2026 Outlook for the Food and Beverage sector

A new five-tier (previously a two-tier) multiplier system along with introducing targeted reliefs to support high street businesses was announced. Although the high street is set to potentially benefit from lower business rates, which could be good news for hospitality, it will be at the expense of more expensive properties such as warehouses, which will impact food producers and large retailers.

Lower rates will apply for Retail, Hospitality, and Leisure (RHL) with eligible properties with a rateable value below £500,000 benefiting from permanently lower multipliers, set 5p below the national equivalents. However, properties with a rateable value of £500,000 or more, such as large warehouses, will face a higher multiplier to fund the reduction on smaller properties.

At the time of writing this, the government was already backtracking and, in particular, in the process of finalising a support package for pubs, so it’s really important to stay up-to-date with announcements and keep in regular contact with your trusted advisor.

While duty was reduced on beer, it was increased on other alcoholic drinks such as wine and spirits. This will impact vineyards, which should be a growth sector in the UK and Scottish Whisky producers. All alcohol duty rates will increase in line with the Retail Price Index (RPI) by 3.66%, effective from 1 February 2026. An increase to the cash discount provided to small producers to maintain the relative value of Small Producer Relief (SPR), compared to the main rates, was also confirmed. SPR provides lower alcohol duty rates for small producers—provided those products are below 8.5% alcohol by volume (ABV), not produced under licence, and are made on small producer premises producing below 4,500 hectolitres of pure alcohol per year.

The UK's Plastic Packaging Tax (PPT) will increase to £228.82 per tonne from 1 April 2026, in line with inflation. This tax applies to plastic packaging with less than 30% recycled content. However, changes in mass balance accounting should result in companies using chemically or mechanically recycled plastic paying less in packaging tax. This concession will allow a mass balance approach for chemically recycled plastic starting 1 April 2027, to count towards the 30% recycled content requirement. A planned consultation in early 2026 on mandatory certification for mechanically recycled plastic was also confirmed.

For employees over 21, the National Living Wage will increase by 4.1%, which is higher than many employees will receive. The cost of this directly, and the knock-on effect of having to ‘compensate’ more senior employees, adds significant costs to the sector, which is labor-heavy. Unfortunately, this is likely to result in businesses reducing or freezing headcounts, which will impact on growth. On the positive side there was an announcement for free apprenticeships for under 25s; whether this will offset the increased costs of employing people outside of apprenticeships remains to be seen.

It is important that the increases are correctly reflected in payrolls to avoid future penalties and interest from HMRC, and therefore businesses should consult with their payroll providers as appropriate.

This has been extended to milk-based drinks (including dairy free alternatives) from 2028. However, this does not apply to cups of coffee sold in coffee shops. In addition, there is a lower threshold, reduced from 5g of total sugar per 100 ml to 4.5g per 100 ml. Unsweetened cow's milk and unsweetened plant-based milks remain exempt. The dairy sector, which is already struggling, could be impacted if this reduces demand for dairy products, and manufacturers are likely to revisit recipes and change formulas in an attempt to avoid the additional tax.

While manufacturers who proactively reformulate or already offer low-sugar options may gain a competitive advantage, if the cost of competitors with higher sugar alternatives cannot adapt, it is likely to result in higher prices for consumers generally and may encourage consumers to look for lower-sugar and lower-cost alternatives, which is what the government is trying to achieve.

Innovation from changing formulae could potentially qualify for R&D or patent tax relief, and companies should consult with your advisors in respect of this.

There was some better news for farmers in respect of inheritance tax with a new £1 million allowance for 100% Agricultural Property Relief (APR) to be transferable between spouses and civil partners. This means a married couple could potentially have a combined allowance of up to £2 million. A retrospective rule applies if a spouse died before 1 April, 2026, assuming the surviving partner has the full £1 million allowance available for transfer. These changes are part of broader reforms effective from 6 April, 2026, which set the 100% relief threshold for combined qualifying assets at £2.5 million per individual, with 50% relief on values above this. Clearly this may be beneficial for smaller farms, but for many farmers this will not go far enough in a sector that is already in difficulty.

Consulting with a tax advisor in respect on inheritance tax planning is therefore critical at this time as government continues to change and evolve its stance on IHT for farmers.

There were many calls across the sector for the government to review VAT. In particular there was a call for the government to introduce a permanent reduction in the VAT rate for hospitality and catering venues in line with the 10-13% rates often seen in Europe. The government was also urged to scrap the 20% VAT on hot food prepared and sold for immediate consumption. Unfortunately, no such changes were announced.