Sweet shake-up: what does the sugar tax extension mean for businesses?

In the lead-up to the Autumn Budget announcement later today, the latest update on the sugar tax for pre-packaged drinks has left a not-so-sweet taste in business owners’ mouths.

As part of the Government’s mission to tackle childhood obesity, the tax will be extended to cover all pre-packaged milk-based drinks, including bottled milkshakes and lattes. The threshold at which the levy applies will also be lowered.

With these changes, manufacturers, drinks businesses, as well as bars, pubs, and cafes that rely on bottled drinks, are preparing for higher costs and potential price adjustments, as businesses work to offset the levy while managing increased operational demands.

What is the sugar tax?

The sugar tax — otherwise known as the Soft Drinks Industry Levy (SDIL) — is a tax imposed on pre-packaged drinks that contain added sugar, such as fizzy drinks sold in cans.

Introduced in April 2018, the tax was established to tackle excessive sugar consumption and obesity in the UK by encouraging drink manufacturers to reformulate high-sugar beverages. 

As a result, the average sugar content of drinks covered by the SDIL fell by around 47% between 2015 and 2024, according to the government website. 

What has been announced?

Yesterday, Health Secretary Wes Streeting announced in the House of Commons that the sugar tax will be extended to “bottles and cartons of milkshakes, flavoured milk and milk substitute drinks.” The levy will not apply to drinks made in coffee shops or restaurants.

As well as extending the sugar tax to these products, the Government will lower the sugar content threshold at which it applies. 

Currently, the levy applies to drinks with added sugar, and with more than 5g of total sugar per 100ml. As of April 2025, the levy rate for drinks with 5g to 7.9g is 19.4p, while products with content at 8g or above are charged 25.9p per litre. 

However, from January 2028, the rate at which the lower SDIL levy is charged will fall to 4.5g per 100ml. This means manufacturers will need to reduce sugar levels by this date if they want to avoid paying the rate. 

How will the new sugar tax changes affect hospitality?

While the new sugar tax won’t apply to “open cup” drinks prepared and served in cafes, restaurants or bars, F&B venues that rely on bottled soft drinks or ready-to-drink coffees could see increased costs if suppliers pass on the levy, especially for products that aren’t reformulated.

Consumers aren’t directly charged by SDIL, but some businesses may have to increase retail prices to offset the higher charges when they come into effect in three years’ time.

This is something that Nicoleta Paraschiv, owner of the Sugar & Stream cafe in Bournemouth, says is likely to put additional pressure on small, independent operators like hers. Speaking to the Daily Echo, Paraschiv commented, “I will have to increase prices and people won’t be able to afford it. They want to close businesses down in my opinion.”

Meanwhile, George Holmes, Managing Director of business finance specialists Aurora Capital, says venues that sell bottled soft drinks will face higher costs and shifting demand, forcing many to rethink their menus and pricing.

“The risk is that bigger chains adapt faster while independent operators struggle with tighter cashflow and slower supplier reformulation,” Holmes adds.

“If the government wants health policy to work without hurting local businesses, it has to recognise how exposed small firms are to even small changes in cost and consumer behaviour.”