The UK Government’s planned extension of the Soft Drinks Industry Levy (SDIL) — informally known as the milkshake tax — will bring pre-packaged milk-based and plant-based beverages with added sugar into scope from 1 January 2028. While this regulatory change presents clear challenges, it also offers forward-thinking brands the opportunity to lead through sugar reduction, reformulation, and responsible innovation. This article outlines who the tax applies to, how it is calculated, its strategic objectives, and how Simpsons Beverages can support manufacturers in adapting successfully.
Understanding the milkshake tax
The so-called milkshake tax represents a significant policy development within the UK’s broader health and nutrition strategy. It is not a new tax but an extension of the existing Soft Drinks Industry Levy, which was introduced in 2018 to reduce sugar consumption in soft drinks.
From January 2028, this levy will apply to pre-packaged milk-based and milk-alternative drinks containing added sugar. The government’s goal is to encourage further reductions in sugar consumption and to promote healthier choices across the beverage industry.
For manufacturers, brand owners and importers, this change demands both strategic planning and technical reformulation to remain competitive and compliant.
Who the milkshake tax applies to
The levy applies to all UK manufacturers and importers producing or selling pre-packaged beverages that exceed the specified sugar thresholds. This includes flavoured milks, milkshakes, sweetened yoghurt drinks, ready-to-drink coffees and sweetened plant-based drinks such as oat, almond and soya beverages.
The tax will also affect brand owners that work with co-packers, as the levy cost will ultimately influence production expenses and pricing structures. Drinks prepared freshly on-site — such as barista-made coffees or milkshakes in cafés — remain exempt from the levy, as the focus is on pre-packaged retail beverages.
Products in scope
The milkshake tax applies specifically to pre-packaged, sweetened milk-based and plant-based drinks with added sugar. This includes bottled milkshakes, chocolate milks, sweetened yoghurt beverages and ready-to-drink coffees.
Plain, unsweetened cow’s milk and unsweetened milk alternatives are excluded, as their naturally occurring sugars (lactose) do not fall under the definition of added sugar. To demonstrate compliance, manufacturers will need to maintain detailed ingredient declarations, nutritional analysis and supporting documentation.
How the levy is calculated
The milkshake tax will mirror the structure of the current Soft Drinks Industry Levy, using a two-band system that differentiates products by sugar content.
- Drinks containing 4.5 to 7.9 grams of total sugar per 100 millilitres will be charged the lower rate of £1.94 per 10 litres.
- Drinks containing 8 grams or more per 100 millilitres will be charged the higher rate of £2.59 per 10 litres.
The adjustment of the lower threshold from 5 grams to 4.5 grams per 100ml means that more products — particularly within the flavoured milk and yoghurt drink categories — will now be subject to the levy.
Importantly, only added sugars contribute to the taxable total. Naturally occurring sugars, such as lactose, are excluded, but businesses must be able to provide laboratory evidence and product data to verify this.
The government’s objectives
The milkshake tax is part of the UK’s ongoing strategy to improve national health outcomes through sugar reduction and industry-led reformulation. The Government aims to cut obesity rates, reduce tooth decay, and lessen the burden on the NHS by encouraging beverage producers to reduce sugar content.
The original Soft Drinks Industry Levy achieved significant success in driving reformulation across the carbonated drinks category without harming sales growth. By extending the framework to milk-based drinks, policymakers expect to replicate this positive shift in a broader segment of the market.
Opportunities for beverage brands
While the extension of the levy introduces additional costs for many manufacturers, it also creates opportunities for innovation, portfolio diversification and brand differentiation. Reformulating to reduce sugar content can allow businesses to enter new health-conscious consumer segments and strengthen brand credibility.
Forward-thinking beverage brands can leverage this moment to demonstrate leadership in sustainability and wellbeing. Reformulated products that balance indulgent flavour with reduced sugar can command premium positioning and align with retailer health strategies.
Ultimately, the milkshake tax offers an opportunity to transform compliance into competitive advantage, paving the way for a new generation of lower-sugar, flavour-rich milk and plant-based beverages.
How Simpsons Beverages supports compliance and innovation
As a trusted partner to global beverage brands, Simpsons Beverages provides the expertise and technical capability required to navigate sugar-related regulations with confidence. Our development team specialises in sugar-tax-compliant formulation, flavour innovation and reformulation strategies that meet both regulatory and sensory expectations.
We can work collaboratively with clients to reformulate flavoured milks, milkshakes and ready-to-drink coffees to achieve the desired sweetness profile while keeping products within the new levy thresholds.
In addition, our team offers sugar-content analysis, cost modelling, and regulatory guidance, helping clients to quantify the potential financial impact of the milkshake tax and identify the most effective paths to compliance. For dairies and co-packers, we also supply bulk syrup and flavour compounds engineered for efficiency, stability and sugar-tax compatibility.
Preparing for 2028
The implementation date of 1 January 2028 may seem distant, but strategic preparation should begin immediately. Beverage companies should start by conducting a detailed audit of existing product portfolios, identifying recipes that exceed 4.5 grams of sugar per 100ml. Reformulation projects take time, particularly when shelf-life testing, stability trials and retailer approval processes are involved.
By starting early, brands can ensure a seamless transition to compliant recipes, secure supply chain readiness, and communicate reformulation success stories to both trade partners and consumers.
Turning regulation into advantage
The extension of the Soft Drinks Industry Levy to milk-based drinks marks a pivotal moment for the beverage industry. Far from being a constraint, it is an opportunity to evolve — to deliver healthier, compliant and better-tasting drinks that meet modern consumer expectations.
Simpsons Beverages stands ready to support brands through this transition, offering end-to-end expertise in formulation, compliance, and flavour innovation. Chat to our innovation team today, together, we can turn the milkshake tax into a platform for growth, creating beverages that meet both regulatory standards and market demand for healthier, more responsible choices.
