Industry pushes for a greater adoption of natural flavors to combat sugar tax expansion

Following the UK government’s expansion of the Soft Drinks Industry Levy in its November budget to include milk and plant-based drinks and RTD coffees, some F&B innovators are hailing their natural solutions as a way to combat the “sugar tax,” and help brands get ahead of the compliance curve while delivering healthy sugar-reduced beverages that consumers demand.

When regulation tightens, industry responds. In many cases, companies revise their formulations early to comply with new regulations.

There are natural flavor offerings and sugar-reduction solutions on the market that keep brands aligned with new regulations as well as consumer demands for healthier products.

Anticipating sugar levies 

Since the UK’s Soft Drink Levy was introduced in 2018, RTD coffee, flavored milk, milkshakes, milk alternative drinks with added sugar, sweetened yogurt drinks, and chocolate milks have been exempt from the sugar tax. However, these drinks, along with fermented milk, yogurt drinks, and probiotic drinks, will now be included.

Brands are now preparing for the new extension to the UK’s proposed sugar tax (effective January 2028), which is expected to have a significant impact on formulation and how products like milkshakes and other milk-based drinks will be developed. 

Natural flavors

The key challenge is to reduce sugar while keeping the same taste.

UK-based flavor house ITS says natural flavors offer a balance of full sweetness, reduced sugar, and no compromise on flavor. Its SweetLite range of 100% plant-based, natural flavorings comes in powder and liquid formats, enabling brands to reduce added sugar by up to 50%.

“ITS offers manufacturers a collaborative reformulation process. That means they can request tailored flavor samples and test them on their own existing recipes and applications. Our technical teams work together to refine flavors ahead of launch,” says Meg Eade, dairy innovations specialist at the company. 

Dairy thresholds 

Britain’s trade body, Dairy UK, has a mixed reaction to the UK government’s decision to push ahead with expanding the sugar levy, which will impact some dairy products. 

“Our products play an essential role in providing valuable nutrition, with milk and yogurt-based drinks a convenient, affordable, and tasty way for many, especially children, to meet their recommended intakes for a range of nutrients. They provide calcium, protein, B vitamins, iodine, zinc, phosphorus, not to mention the role of some yogurt-based products in promoting good gut health,” says Dairy UK’s chief executive, Dr. Judith Bryans.

“It’s therefore disappointing that the government has decided to push ahead with plans to expand the sugar levy, impacting some dairy products.” 

“That said, we’re pleased the Treasury took on board feedback about the unique composition of dairy and have included a lactose allowance within their proposals to address this. This will ensure that dairy companies do not pay the levy on naturally occurring lactose, as this is not a public health concern.” 

She also welcomes the increase in the sugar threshold and the implementation date of 2028, which gives dairy companies more time to reformulate their products to meet the new sugar thresholds.

“As an industry, we support the drive to better public nutritional health, and our members will continue to deliver reductions in sugar through reformulation to support healthier choices for the public,” she adds.

Delivering taste & compliance

Treatt is another company marketing natural flavor solutions specially designed for sugar reduction in beverages, including milk-based drinks. 

It states that global regulatory pressures, such as sugar taxes, are driving a new wave of reformulation. However, it isn’t just about compliance, as increasingly consumers are scrutinizing labels, seeking lower-calorie and lower-sugar options that align with their lifestyle goals.

Treatt’s portfolio includes the Treattaromes, TreattSweet, and Brix Boost ranges, which are marketed as clean label, 100% natural systems that restore sweetness and mouthfeel, even at low- or no-added sugar levels. 

Earlier this year, Kerry stated that brands are prioritizing sweetness optimization in 2025 as rising sugar taxes take effect in several global markets. The company also cites evolving nutrition labeling standards and the increasing demand for healthier products as key drivers putting pressure on brands to reformulate. 

Kerry’s range includes solutions that help overcome some of the challenges of sugar reduction, such as masking off-notes from alternative sweeteners or nutritional ingredients, restoring mouthfeel, and delivering a flavor profile closer to full-sugar products.