We're here to help

The UK’s Sugar Tax – With Case Study 

Posted on December 9, 2022

In April of 2018, the UK government introduced a levy on all drinks produced or sold within the UK, known as the Soft Drinks Industry Levy or ‘Sugar Tax’. This brings a charge into drinks with sugar contents higher than this threshold, with 24p per litre of drink containing 8 grams of sugar per 100ml and 18p for between 5-8 grams per 100ml. The levy was introduced with the intention of reducing childhood obesity within the UK and has made an overall decrease in the number of fizzy drinks consumed a year.

Sugar tax led to a massive shift in the way that drink companies operate within the UK, with a lot of companies actually amending their products before the sugar tax came into place. How each business reacted heavily varied in response, but one thing that’s for certain is the impact of the tax was felt across the entire industry, and to this day impacts up-and-coming consumable innovation.

Reduction of Sugar as the Springboard of Innovation

While some companies opted to increase the price of their products or lower the quantity sold, the majority outcome resulted in a widespread push for sugar alternatives across the drinks industry. Huge name brands like Coke Cola, who kept the original sugar content of their classic recipe but massively expanded the production line for sugar-free options such as Diet and Zero, alongside had been promoting more of their previous low-sugar products such as Fuze Tea (although this later then discontinued).

Attempting to replicate the flavour of a product while using different components is one of the largest forms of R&D to come out of the sugar levy, with the government’s guidelines defining this process within CIRD81900 Para 9.d. Rather than calling for new inventions or technology, this calls for the company to ‘use science or technology to duplicate the effect of an existing process…’ including replication within the definition of research and development. The document further goes on to explain this constitutes as R&D provided the process behind the creation is done in ‘a new or appreciably improved way’, leaving wide scope for improvement within the duplication procedure.

However, replicating product effects is only one part of Research and Development; creating completely new methods and healthier products is paramount to innovation within the drinks industry. This can be enacted in many ways, including but not exclusive to; synthesising chemical replacements for sugar, developing completely new drink items, innovating new machinery for measuring sugar content, etc. All of these innovations can be used in the face of the levy, and companies have all taken different routes to find the best solution over the years.

With the power of hindsight, we can see that the consumption of sugar in drinks has appreciably decreased over time, as research conducted by The BMJ implies. With many companies inspired to either reduce their packaging sizes or sugar content, and the cost of additional sugar increased in non-altered products, consumers are estimated by Sky News to have had over 10% less sugar intake.

Sugar Tax Case Study – San Pellegrino Goes 40% Less Sugar

San Pellegrino has had a distinctive recipe for years, often being viewed by consumers as the ‘fancy’ option to their soda counterparts. With their distinctive foil cap and high-end marketing, their cans are just as identifiable as their popular flavours. However, alongside these competitors, San Pellegrino has also been impacted by the levy across their flavours, with the cost across each flavour majorly impacting Nestle’s drink lines.

San Pellegrino in order to curb the levy have reduced the sugar content within their drinks but 40%, using Steviol Glycosides as a sugar replacement. This took two years of research and development, with their largest difficulty being the replication of their previously beloved flavour while making massive changes to the base recipe. Their entire process for creating their iconic cans would have required overhaul, starting with the base ingredients being included to amending their processes and internal company frameworks.

We estimate there to be a few different avenues in which this project would qualify for R&D tax relief if this was developed by a smaller company/SME. The first avenue in which this could be taken is CIRD81900 Para 9.c, which is the increase of knowledge within a sector by a notable degree; in this scenario, the improvement to sugar-free products or how sweeteners can be developed and utilised.

Alternatively, San Pellegrino and the majority of innovation during this time period would have been under CIRD81900 Para 9.d instead, which involved replicating the capabilities, efficacy or abilities of a previously existing product. Often this is used by companies to attempt to create their own variation of a product – for example, if Mcdonald’s sought to replicate KFC’s 11 herbs and spices secret recipe – however, this can also be used to remake a brand’s own product using different materials. In much the same vain, innovating new methods for recreating a previously existing commodity such as the lower sugar San Pellegrino would be considered an appreciably improved process. Provided they work to overcome a difficulty within this product development – such as finding if it is scientifically possible to create the same taste using a different chemical make-up – would qualify as R&D under the CIRD manual referenced prior.

Over the claim period, assumed qualifying research would likely have been, but not limited to, testing/taste testing, chemical testing, research into the impact ingredient impact, adapting machinery for amended usage, comparative data collection etc. Any of these activities undertaken for the purpose of replicating the previous flavour with new materials would qualify within this project, however, the marketing aspect of brand changes or new packaging graphic design would not qualify. Were San Pellegrino to run into technological uncertainties over this process, for example creating new environmentally friendly packaging from previously unutilised materials, this would become its own separate R&D project.

To find out more about Sugar Tax, click here.

Alternatively, to learn more about R&D Tax Credits, click here.