The New E-Cigarette Levy: Insights into the Upcoming Vape Tax in the UK

The New E-Cigarette Levy: Insights into the Upcoming Vape Tax in the UK

E-Cigarette Taxation: A New Frontier in Fiscal Policy
During the fiscal announcement on March 6, 2024, Chancellor Jeremy Hunt unveiled plans for the UK to implement a novel tax specifically targeting vaping products, set to take effect from October 2026. Presently, these devices are subject to the standard VAT rate of 20%. However, the proposed increase in tax is aimed at curbing vaping among the youth and those who have never smoked.

Implications for Consumers
For now, the announcement holds no immediate impact. Yet, barring any changes to the ongoing consultation, the cost of both nicotine-free and nicotine-infused e-liquids for electronic cigarettes is slated to rise starting October 1, 2026. Additionally, the government's deliberations encompass a revision in Tobacco Duty, aiming to keep the price of cigarettes higher than that of e-cigarettes, thereby maintaining a financial incentive to switch from traditional smoking to vaping.
Chancellor Hunt's Remarks

Hunt acknowledged the potential of e-cigarettes as a beneficial tool in smoking cessation, justifying a "one-off increase in tobacco duty." His stance is to "preserve a financial incentive for individuals to opt for vaping over smoking."

Taxation Structure Post-October 2026
The government is set to introduce a tiered tax system for e-liquids, effective from October 1, 2026. The new tax rates will be as follows:
- Nicotine-Free E-Liquids (0mg): A tax of £1 per 10ml will be applied, equivalent to approximately 2.4% of the current total duty on a typical quantity of cigarettes.
- E-Liquids with 0.1mg to 10.9mg of nicotine per ml: Taxed at £2 per 10ml, which is about 4.7% of the current total duty on a similar quantity of cigarettes.
- E-Liquids with 11mg or more of nicotine per ml: Taxed at £3 per 10ml, roughly 7.1% of the current total duty on a comparable quantity of cigarettes.

Tobacco Taxation from October 2026
A one-off increase in tobacco duty will be instituted, adding £2 to the cost per 100 cigarettes or 50 grams of tobacco.
Rationale Behind Vape Taxation
The government has weighed the perspectives of public health specialists, recognizing that vaping is not devoid of risks and could potentially lead non-smoking youth into a cycle of harm and addiction. The strategy to raise the price of vaping products and establish tax brackets for e-liquids is designed to address the "pocket money" pricing that has been a draw for young consumers.
A 2023 study indicated that the pricing of vaping products significantly influences consumption levels, with the public indicating a reduced propensity to vape if costs were to escalate.

Objectives of the Vape Tax Introduction
The government's objectives with the new duty include:
- Generating £500 million by the fiscal year 2028-29.
- Reducing the uptake of vaping among non-smokers and the youth by making it less affordable.
- Encouraging the use of lower nicotine strengths and nicotine-free vaping products.
- Motivating e-liquid manufacturers to reduce the nicotine content in their offerings.
- Raising funds to support services such as the NHS and initiatives aimed at fostering a smoke-free generation.
- Ensuring that the new tax regime does not inadvertently make smoking more appealing.

Disposable Vapes: The Ban
In conjunction with the e-liquid tax categories, the Chancellor has also declared the government's intention to prohibit disposable vapes "as soon as possible." The ban is intended to deter vaping among the youth and non-smokers, given their appeal to children and the environmental concerns associated with battery and plastic waste. Adults who currently use disposable vapes will be encouraged to transition to refillable alternatives in response to the ban.

International Comparisons: Taxation and Bans on Vape Products
Several countries have already implemented taxes on vaping products, including Italy, Slovenia, Sweden, Denmark, Norway, Canada, and specific states in the USA like Georgia and Virginia. Additionally, bans on disposable vapes have been enacted in Australia, Germany, France, Ireland, and other jurisdictions. Canada has also taken steps to restrict the visibility and advertising of vaping products in retail locations that are not dedicated vape stores, while Denmark and Finland have introduced standardized packaging and banned all flavored e-liquids.