Notice

Excise Notice 2003: Tobacco Duty - the Raw Tobacco Approval Scheme

Published 14 December 2016

Foreword

This notice explains the Raw Tobacco Approval Scheme.

Excise Notice 209: Civil penalties: fixed, geared and daily

Excise Notice 476: Tobacco Products Duty

1. Introduction

1.1 What this notice is about

This notice tells you about the Raw Tobacco Approval Scheme. From 1 April 2017 anyone who carries out any activity involving raw tobacco in the UK must be approved by HM Revenue and Customs (HMRC) unless an exemption applies.

Any activity involving raw tobacco is referred to as a controlled activity.

This notice will help you to understand:

  • how to apply for approval to carry out a controlled activity
  • whether you are exempt from the requirement to apply for approval
  • the conditions and restrictions that apply to an approval and to an exemption
  • what records you’ll need to keep
  • the sanctions and penalties that will be imposed for failing to comply with the scheme

1.2 Who should read this notice

You should read this notice if you intend to carry out a controlled activity in the UK after 1 April 2017.

1.3 Legislation

Legislation applicable to the contents of this notice is:

  • the Tobacco Products Duty Act 1979 (TPDA 1979) (as amended by the Finance Act 2016)
  • the Raw Tobacco (Approval Scheme) Regulations 2016 (RTASR 2016)
  • the Customs and Excise Management Act 1979 (CEMA 1979)

1.4 Contacts for further advice

If you do not already have existing formal arrangements for contacting HMRC you should contact the enquiries helpline on Telephone: 0300 200 3700.

2. Background

2.1 The purpose of the scheme

Raw tobacco is not subject to Excise Duty. There’s a risk that Excise Duty is evaded through the importation of raw tobacco for:

  • processing into smoking products in unregistered premises
  • selling in small quantities to consumers for home processing

The scheme has been introduced to:

  • reduce the risk of Excise Duty evasion
  • prevent the illegal manufacture of tobacco products
  • control the movement of raw tobacco in the UK

From 1 April 2017 all businesses and individuals are prohibited from carrying on any activity involving raw tobacco unless they hold an approval from HMRC. Section 3 to section 6 of this notice cover the approval process, exemptions and the conditions and restrictions that apply to the approval, including the requirement to keep and produce records.

Under the scheme there are limited exemptions from the requirement to obtain approval. Section 4 of this notice sets out the exemptions, conditions and restrictions that apply.

The scheme also includes sanctions for non-compliance, including forfeiture and penalties. Further details are set out in section 7 and section 8.

2.2 Definition of raw tobacco

Raw tobacco means the leaves or any other part of a plant of the genus Nicotiana but does not include:

  • any part of a living plant
  • a tobacco product

Tobacco products are explained in Notice 476: Tobacco Products Duty. If tobacco is not covered within the definition then it is potentially liable to Excise Duty.

2.3 Definition of a controlled activity

A controlled activity means any activity involving raw tobacco.

2.4 Who is affected

From 1 April 2017, all businesses and private individuals in the UK who carry out a controlled activity are affected by the scheme.

3. Applying for approval

3.1 How to apply

You’ll need to write a letter to apply to the scheme. Send your written application to:

Raw Tobacco Approval Scheme
Excise Processing Teams
BX9 1GL

When applying for approval, you must clearly mark your letter as being an application to the Raw Tobacco Approval Scheme.

3.2 Timeline for applications

Applications for approval can be submitted to HMRC from 1 January 2017. If you intend to carry out a controlled activity from 1 April 2017, and an exemption does not apply, then HMRC advise you submit your application at least 45 working days in advance to allow them time to process your application.

Depending on the nature of your application HMRC may need longer than 45 days to consider your application to it. If this is the case then you should be prepared that you may not be approved in time for 1 April 2017. In these circumstances having an application under consideration will not be sufficient for you to carry out a controlled activity after 1 April 2017.

The consequences of carrying on a controlled activity without an approval from HMRC are set out in section 8 of this Notice.

3.3 Information you’ll need to provide when you apply for approval

If you’re intending to carry out any controlled activity as part of a business you’ll need to provide the:

  • legal entity name and, if applicable, company registration number
  • registered business address and how long at that address
  • trading name

If registered, you’ll need to provide your:

  • VAT registration number
  • Self Assessment or Corporation Tax Unique Taxpayer Reference (UTR) number

Applications made by companies need to provide the:

  • name, address and national insurance number for all directors
  • contact telephone number and email address
  • details of the controlled activities you intend to carry out
  • addresses of all the premises from which you intend to carry out controlled activities

You’ll also need to provide the names and addresses of persons who will be supplying you with raw tobacco and their VAT numbers (if registered in the UK) as well as:

  • an estimate of the quantity of raw tobacco with which you’ll be carrying out controlled activities over a 12 month period
  • your estimated annual turnover (for new businesses)
  • whether your application is in conjunction with an application for a tobacco factory or store status

If you’re a private individual, you’ll need to provide your:

  • name and address and your date of birth
  • contact telephone number and email address
  • details of the controlled activities you intend to carry out

You’ll also need to state the:

  • addresses of all the premises from which you intend to carry out controlled activities
  • names and addresses of those who will be supplying you with raw tobacco and their VAT numbers (if registered in the UK)
  • estimated quantity of raw tobacco with which you’ll be carrying out controlled activities over a 12 month period

The person submitting the application must declare that all the information stated in the application is true and complete. If the application is made by a corporate body, the declaration must be made by a director.

You may be asked to send HMRC additional information following your initial application.

3.4 The application process

When HMRC receives your application they’ll check it has been completed correctly and in full. If it’s incomplete, or is in any way unclear, they’ll ask you to supply missing details or clarify certain information. HMRC won’t be able to process your application until that has been done.

HMRC will then perform checks to confirm the information you have given is full and accurate and that you’re suitable for approval. This will involve checks of their records to find out whether you have been compliant with your tax obligations and, in the case of a corporate body, are likely to include checks with Companies House.

HMRC may undertake checks with other government departments and agencies, and credit reference agencies. HMRC will also check the criminal records of applicants for any relevant convictions.

HMRC may need to visit you and your premises to discuss your controlled activities. They’ll ask you for details about (but not limited to) your:

  • potential suppliers
  • proposed customers, if applicable
  • business plan
  • accounting and stock control systems, if applicable
  • premises security and financial viability, if applicable

For further information on what to expect, read General information about compliance checks: CC/FS1a’.

If HMRC discover that the information you have given to them is untrue or incomplete, your application may be refused. You may be prosecuted if you apply for approval by giving false information.

If HMRC checks don’t provide sufficient assurance that you’re suitable to be approved, they may ask you for more information. Until this information is received and verified, your application won’t be processed further.

3.5 The fit and proper test

Applicants must be a fit and proper person to carry out a controlled activity. HMRC must also be satisfied that a controlled activity will not be carried out for the purpose of, or with a view to, the fraudulent evasion of Excise Duty charged on tobacco products.

In order to be satisfied HMRC will consider various criteria such as any evidence of illicit trading by the applicant, or in the case of a corporate body, by those who control it. Checks will be made to ensure that the application does not put the revenue at risk, or commit fraud.

HMRC would consider:

  • assessments for Excise Duty that are unpaid or other under-declarations of tax that suggest there’s a significant risk that the applicant would be prepared to conduct illicit tobacco products manufacture

  • penalties for wrongdoing or other civil penalties, which suggest the applicant does not have a responsible outlook to tax obligations

  • previous occasions where approvals have been revoked or refused for this or other regimes

  • previous confiscation orders and recovery proceedings under the Proceeds of Crime Acts

  • if key persons have been disqualified as a director under company law

HMRC will check there are no connections between the applicant, or key persons controlling the applicant in the case of a corporate applicant, with other persons who have not acted in compliance with the scheme or who have been found guilty of a criminal offence in relation to any excise regimes.

Further checks HMRC would consider are that:

  • the application is accurate and complete and there has been no attempt to deceive

  • there haven’t been persistent or negligent failures to comply with any HMRC record keeping requirements in spite of warnings or absence of key business records

  • the applicant, or for corporate applicants key persons in the business, have not previously attempted to avoid being approved or traded unapproved, or both

  • there are no outstanding, unmanaged HMRC debts or a history of poor payment

Where the applicant requires approval as part of a business, the business is commercially viable or credible, or both, HMRC won’t approve applicants where they find that they cannot prove that there’s a genuine plan to legitimately trade from the proposed date of approval.

HMRC may refuse to approve you for reasons other than those listed if they have justifiable concerns about your suitability to be approved to carry out a controlled activity.

HMRC are also unlikely to approve an application if the applicant has previously had their application for a raw tobacco approval refused and the reasons for that refusal are still relevant.

3.6 What is meant by key persons

Key persons are those who play a key role in the operation of the business to the extent that they can be seen as one of its guiding minds.

For example, they have authority and responsibility for directing and controlling the activities of the business or day to day management. It also includes significant beneficiaries of the business who are not directors or partners.

3.7 If your application details change

You must tell HMRC about any changes or inaccuracies in the information supplied on your application for approval immediately. You must contact the Excise Processing Team or the local Customs and International Trade and Excise (CITEX) Officer who is dealing with your application.

3.8 Application refusals

If HMRC refuse your application they will write to you to confirm the refusal and explain the reasons for the refusal.

If you’re not satisfied with HMRC’s decision, you can ask them for a review, or appeal. The appeal process is set out at section 9.

4. Exemptions

There are certain exemptions from approval to the scheme. If the controlled activity you intend to carry out is not exempt then you must be approved.

Some controlled activities are exempt subject to conditions. If these apply and you fail to comply with those conditions, you are carrying out a controlled activity without an approval and for which you may be liable to a penalty or forfeiture of the raw tobacco.

4.1 Manufacturing or selling nasal snuff

If you plan to manufacture nasal snuff, either for personal use or for sale, this is a controlled activity and you’ll need to be approved. You must also be able to satisfy HMRC that you are not manufacturing a tobacco product that is subject to Tobacco Products Duty.

If you plan to sell or buy nasal snuff which has already been manufactured and packaged as a final product then you’ll be exempt from being approved for raw tobacco, subject to a requirement for amounts of nasal snuff to be in excess of 50g.

4.2 Purchasing tobacco stalks and stems

A person who carries on any activity with tobacco stalks or stems will be exempt from approval. However this is on condition that:

  • no more than 2.5kg is received in a single delivery
  • over a 12 month period the amount held does not exceed 20kg

If you think that your activity will not meet these conditions then you must apply for approval.

4.3 Transporting raw tobacco

You’ll be exempt from approval, as a transporter, if you comply with all of the following conditions to ensure that:

  • a single movement is not more than 200kg
  • a movement must be made to an approved person and to an approved address for holding raw tobacco
  • a record is made of the above, making sure it is held throughout the delivery of the raw tobacco and made available for inspection upon request to an HMRC officer or a Border Force officer

You’ll need to be approved if you wish to transport more than 200kg in a single movement.

4.4 The disposal of waste product from dead plants of the genus Nicotiana

If you keep plants of the genus Nicotiana for horticultural purposes in the UK then you’ll be exempt from approval to hold or transport the plants when they die (at which point they are raw tobacco and subject to the approval scheme). To be exempt you must not:

  • hold or transport an amount of waste raw tobacco which exceeds 2kg at any one time
  • hold approval for another controlled activity
  • manufacture tobacco products

If you don’t meet these conditions then you must apply for approval.

5. Post approval

5.1 If your application is approved by HMRC

You’ll receive your approval letter in the post. This will contain details of each approved controlled activity and the addresses from which you’re approved to carry them out. It will also confirm:

  • your Unique Approval Number (UAN)
  • your name and address
  • any specific conditions or restrictions which HMRC may impose

Approval will be in place for an initial period of 12 months and will be reviewed within this time.

6. Approval conditions, restrictions and responsibilities

6.1 Responsibilities after you’re approved

Once approved, you’ll be required to comply with certain obligations that will apply to all businesses and individuals who are approved under the scheme. This is to:

  • make sure that businesses and individuals continue to be fit and proper for being an approved supplier or approved user of raw tobacco
  • be vigilant and help to reduce the number of opportunities for fraudsters to infiltrate the scheme

6.2 Additional conditions or restrictions that may be applied to your approval

Once approved you must comply with the conditions and restrictions detailed in this notice. In addition, HMRC may decide to apply specific conditions or restrictions in particular cases where they consider that an applicant is fit and proper to be approved but some additional controls are still needed.

These would be designed and used to address specific concerns HMRC might have regarding the circumstances of your controlled activity. If later changes to your usage of raw tobacco mean they no longer have these concerns, HMRC will remove the conditions from the approval.

If HMRC consider that you no longer meet the fit and proper criteria to hold a raw tobacco approval then they will revoke your approval.

6.3 The raw tobacco Unique Approval Number (UAN)

As a condition of approval your UAN must accompany any consignment of raw tobacco so that if it is stopped the number can be checked to confirm that the raw tobacco is moving to an approved premises.

If approved then you don’t need to include this UAN in your records until 1 April 2017, when it becomes a requirement to do so.

If you are buying raw tobacco from a UK based supplier then you should provide your UAN to your supplier prior to making a purchase.

6.4 Notifying a supplier of your raw tobacco UAN

If you’re approved for a controlled activity then you’ll be required to provide your UAN to your approved raw tobacco supplier for your first purchase after 1 April 2017 and for all purchases after that date.

If your raw tobacco supplier is based outside the UK then you should provide your UAN to them so that it can accompany all importations of your raw tobacco purchases after 1 April 2017.

6.5 Making checks on your customer’s UAN

If you’re approved and your controlled activity is as an approved supplier of raw tobacco then you’ll need to confirm that your UK based customer is approved. There is an expectation that as part of your approval there is a duty of care on the supplies that you make.

Details on how you can make checks on approval numbers will be given in your approval letter.

If your customer is new and making a first purchase then you must make a check on their UAN. You don’t need to make checks on every order for regular customers following their initial purchases, but you should make checks on a regular basis. You’ll be expected to look at patterns such as the frequency of purchases as well as the quantities requested.

Any request to purchase more than 50kg must include a check with HMRC to verify the approval is in place.

6.6 Record keeping

As a condition of your approval you’ll need to keep records relating to your controlled activity. For businesses the following is a minimum requirement:

  • purchase orders
  • invoices
  • delivery/transportation notes
  • stock records
  • production records or records of use
  • records of product lost or destroyed
  • a record relating to an importation or exportation
  • sales records including customer UANs
  • payment records
  • any other record maintained for a trading or business purpose

Private individuals must keep records relating to their:

  • purchases including quantities
  • usage

Any record that is required to be kept must be preserved for a period of 6 years and must be made available to an HMRC officer upon request.

6.7 Record keeping for exemptions

If you have an exemption for stalks and stems or nasal snuff you must keep, preserve and produce the records that relate to:

  • the import and export of exempt tobacco
  • the ordering and delivery of exempt tobacco
  • invoices and receipts relating to exempt tobacco

Any record that is required to be kept must be preserved for a period of 6 years and must be made available to an HMRC officer upon request.

Exempt tobacco means tobacco stalks and stems and packaged nasal snuff.

6.8 If your details change

You must notify HMRC in writing to the address in section 3.1 prior to any changes taking place. All approvals contain a condition that the approved person must notify HMRC if the approved person intends:

  • to change their address, email address or telephone number
  • the premises from which a controlled activity may take place is to change from that set out in the approval
  • to increase the quantity of raw tobacco in respect of any controlled activity for which they are approved
  • to change any of the controlled activities which they are approved to carry out

You must also notify HMRC in the case of:

  • a corporate body as an approved person, the directors are to change
  • approval to carry out a controlled activity as part of a business, the trading name or VAT number is to change or, where a VAT number was not previously allocated, it is to be allocated

HMRC will need to consider whether or not to vary your approval or if the approval should be revoked. Depending on the type of changes that are proposed it could be necessary for HMRC to carry out further checks to assure that you’re still a fit and proper person. Once these checks are complete HMRC will contact you to tell you the next steps.

6.9 If you breach any conditions set on your approval

If you don’t comply with any conditions of your approval, HMRC may:

  • vary the conditions and restrictions of the approval
  • impose a financial penalty
  • forfeit the raw tobacco
  • revoke your approval

HMRC will write to you giving you notice of any action they wish to take. If you disagree with any sanction HMRC impose you may have the right to appeal. Please see section 9.

6.10 Surrendering of your approval

If you no longer require to be approved to conduct a controlled activity using raw tobacco then you should write to the Excise Processing Team as soon as this information is known.

You may be contacted by HMRC to review your request to confirm there are no outstanding issues from your controlled activity.

6.11 Revocation of your approval

HMRC can revoke your approval if necessary by giving you notice. If you disagree with their decision you may have the right to appeal.

7. Penalties

From 1 April 2017 all persons who carry out any activity involving raw tobacco, unless covered by exemption, must hold approval from HMRC. Failure to have approval may result in a regulatory penalty or forfeiture of the raw tobacco.

7.1 Liability to a penalty

You’ll be liable to a penalty if you:

  • carry out a controlled activity without approval
  • breach any of the conditions or restrictions that apply to your approval
  • breach the requirements for an exemption from approval

7.2 Calculation of a penalty

You’re liable to a penalty when you’ve put raw tobacco to use without approval. The penalty is calculated on the amount of Excise Duty equal to that which would be charged on the relevant quantity of smoking tobacco.

If you’re liable to a penalty whereby raw tobacco has been put to a use outside of an exemption then you’re liable to a penalty of £250.

If the penalty is less, an amount equal to the amount of duty that would be charged on the relevant quantity of smoking tobacco.

7.3 Definition of smoking tobacco

Smoking tobacco is in reference to other smoking products as described in section 1(1)(d) TPDA 1979.

The rate of duty per kilogram is shown in Schedule 1 TPDA 1979.

7.4 If you’re liable to a regulatory penalty and you think there are special circumstances

HMRC, or an independent tribunal, may agree that there is a special circumstance for the occurrence of the breach. If this is agreed then your penalty may be reduced. This also includes the staying of a penalty as well agreeing a compromise in relation to proceedings for a penalty.

A special circumstance does not include the ability to pay.

7.5 If you’re liable to a regulatory penalty and you think you have a reasonable excuse

If you feel that the circumstances that led to the penalty were not deliberate and that you can evidence that you have a reasonable excuse for the circumstance to have occurred then HMRC may decide not to issue you with a regulatory penalty.

7.6 What is meant by reasonable excuse

HMRC will look closely at the circumstances of each case, and the conduct that led to the breach.

It’s not considered a reasonable excuse if you relied on someone else to perform a task for you, unless you can demonstrate that you took reasonable steps to avoid the contravention.

7.7 How penalties are notified

HMRC will notify you in writing of your liability to a penalty. You have the right to appeal if HMRC issue you with a penalty, see section 9.

7.8 Other penalties

Penalties may also arise under other excise regimes, for example:

  • regulatory penalties for breaches of an excise approval to produce, hold or store goods in duty suspension
  • failure to notify and excise wrong-doing penalties for handling goods subject to unpaid Excise Duty that arise under Schedule 41 of the Finance Act 2008

8. Forfeiture

8.1 When HMRC will consider seizing goods

HMRC may seize raw tobacco where:

  • you carry out a controlled activity without approval
  • you breach any of the conditions or restrictions that apply to your approval
  • you breach the requirements for an exemption from approval

9. Reviews and appeals

9.1 If you disagree with HMRC’s decision

Decisions which you can ask to be reviewed and may appeal are decisions to:

  • refuse approval or to revoke or vary the terms of an approval
  • apply a penalty and the amount of any penalty
  • apply any additional conditions or restrictions

If you don’t agree with any of these decisions, you can:

  • tell the person who issued the decision if you have further information or you think HMRC has missed something
  • ask for it to be reviewed by an HMRC officer not previously involved in the matter
  • appeal to an independent tribunal

9.2 Time limits for requesting a review or an appeal

If you want HMRC to review a decision, you must write to the person who issued the decision letter within 30 days from the date of that letter. Your request should:

  • set out clearly the full details of your case
  • give the reasons why you disagree with the decision
  • provide any supporting documentation

You should also state what result you expect from the review. HMRC will complete a review within 45 days, unless they agree another deadline with you.

9.3 Appealing after HMRC have completed their review

If you still want to appeal to the Tribunal after the HMRC review has been completed you should send details of your appeal to the Tribunal within 30 days of the date of the HMRC review decision letter.

9.4 Appealing to Independent Tribunal

You can appeal directly to the Tribunal Service without an HMRC review, by completing an appeal form. For general enquiries ring the helpline on Telephone: 0300 123 1024.

9.5 Further information

More about general excise enquiries and what to do if you disagree with a tax decision or you can use fact sheet, HMRC1: HM Revenue and Customs decisions - what to do if you disagree.

Your rights and obligations

For an explanation of what you can expect from HMRC and what HMRC expects from you, read Your Charter.

Your comments or suggestions

If you have any comments or suggestions to make about this notice, please write to:

HMRC
Indirect Tax Tobacco Team
3rd Floor West
Ralli Quays
3 Stanley Street
Salford
M60 9LA

This address is not for general enquiries.

For your general enquiries please Telephone: 0300 200 3700.

Putting things right

If you’re unhappy with HMRC’s service, please contact the person or office you have been dealing with. They’ll try to put things right.

If you’re still unhappy, find out how to complain to HMRC.

How HMRC uses your information

HMRC is a Data Controller under the Data Protection Act 1998. HMRC hold information for the purposes specified in their notification to the Information Commissioner, including the assessment and collection of tax and duties, the payment of benefits and the prevention and detection of crime, and may use this information for any of them.

HMRC may get information about you from others, or they may give information to them. If they do, it will only be as the law permits to:

  • check the accuracy of information
  • prevent or detect crime
  • protect public funds

HMRC may check information it receives about you with what is already in its records. This can include information provided by you, as well as by others, such as other government departments or agencies and overseas tax and customs authorities. HMRC will not give information to anyone outside the organisation unless the law permits it to do so. For more information read the guidance on data protection.