Tobacco Duty: raw tobacco registration scheme
Updated 6 September 2016
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Who is likely to be affected
Any individual or business carrying out a controlled activity in relation to raw tobacco, which includes supplying, receiving, storing or using, including domestic users for smoking or non-smoking purposes.
Raw tobacco is any part of the plant that has been harvested, but does not yet meet the definition of any tobacco products as defined in UK law.
General description of the measure
The measure will give HM Revenue and Customs (HMRC) additional powers to prevent evasion of excise duty through use of raw tobacco. It will be a condition of the registration that the person can show that their involvement with raw tobacco will not result in the fraudulent evasion of tobacco products duty.
The scheme is tailored to reflect a proportionate response to the risks presented. It will enable HMRC and Border Force (BF) officers to identify and seize raw tobacco when evidence isn’t provided to show that the raw tobacco is destined for a registered person or approved premises. The measure will also allow for appropriate sanctions against an unapproved person prohibited from having any involvement with raw tobacco.
Policy objective
The measure intends to reduce the risk of evasion of tobacco excise duty by prohibiting the use of raw tobacco by an unapproved person, to prevent the illegal manufacture of tobacco products. The introduction of a new forfeiture power and penalty will be effective, proportionate and dissuasive.
Background to the measure
The measure will have effect from 1 January 2017 when a three month application window will open for existing businesses and individuals to register. HMRC will assess their ‘fit and proper’ status prior to approval to the scheme. On and after 1 April 2017, the penalty powers and forfeiture power will come into effect. New businesses and individuals who carry out raw tobacco activities after the 1 April 2017 must ensure that they are registered prior to commencement of activity.
The design of the scheme and its draft regulation will be developed in January 2016. Another tax information and impact note will be published for the regulations when they are finalised.
Detailed proposal
Operative date
The law will be enacted on and after the date of Royal Assent to Finance Bill 2016.
The measure will have effect from 1 October 2016 when a three month application window will open for existing businesses and individuals to register. HMRC will assess their ‘fit and proper’ status prior to approval to the scheme. On and after 1 January 2017, the penalty powers and forfeiture power will come into effect. New businesses and individuals who carry out raw tobacco activities after the 1 January 2017 must ensure that they are registered prior to commencement of activity.
Current law
Sections 7A to 7D, and 8A to 8J of the Tobacco Products Duty Act 1979 (TPDA), contain provisions concerned with the prevention of duty evasion. However, raw tobacco is not subject to excise duty under EU law.
The measure introduces a new scheme for the registration of persons and premises concerned with raw tobacco.
Proposed revisions
Legislation will be introduced in Finance Bill 2016 to amend the Tobacco Products Duty Act 1979 (TPDA) and create vires for secondary legislation.
Secondary legislation will come into force on and after 1 October 2016.
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 the prohibition
- a penalty to apply to any breach of the prohibition
Summary of impacts
Exchequer impact (£m)
| 2015 to 2016 | 2016 to 2017 | 2017 to 2018 | 2018 to 2019 | 2019 to 2020 |
|---|---|---|---|---|
| - | +5 | +10 | +10 | +10 |
These figures are set out in Table 2.1 of March Budget 2015 and have been certified by the Office for Budget Responsibility. More details can be found in the policy costings document published alongside March Budget 2015.
Economic impact
This measure is not expected to have any significant macroeconomic impacts.
An adjustment is made for possible behavioural responses where some illicit trade still manages to evade the registration scheme, reflecting evidence of attrition in yield from previous anti-avoidance measures.
As illicit tobacco is substantially cheaper than duty paid tobacco, consumers face a price rise when illicit tobacco is removed from the market. Consumers can respond by reducing consumption, substituting to cross-border shopping or purchasing full price legitimate tobacco.
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 and civil society organisations.
For the 20 to 40 businesses we expect to register, the one off costs of familiarisation with the new scheme, and of registering are expected to be negligible. The new registration scheme will build upon existing registrations processes minimising the impact on legitimate users of raw tobacco.
The ongoing costs of new registrations, providing a reference number and additional record keeping are expected to be negligible. HMRC expect that all legitimate users will already be collecting the required records.
Small and micro business assessment: the requirements of the scheme do not differ depending on the size of the business.
Operational impact (£m) (HMRC or other)
A negligible impact on HMRC to administer a simple registration scheme. This scheme will be based on existing tobacco excise registration schemes.
Other impacts
Justice impact test: we have made contact with the Ministry of Justice. There will be a limited number of regulatory breach penalties due to the small number of registrations expected, we await further work. Other impacts have been considered and none have been identified.
Monitoring and evaluation
The measure will be monitored through information collected from the results of enforcement and compliance activity.
Further advice
If you have any questions about this change, please contact Wendy Longworth on Telephone: 03000 587927 or email: wendy.longworth@hmrc.gsi.gov.uk.