively consulting on what actions they should take to regulate home production of e-liquid. In reality, this would be difficult to control, and home production would likely increase.

What does payment at the point of manufacture mean?

If the business works with the HMRC to agree a suspension duty, excise will be paid at the time when a product is released for sale. If not, duty should be paid when the product is manufactured.

Will the vape excise be applied to stop smoking services?

At present, the plan is to apply the e-liquid tax to all products, which would include those sold to stop smoking services. However, there is an opportunity to respond to this in the consultation.

Will the tax apply to alternative nicotine products such as nicotine pouches?

Alternative products such as nicotine pouches and strips are not included in the proposals. However, the government is asking for opinions on whether they should be taxed in its consultation. 

How does this tax differ from original proposals?

The original suggestions saw a three-tiered tax for different nicotine strengths, which were:

Tier  Nicotine strength Tax (per 10ml E-Liquid)
1 0% (0mg) nicotine £1.00
2 0.1-1.09% (0.1-10.9mg) nicotine £2.00
3 1.1-2% (11-20mg) £3.00

There was strong opposition to this because both smokers and vapers ‘self-titrate’. This means that they adjust their inhalation to extract the amount of nicotine they desire from smoke or vapour. As they use lower nicotine products, they increase the amount they vape or smoke. In fact, one study found that when vapers switch to lower-strength nicotine they double the amount they vape. (Dawkins et al, 2016.)

However, it’s not the nicotine that causes smoking diseases, it’s the smoke. While the UK government itself states that vaping is at least 95% less harmful than smoking, any residual harm is likely to come from vapour, not nicotine. If people increase the amount they vape because they switch to a lower level of nicotine, they could increase residual harm from vaping.

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