Tracing and security for tobacco products
Published 20 July 2021
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Who is likely to be affected
Individuals and businesses involved in the manufacture, distribution and sale of tobacco products.
Specifically those who contravene the requirements of the Tobacco Track and Trace System (TTS).
General description of the measure
The measure gives HMRC regulation-making powers to introduce tougher more visible street level sanctions to tackle tobacco duty evasion. These sanctions will be linked to TTS, which through the use of on-pack security markings and scannable technologies has controlled the manufacture and supply of legitimate tobacco in the UK since May 2019.
The measure also provides HMRC with the power to make future regulations, for the effective administration of the TTS system, including the ability to extend its TTS enforcement powers to local Trading Standards authorities.
Policy objective
To help tackle tobacco duty evasion, the government is introducing tougher more effective sanctions to tackle the sale of illicit tobacco, with a focus on deterring those small-scale regular offenders who play a key role in street level distribution.
To provide a legal vehicle to make future regulatory amendments to ensure the effective administration of the TTS.
Background to the measure
In 2017 the government consulted on options for tobacco sanctions, with a focus on repeat offenders. A majority of respondents believed that additional sanctions, including increased financial penalties, would deter repeat offending. Respondents also raised some interest in tobacco sanctions that could be jointly applied by HMRC and Trading Standards.
HMRC undertook to work with other enforcement agencies on the design of possible new sanctions and to assess how these could be introduced alongside other policy developments, such as tobacco traceability.
Due to the complexities involved in implementing the UK’s tobacco track and trace system (TTS) TTS, only basic sanctions were introduced when the system was launched in 2019. The government decided the best approach was to fully embed this system and allow the sell through of old stock to conclude before looking again at sanctions options.
At Budget 2020, the government announced it would consult on the proposed new sanctions linked to TTS and the possible extension of HMRC’s TTS enforcement powers to Trading Standards. This consultation ran from 1 December 2020 to 21 February 2021. HMRC has published a Summary of Responses document together with draft legislation on 20 July 2021.
As the roots of the TTS system lie within EU legislation, it was necessary to introduce regulations to support implementation in the UK. This was achieved using powers under the European Communities Act 1972. Further regulatory amendments were necessary to ensure a UK only TTS could function at the end of Transition Period. These amendments were delivered by way of the Taxation (Cross-border Trade) Act 2018.
For the future administration of the TTS, the government will take this opportunity to insert regulatory making powers for TTS within the Tobacco Duty Products Act 1979.
Detailed proposal
Operative date
The measure will have effect on and after the date of Royal Assent to Finance Bill 2021-22.
Current law
The liability to tobacco duty and power to make regulations is determined by the Tobacco Duty Products Act (TPDA)1979.
Other relevant law:
- the Tobacco Products (Traceability and Security Features) Regulations 2019 were introduced to implement Articles 15 and 16 of the Tobacco Products Directive 2014/40/EU (TPD) which provide for a traceability system and security features system
- the Tobacco Products (Traceability System and Security Features) (Amendments) (EU Exit) Regulations 2020 were introduced to make sure that TTS could continue to operate in both Great Britain and Northern Ireland
Proposed revisions
Legislation will be introduced in Finance Bill 2021/22 to amend the TPDA 1979, giving HMRC the power to make regulations in order to:
- issue financial penalties up to £10,000 for holding or possessing products that do not comply with TTS requirements
- make liable to forfeiture, subject to certain conditions, any TTS compliant tobacco products where they are found alongside product that does not comply with TTS requirements
- withdraw a retailers TTS ID, subject to certain conditions, where they persistently contravened the rules, restricting or curtailing their ability to purchase licit tobacco in the UK
- the power will also enable HMRC to make future regulations for the purpose of:
- setting out the details of how these new sanctions will work in practice
- extending HMRC’s TTS enforcement powers for use by local Trading Standards officers
- making any future administrative amendments to the TTS regulations as may be necessary
The legislation will also introduce a new information gateway, which will allow HMRC to share relevant data to any person connected to the administration or enforcement of the new sanctions.
Summary of impacts
Exchequer impact (£million)
| 2021 to 2022 | 2022 to 2023 | 2023 to 2024 | 2024 to 2025 | 2025 to 2026 | 2026 to 2027 |
|---|---|---|---|---|---|
| – | – | – | – | – | – |
The final costing will be subject to scrutiny by the Office for Budget Responsibility and will be set out at a future fiscal event.
Economic impact
This measure is not expected to have any significant macroeconomic impacts.
The terms used in this section are defined in line with the Office for Budget Responsibility’s indirect effects process. This will apply where, for example, a measure affects inflation or growth. You can request further details regarding this measure at the email address listed below.
Impact on individuals, households and families
These proposals have no impact on compliant individuals and are designed to support action against the illicit tobacco market and associated criminality and to reduce associated harm to individuals, communities and legitimate business. Customer experience is expected to remain broadly the same as this measure is aimed at non-compliant individuals. Compliant individuals will see no change to how they currently interact with HMRC. Given tougher and increased penalties, there could be an impact on family formation, stability or breakdown.
Equalities impacts
Because of differences in consumption there may be a small equalities impact that reflects consumption trends across the adult population. However, this measure will only impact on those involved in or purchasing from the illicit tobacco market.
Impact on business including civil society organisations
These proposals are expected to have a negligible impact on compliant businesses or civil society organisations as they will incur a one-off cost to familiarise themselves with the changes. This measure makes no change to the requirements on legitimate business under TTS and there are expected to be no continuing costs. This measure is designed to support action against the illicit tobacco market and associated criminality and to reduce associated harm to individuals, communities and legitimate business. Customer experience is expected to remain broadly the same as there is no change in how compliant businesses interact with HMRC.
Operational impact (£million) (HMRC or other)
The costs to HMRC are currently being developed and will be included in further, more detailed advice to follow.
This has been approved by Teresa Knowles, Finance Director, CS&TD.
There may be further costs to the Courts and Tribunals Service. These are currently being assessed with Ministry of Justice.
Other impacts
There is no impact on Climate and fuel poverty targets.
There is no impact on Air Quality Targets.
There will be a negligible impact on the Ministry of Justice which are currently being assessed by them.
This measure is not predicted to increase or cause additional activity by Trading Standards but is designed to provide an additional tobacco control tool. However, there may be some additional costs in administering new sanctions and discussions on this continue.
The government acknowledges the benefits of extending powers to Trading Standards and commits to further work to try to overcome challenges identified. All impacting will be done before further steps are taken.
Monitoring and evaluation
The measure will be monitored and assessed alongside other measures in the government’s package for Tackling Illicit Tobacco and Tax Evasion.
The measure will be kept under review through communication with affected taxpayer groups
Further advice
If you have any questions about this change, contact: tobacco.policy@hmrc.gov.uk.