UK milk tea and plant-based drinks: current SDIL rules and proposed 2028 changes

Current rules and published proposals checked on 20 September 2026. This article explains product scope and evidence preparation, not an individual business’s tax liability.

A packaged milk tea is not exempt from the UK Soft Drinks Industry Levy (SDIL) simply because it contains milk. Under current HMRC guidance, the milk-based exemption requires at least 75ml of qualifying milk per 100ml of prepared drink; plant-based milk substitutes have a separate set of conditions.[4] The government plans to remove the exemptions for milk-based and milk-substitute drinks with added sugar and lower the entry threshold from 5g to 4.5g per 100ml for chargeable events from 1 January 2028.[1][7]

Those are different rule sets. HMRC’s July 2026 documents still describe draft legislation and forthcoming final guidance, rather than an expansion already in force.[2][8] For a tea brand, importer or formulation team, the useful starting point is therefore the finished product’s composition and supply format—not a presumed tax saving from changing a sweetener.

What applies now, and what is planned to change?

The table compares current rules with HMRC’s July 2026 proposals for chargeable events from 1 January 2028. It covers product scope rather than the full registration requirements.

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Question	Current rules	July 2026 proposals
What is the lower sugar threshold?	At least 5g and less than 8g total sugars per 100ml for the lower band; at least 8g per 100ml for the higher band, for drinks otherwise within scope.[4]	Lower threshold of 4.5g per 100ml; the higher threshold remains 8g per 100ml. Eligible lactose would be disregarded when assessing milk-based drinks.[2][7]
Are milk-based drinks exempt?	The exemption requires at least 75ml qualifying milk per 100ml prepared drink.[4]	The milk-based exemption would be removed for drinks with added sugar; a lactose allowance would replace it in assessing sugar thresholds.[1][2]
Are plant-based drinks exempt?	Only drinks meeting the milk-substitute conditions qualify for that exemption—not every drink made from plants.[4]	Added-sugar milk substitutes would enter scope; the published policy retains an exclusion for sugar released only from a single core plant ingredient.[2]
What about café drinks?	Simply dispensing into a cup, glass or takeaway cup does not make the operator a packager. Separate rules cover liable machine flavour concentrates.[4]	The policy says open-cup beverages remain unaffected; this does not erase existing concentrate rules.[1][4]
Which rates should a team use?	From 1 April 2026, £2.08 per 10 litres in the lower band and £2.78 per 10 litres in the higher band.[4][6]	2028 rates are not specified here; consult the rate applicable to the chargeable event.[2]

The important timing distinction is between an announcement, draft legislation and an operative rule. The November 2025 response moved the proposed implementation date from 1 April 2027 to 1 January 2028.[5] The July 2026 tax information note says legislation will be introduced in Finance Bill 2026–27, while the detailed policy paper anticipates enactment in Finance Act 2027.[1][2] The draft’s commencement clauses refer to chargeable events, not simply the date a recipe is approved or a drink is manufactured.[7]

Current milk-tea scope depends on more than the milk percentage

HMRC’s general test covers added sugar or qualifying sugar-containing ingredients, at least 5g sugar per 100ml in the ready-to-drink or diluted product, the specified drink/preparation formats, packaging and an alcohol content of 1.2% ABV or less; applicable exemptions must also be considered.[4] The sugar threshold is not a standalone rule that makes every sweet beverage taxable.

For the milk exemption, HMRC includes animal milk, reconstituted or recombined milk, fermented milk, buttermilk and specified whey forms; cream is not included in its definition of milk.[4] A formulation record should consequently distinguish actual qualifying milk from cream, creamer and the overall quantity of dairy-derived ingredients. “Contains dairy” is not a substitute for that record.

A packaged tea below the 75ml-per-100ml milk condition may already need assessment under the current general rules.[4] Conversely, a drink meeting that milk condition should not have the proposed 2028 treatment applied early. These are product-scope observations; the business’s registration position and any other applicable reliefs need their own review.

Plant-based does not automatically mean milk substitute

The current milk-substitute conditions include at least 120mg calcium per 100ml, a plant origin, all or most of the same uses as milk, a similar consistency and no carbonation.[4] These are current exemption conditions; the calcium requirement should not be assumed to be a 2028 eligibility condition. An oat ingredient appearing in the recipe does not establish that the finished tea drink meets all those conditions. Nor does a fruit or botanical drink become a milk substitute just because it is plant-based.

For product development, keep the ingredient’s commercial name separate from the finished drink’s proposed classification. Record the calcium basis, intended uses, consistency and carbonation of the product being assessed, with supporting specifications rather than a category assumption.

The proposed lactose allowance needs source and process evidence

The published policy would assess relevant milk-based drinks using total sugars after deducting allowable lactose; it includes lactose from liquid milk and milk products such as milk powder.[2] The 2025 response expressly says that the allowance would apply irrespective of the drink’s percentage milk content.[5] The present 75% milk exemption should therefore not be carried into a future worksheet as a minimum condition for lactose allowance.

Not all dairy-associated sugars would qualify. The policy excludes separately added lactose or galactose and hydrolysed lactose; the draft also addresses lactose converted, or to be converted, by added lactase.[2][7] A lactose-free milk description is consequently not proof that all sugars originating in that milk would be disregarded.

Whey-containing formulations need separate clarification. The policy paper excludes lactose in whey powder, while draft regulation 4C makes its whey exclusions conditional on recombination or reconstitution in the drink.[2][7] This article does not determine which whey-derived lactose would qualify for the proposed allowance. For a whey-containing product, obtain clarification on the applicable provisions before relying on a lactose deduction.

HMRC’s proposed evidence framework includes recipe quantities, supplier specifications for typical lactose content, manufacturing information, final nutrition declarations and available analyses with their methodology and interpretation.[2] The paper also states that laboratory analysis cannot currently identify a product’s free-sugars content directly.[2] A total-sugars value on a label can support the file, but cannot on its own establish which lactose qualifies for the allowance.

The plant-based proposal distinguishes sugar sources, not just “added sucrose”

For plant-based milk substitutes, the published policy would leave a drink outside scope where sugars come only from one core plant ingredient, such as oats or soya.[2] Where two or more plant-based ingredients contribute sugars, liability would instead be assessed against total sugar content; adding rice syrup to rice milk is an explicit example, even though both ingredients come from rice.[2]

That does not make every multi-ingredient plant drink taxable. The same policy allows a single-core-ingredient milk substitute to be mixed with fruit or vegetable juice while remaining outside scope, whereas sugars from a milk substitute added to plain animal milk are treated as added sugars, with the lactose allowance then relevant to the assessment.[2] Read these exceptions alongside the general statement, rather than counting plant names on the ingredient list.

For an oat milk tea, the practical evidence question is what each ingredient contributes. Keep the base, tea ingredient, syrup, flavouring and any carrier identifiable in the recipe file. Where the sugar contribution or composition of a compound ingredient is unknown, record the gap rather than assuming that “no added sucrose” settles its SDIL treatment. The following illustrations describe review routes, not observed commercial products or tax determinations.

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Hypothetical product or supply format	Review route
Packaged milk tea meeting the current qualifying-milk condition	Check the present exemption separately from the proposed removal and lactose allowance.[4][2]
Packaged milk tea below that condition	Review current scope now; do not assume the first possible exposure is in 2028.[4]
Single-core-ingredient oat milk substitute, with no other sugar contribution	Check the proposed single-ingredient exclusion and the finished product’s classification.[2][7]
Rice milk substitute with added rice syrup	The policy treats the syrup as an added-sugar ingredient; total sugar content then matters.[2]
Plant-based milk substitute containing sugars, mixed with plain animal milk	The policy treats sugars contributed by the milk substitute as added sugars; assess the sugar threshold and any eligible lactose allowance.[2]
Cup-prepared tea made using a supplied machine concentrate	Distinguish the retail dispensing activity from the concentrate’s separate supply and scope.[4]

Powder, dispensing concentrates and drinking yoghurt have distinct boundaries

HMRC currently lists drinks sold as powder among the exclusions, while liable packaged flavour concentrates used in dispensing machines have been covered since 1 April 2023.[4] A dry tea ingredient, a bottled finished tea and a machine flavour concentrate should therefore not share one assumed classification. The concentrate rule is defined by its use in a dispensing machine and the resulting drink, not simply by the word “concentrate” on a specification.[4]

The 2028 draft also contains a specific drinking-yoghurt exclusion: at least 90ml fermented milk per 100ml prepared drink, with no other liquids added for the purpose of making it more drinkable.[7] Adding yoghurt to a tea drink is not enough to establish that exclusion. Products close to this boundary need the actual formulation and process reviewed against the final text.

Prepare one versioned product file before changing the formula

Keep the recipe version, supply format and preparation instructions together in one product file. The blank worksheet follows HMRC’s proposed evidence categories; it is not an official form.[2]

Download the blank SDIL product-scope and evidence worksheet — English

Use one copy per SKU and recipe version. Keep current-rule assessment and 2028 planning on separate pages or clearly separated fields. Attach the ingredient breakdown, each specification’s version, sugar and lactose information with units, relevant processing steps, prepared-drink basis and outstanding questions. Leave missing values explicitly unknown; do not turn a blank into zero or a provisional judgement into a confirmed tax classification.

HMRC’s current SDIL guidance lists stevia among sugar replacements rather than sugars.[4] This tax treatment does not establish permitted food uses or the performance of a finished recipe.

For ingredient enquiries, attach the target UK finished-drink format and the required composition documents to the brief. That makes the conversation about the actual tea or sweetening ingredient and its evidence, rather than asking a raw-material supplier to certify the customer’s tax outcome.

What must be checked again before a commercial decision?

HMRC’s July 2026 policy paper presents the changes as proposals and says final guidance will follow.[2] For a commercial decision, confirm the applicable enacted provisions, commencement date and HMRC guidance. Whey-related allowance eligibility is outside the scope of this article.

The practical conclusion is straightforward: assess existing SKUs under the current rules now, while preparing a separate evidence file for the planned 2028 changes. The most consequential differences are the finished drink’s eligibility for an exemption, the source and treatment of its sugars, and how it is packaged or supplied—not whether the marketing name says milk tea or plant-based.