Policy paper

Tobacco Duty: Illicit Trade Protocol - licensing of tobacco manufacturing machinery

Published 5 December 2016

Who is likely to be affected

Businesses in possession of, importing, exporting or manufacturing tobacco manufacturing machinery.

General description of the measure

This measure will give HM Revenue and Customs (HMRC) additional powers to tackle the evasion of Excise Duty on tobacco products through the control of tobacco product manufacturing machinery. The measure will also allow for appropriate sanctions against a person or business possessing unlicensed tobacco manufacturing machinery.

It will enable ratification of the Framework Convention on Tobacco Control (FCTC) Illicit Trade Protocol. Measures in the Protocol such as registration of tobacco manufacturers have already been adopted in the UK.

Policy objective

The measure is aimed at reducing the risk of evasion of excise duty on tobacco products by controlling the use and ownership of tobacco manufacturing machinery to help prevent the illicit manufacture of tobacco products.

Background to the measure

The government announced at Autumn Statement 2015 that HMRC would launch a formal consultation on the implementation of Article 6 of the Protocol. HMRC published a formal consultation concerning Article 6 on 25 February, which closed on 20 May 2016.

Detailed proposal

Operative date

This measure will have effect on and after the date of Royal Assent to Finance Bill 2017. All new, existing owners and users of manufacturing machinery used primarily to manufacture tobacco smoking products will have to secure a licence for each machine by 1 April 2018. Applications will be accepted from January 2018. HMRC will assess the ‘fit and proper’ status of applicants and their proposed use of the machine prior to issue of a licence. From 1 April 2018 the penalty powers and forfeiture power will come into effect. Businesses in the UK who use, hold in storage or manufacture machinery that is primarily to be used to manufacture tobacco products after the 1 April 2018 must hold a valid licence prior to taking possession of a tobacco manufacturing machine.

Current law

The measure introduces a new scheme for the licensing of machinery used for the manufacture of tobacco products. Legislation will be introduced in the Tobacco Products Duty Act 1979.

Proposed revisions

Legislation in Finance Bill 2017 will amend the Tobacco Products Duty Act 1979 and create a power for secondary legislation.

Secondary legislation will come into force by 1 January 2018.

The legislation will include penalty powers and a power of forfeiture.

Under the powers HMRC will be able to impose:

  • a regulatory penalty
  • a power of forfeiture for a breach of prohibition

Summary of impacts

Exchequer impact (£m)

2016 to 2017 2017 to 2018 2018 to 2019 2019 to 2020 2020 to 2021 2021 to 2022
- negligible negligible negligible negligible negligible

This measure is expected to have a negligible impact on the Exchequer.

Economic impact

This measure is not expected to have any significant economic impacts.

Impact on individuals, households and families

There is no impact on individuals and households because this is a change that affects businesses only.

This measure is not expected to impact on family formation, stability or breakdown.

Equalities impacts

This measure is not expected to have an equalities impact.

Impact on business including civil society organisations

This measure is expected to have a negligible impact on businesses.

It is expected that approximately 10 to 15 businesses will need to secure a licence for each machine and will be subject to negligible one-off costs of familiarisation with the new scheme and securing a licence.

The ongoing costs for licences for each machine are expected to be negligible. For businesses who already operate registered tobacco factories, the new requirements will be integrated with their existing registrations as far as possible.

This measure is not expected to have any impact on civil society organisations.

Operational impact (£m) (HMRC or other)

There will be a negligible impact on HMRC to administer a simple machinery licensing scheme. The scheme will be based on existing tobacco excise registration schemes and is expected to have very few users.

Other impacts

Justice Impact Test: HMRC has made contact with the Ministry of Justice. There will be a limited number of regulatory breach penalties due to the small number of licence applications expected.

Other impacts have been considered and none have been identified.

Monitoring and evaluation

The measure will be monitored through communication with affected taxpayer groups.

Further advice

If you have any questions about this change, please contact Mark Palmer on Telephone: 03000 587928 or email: mark.t.palmer@hmrc.gsi.gov.uk.