Policy paper

Tobacco Track and Trace following the UK transition period

Updated 22 October 2021

Who is likely to be affected

Businesses engaged in the manufacture, importation or distribution of tobacco products into and through the UK supply chain.

General description of the measure

This measure will give the UK full regulatory control of the traceability and security features schemes that will apply to tobacco products in the UK.

In doing so, it will enable the continued operation of a tobacco track and trace system in the UK following the end of the transition period when Great Britain will lose access to the European Union (EU) system. In addition, it implements obligations under the Northern Ireland Protocol, which require the Tobacco Products Directive 2014/40/EU to continue to apply in Northern Ireland therefore, requiring businesses in Northern Ireland to form part of both systems.

The standalone system in the UK will track tobacco products manufactured in or imported into the UK to the first retailer, through the use of a unique identifier code associated with every packet which is scanned throughout the supply chain. All the data will be submitted to a new gateway in the UK. For tobacco products in Northern Ireland, data will be submitted to the new gateway and also to the EU system.

Policy objective

The UK is a significant target market for illicit tobacco products. The continued operation of the system will reduce the circulation of non-compliant tobacco products which have not had the correct duty paid and do not meet all legal requirements in terms of content and packaging. Reducing the circulation of non-compliant tobacco products will also protect public health and support legitimate businesses.

Background to the measure

The UK is a signatory to the World Health Organization’s Framework Convention on Tobacco Control and Protocol to Eliminate Illicit Trade in Tobacco Products, which requires Parties to implement a system to track tobacco products manufactured in or imported into its territory. The EU also ratified the Protocol and so the UK formed part of an EU-wide traceability system in May 2019.

The UK left the EU on 31 January 2020 and entered a transition period. At the end of the transition period Great Britain will no longer be part of the EU system. However, under Annex 2 to Article 5(4) of the Northern Ireland Protocol to the Withdrawal Agreement, Northern Ireland will remain aligned to the EU’s track and trace system.

This measure makes the minimum changes necessary to ensure that the tobacco products traceability and security features schemes for the whole of the UK continue to function effectively at the end of the transition period. The measure also makes specific provisions for the EU traceability and security features schemes to continue to apply in Northern Ireland, allowing the UK to meet its obligations under the Northern Ireland Protocol.

A public consultation was not carried out as this measure makes the minimum necessary changes to ensure the continued operation of UK-wide traceability and security features schemes and implement the Northern Ireland Protocol. However, HM Revenue & Customs (HMRC) has engaged with the tobacco industry on the actions they will need to take in readiness for the end of the transition period.

Detailed proposal

Operative date

The measure will have effect from the end of the transition period, i.e. 11pm on 31 December 2020 for all cigarettes and hand rolling tobacco.

It will be extended to other tobacco products on or after 20 May 2024.

Current law

The Tobacco Products (Traceability and Security Features) Regulations 2019 (the 2019 Regulations) 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 Commission Implementing Regulation (EU) 2018/574 (CIR), Commission Delegated Regulation (EU) 2018/573 (CDR) and Commission Implementing Decision (EU) 2018/576 (CID) set out the technical detail for both systems.

Proposed revisions

The 2019 Regulations, CIR, CDR and CID will continue to have effect in domestic law following the end of the transition period.

The Tobacco Products (Traceability System and Security Features) (Amendments) (EU Exit) Regulations 2020 (the 2020 Regulations) make the necessary amendments to the retained CIR, to ensure a traceability system is established and operates for the whole of the UK, including Northern Ireland. The CDR is not required for the purposes of the UK track and trace system and so is not applied by this instrument.

The 2020 Regulations also amend the retained CID to ensure the security features system will continue to operate effectively after the end of the transition period in relation to products placed on the market in Great Britain. The 2020 Regulations amend the 2019 Regulations in parallel to the amendments made to the CIR and CID to ensure they continue to operate effectively in relation to both the traceability and security features schemes.

The TPD will continue to apply in relation to Northern Ireland. To ensure obligations under the Northern Ireland Protocol are met, the 2020 Regulations also provide for the 2019 Regulations to be saved with necessary modifications in relation to the traceability system and the marking of tobacco products manufactured in or imported into Northern Ireland. The 2019 Regulations are also amended to provide for the continued application of security features on products placed on the Northern Ireland market.

The 2020 Regulations also make provision to ensure tobacco products placed on the market before the end of the transition period, can continue to move freely through the UK.

Summary of impacts

Exchequer impact (£m)

2020 to 2021 2021 to 2022 2022 to 2023 2023 to 2024 2024 to 2025 2025 to 2026
           

Once the UK transitions to its new relationship with the EU, costings, where required, will be subject to scrutiny by the Office for Budget Responsibility and will be included in their forecasts at a future fiscal event.

Economic impact

This measure is not expected to have any significant macroeconomic impacts. If costs are passed on to consumers, it will lead to a very small positive impact on inflation.

Impact on individuals, households and families

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

Equalities impacts

It is not anticipated that there will be impacts for those in groups sharing protected characteristics.

Impact on businesses including civil society organisations

This measure is expected to have a negligible impact on approximately 45,000 businesses in the UK that are involved in the manufacture, importation or distribution of tobacco products through the supply chain.

An impact assessment relating to the EU system, which Northern Ireland will continue to be part of, has previously been published.

This measure is expected to have increased administrative burdens for approximately 50 businesses involved in the supply of tobacco products that are dispatched from the EU to Northern Ireland via Great Britain. For those businesses in Great Britain and Northern Ireland, scanning requirements are likely to increase and some changes may be required to logistics operations. This impact is being kept under review through ongoing stakeholder engagement and an updated impact assessment will be published if the impacts are determined to be significant.

The system will continue to be funded by the tobacco industry through the purchase of unique identifier codes by manufacturers and importers of tobacco products. The cost per thousand unique identifier codes has increased to fund the changes as a result of this measure.

All businesses impacted by this measure will incur a one-off cost to familiarise themselves with the changes. A further one-off cost will include updating software on their scanning equipment in order to route data to the new UK gateway. Solution providers of the scanning equipment will be required to facilitate this update. For businesses in Northern Ireland, some additional but limited training may be required as it will be necessary to route data to both the new UK gateway and EU system.

Continuing costs will be incurred by businesses in Northern Ireland who will have to submit two messages each time the tobacco products move through the supply chain, rather than one message as they do currently. This cost is expected to be negligible.

Customer experience is expected to remain broadly the same as this measure does not alter how businesses interact with HMRC. There is expected to be no impact on civil society organisations.

Operational impact (£m) (HMRC or other)

There are no operational costs for HMRC or other public bodies as the track and trace system is delivered through a third-party service provider and funded by the tobacco industry.

Other impacts

Other impacts have been considered and none have been identified.

Monitoring and evaluation

The measure will be kept under review through analysis of information in the data repository and ongoing stakeholder engagement with trade bodies and other representative businesses.

Further advice

If you have any questions about this change, contact the Tobacco Track and Trace Team by emailing: tobaccotracktraceteam@hmrc.gov.uk.

Declaration

The Right Honourable Kemi Badenoch MP, Exchequer Secretary to the Treasury, has read this tax information and impact note and is satisfied that, given the available evidence, it represents a reasonable view of the likely costs, benefits and impacts of the measure.