At the Spring Budget 2024, the government announced the introduction of a new tax on vaping products from 1 October 2026. Duty rates will vary depending on the amount of nicotine in the product. At the same time, the government will increase the rates of tobacco duty to ensure there remains a financial incentive to switch from smoking to vaping. 

Proposals for the design and implementation of the new vaping products duty were published for consultation. ICAEW’s Tax Faculty has responded to the consultation.

ICAEW’s view on the new duty

Although the proposed duty rates and structure have the potential to achieve the government's stated objectives, ICAEW has identified some potential concerns and limitations. For example, the proposed rates structure introduces a significant cliff-edge effect. 

This creates a substantial price disparity between products on either side of a proposed threshold. ICAEW believes that a flat tax per mg of nicotine in the product could encourage manufacturers to reduce the nicotine content in products of all strengths, and encourage consumers to buy lower strength e-liquids. 

ICAEW recognises the benefits of having return and payment arrangements that are consistent with other duties (primarily tobacco products duty). However, the faculty questions whether some aspects, like mandating monthly returns, are appropriate for vaping products. 

Quarterly returns could reduce the administrative burden on businesses, particularly if the business could choose its return stagger. As this is a new duty, the government could also consider whether an extended period for submission and payment of the first return would be appropriate.