From 1 January 2014 herbal smoking products will have Tobacco Products Duty charged on them unless they are to be used exclusively for medical purposes.
This guide explains your responsibilities if you are a UK manufacturer or importer of herbal smoking products, including: how to register as a manufacturer, the records you must keep, what returns you need to complete and where to get more help and advice.
Herbal smoking products
The following products are classed as herbal smoking products. Herbal:
- pipe smoking mixtures
- water pipe (shisha) containing no tobacco
- smoking mixtures for hand rolling into cigarettes
These are only examples of the type of products that are classed as herbal smoking products and other products could be affected.
UK manufacturers or importers: responsibilities
The rules for herbal smoking products apply to UK manufacturers and importers of herbal smoking products, and they also apply indirectly to wholesalers and retailers.
Manufacturers and importers will need to understand the legislation and put in place processes to calculate and record any duty they are liable for.
Wholesalers and retailers of herbal smoking products must ensure that they supply legitimate, duty-paid, product. If they do not, they can both be liable for the duty (‘jointly and severally liable’), and may face penalties for handling goods depending on the amount of unpaid duty.
If you’re a UK manufacturer of herbal smoking products you must:
- apply to become both a registered tobacco factory and a registered store
- comply with specific conditions before HMRC will register premises as a factory and store
If you’re a UK importer of herbal smoking products you must:
- be approved as a registered owner by HMRC if you wish to put excise goods intended for removal to home use in the UK, in an excise warehouse
- consign any herbal smoking products that you import into the UK under duty – suspension arrangements from an EU member state to an excise warehouse, a Registered Consignee or a Temporary Registered Consignee (these approval types apply only to Northern Ireland)
And if you are both a UK manufacturer and an importer, you must:
- put in place a process to calculate and record the duty you are liable for
- submit a daily or monthly return
- put arrangements in place to make payments of Tobacco Products Duty
- have received a UK marketing licence from the Medical and Healthcare Products Regulatory Authority if you want an exemption on any manufactured herbal smoking products that are used exclusively for medical purposes
You can find out more information on the specific conditions you must comply with before HMRC will register premises as a factory or store in Notice 476 Tobacco Products Duty.
Help and support
You can contact the Excise and Customs helpline, or email your question to them.
Registration procedures for UK manufacturers of herbal smoking products
The manufacture of herbal smoking products, other than in registered factories, is illegal unless the products are to be used for research or experiment. You should contact HMRC if you feel that the herbal smoking products you manufacture fall within the rules covering research or experiment.
UK manufactured herbal smoking products that are intended for home use and on which Tobacco Products Duty has not been paid can only be stored in a registered store.
If you fail to apply to register with HMRC at the right time you may be liable to a civil penalty.
Before you can register your premises as a factory and store, you will need to comply with certain conditions.
Information about the specific conditions that you will need to comply with before HMRC will register your premises and store can be found in section 4 of Notice 476 ‘Tobacco Products Duty’.
HMRC will apply the regulations within the constraints of the law, but will do everything they can to keep burdens on business to a minimum. For example, HMRC may not be prescriptive about the layout and security of a tobacco products factory where the raw materials are flowers and herbs, although some special conditions may be needed to keep the approval simple. For example, registered stores might not be able to contain tobacco products.
Any special conditions that HMRC require will be shown on your registration certificate.
How to register your factory premises
Register any premises that you intend to use for:
- the UK manufacture of herbal smoking products for purposes other than research or experiment
- storage of herbal smoking products without payment of Tobacco Products Duty
You cannot store manufactured tobacco products in your factory for more than one day; this is why you need to register a separate storage facility.
If you’ve not already registered as a factory and store you need to write to HMRC to apply. You should write to:
HM Revenue and Customs
Excise Processing Team
If your business operates under one legal entity and you are already registered as a factory and store for the manufacture of tobacco products, you may be able to extend your registered premises to incorporate the factory and store for the manufacture of herbal smoking products. You should write to the Excise Processing Team at the address shown above and give at least 30 days notice of your intentions.
If your business is not under one legal entity then you must write to HMRC to apply to become a registered tobacco factory or store. You must also write to HMRC to apply to become a registered store where you intend to store herbal smoking products without payment of Tobacco Products Duty.
Find out more about what you need to include in your registration letter.
If you disagree with the registration conditions set out in the registration letter, or if HMRC refuse to register your premises or revoke your registration you may be able to resolve the matter by sending further information to the officer who sent you the decision.
If you cannot come to an agreement you can ask for either of the following:
- a review of HMRC’s decision
- your appeal to be heard by an independent tribunal
If you decide you would like a review of HMRC’s decision, or would like to appeal, you will need to tell HMRC in writing within 30 days of HMRC’s decision. You should write to the address shown on the decision letter.
Help with registering
If you have any questions about registering as a herbal smoking products UK manufacturer you can contact the Excise and Customs helpline or email your question to them.
Record keeping requirements
There are certain records that you must keep, and be ready to show HMRC when asked.
If you’re both a manufacturer and importer of herbal smoking products, you will need to keep:
- annual accounts, including profit and loss accounts
- bank statements and remittance advice slips
- cash books and other account books
- credit or debit notes you send out or receive
- import and export documents
- orders and delivery notes
- purchase and sales daybooks
- purchase invoices and copy sales invoices
- records of daily takings, such as till rolls
- relevant business correspondence
UK manufacturers of herbal smoking products, will also need to keep records relating to the products and materials you use in the manufacturing process. These include:
- all materials received
- all materials used in each manufacturing batch or during any period of manufacture agreed with HMRC
- all materials disposed of
- any refuse deriving from materials used
- all refuse disposed of
- all herbal smoking products in your possession prior to their entry into the production account
You must keep all your business records for at least 6 years. This includes manual or electronic records, unless HMRC have allowed a shorter period. If retaining records for the statutory period of time causes you storage problems, you should contact HMRC to discuss.
Periodically, HMRC will visit you at your main place of business to give you any help and advice you may need, and to examine your business records. You must have your records easily available when they visit.
If you do not comply with the record keeping requirements you may be liable to a civil penalty. If you do not understand any of the requirements, or if you have any questions, you should contact HMRC.
You can find further information about what records you must keep, along with further information about general record keeping requirements in Notice 206 Revenue Traders Records.
You can find information about the records and accounts you must keep in Notice 476 Tobacco Products Duty.
Returns and paying Tobacco Products Duty
If you are a UK manufacturer or an importer of herbal smoking products you must send HMRC regular returns, excise warehouse removal declarations and payments.
UK Manufacturers Return
You must complete a ‘Return of duty on tobacco products for home use’ form TP7 daily unless you are approved to use the duty deferment.
If HMRC have agreed that you can submit a monthly return (TP7), this must be submitted by the 15th day of the month following the accounting period. If the 15th day falls on a non-business day, payment must be made on the next business day.
You can find further information about Tobacco Products Duty returns in Notice 476 Tobacco Products Duty.
Registered Consignees Return
This paragraph applies only to Northern Ireland. If you import herbal smoking products into Northern Ireland and you are an approved Registered Consignee, you must submit form ‘HM2 Return of Excise Duty for Registered Consignees or Registered Commercial Importers’ to HMRC.
You can find further information about returns and Registered Consignees in Notice 203A Registered Consignees. Applies only to Northern Ireland.
Payment of duty on removal of goods
Where goods are removed from an excise warehouse and payment of the duty is to be paid by cash (or equivalent), form W6 – Excise Warehouse remittance advice for tobacco goods should be completed. This form is used to register excise duty and VAT on tobacco products.
Removal of goods and duty deferment
Where goods are removed from an excise warehouse and you are approved to pay duty by deferment, form W6D – Excise Warehouse – deferment advice for tobacco goods should be completed. This form should be used to defer excise duty and VAT on tobacco goods.
The warehousekeeper of an excise warehouse (on behalf of an owner or importer of tobacco products, including herbal smoking products) is responsible for completing and submitting the W6 or W6D form to HMRC using the Alcohol and Tobacco Warehousing Declaration (ATWD) service or by sending the W6 or W6D to the following address:
HM Revenue and Customs
Excise Processing Team
Deadlines for returns and payment
If you are approved for duty deferment your Tobacco Products Duty return and payment are due no later than the 15th day of the month after the accounting period. If that day falls on a weekend or bank holiday the return must be received on the next business day.
If you are not approved for duty deferment and you manufacture herbal smoking products in the UK, you must submit a Tobacco Products Duty return and pay Tobacco Products Duty daily.
This paragraph applies only to Northern Ireland. If tobacco products are imported through the Registered Consignee scheme, the duty return must be submitted to HMRC within 4 working days following the end of each calendar month accounting period. Payment is due on the 15th day of the month following the end of the accounting period. If the 15th falls on a non-banking day, payment must be made on the last banking day before the 15th.
Temporary Registered Consignees
This section applies only to Northern Ireland.
You must secure the total duty due on each consignment at the time of submitting your completed TRC2 form to the Temporary Registered Consignees team.
The secured amount becomes an actual duty payment once you notify HMRC of the receipt of the goods.
Further information about Temporary Registered Consignees and when and how to make payments can be found in Notice 204A.
Removal from an excise warehouse for home use
If you are a warehousekeeper or owner of goods and approved for duty deferment, payment is due no later than the 29th day of the month after the accounting period, or the 28th for the month of February when a leap year applies. If the 29th or 28th day falls on a weekend or bank holiday, your payment must be received on the last business day before the 29th.
If you are a warehousekeeper or owner of goods and are not approved for duty deferment payment you must ensure that your W6 is completed and payment is made on a daily basis.
You can find further information about paying Tobacco Products Duty where goods have been removed from an excise warehouse for home use in Notice 197.
Imports of herbal smoking products
This paragraph only applies in Northern Ireland to imports from outside the EU. For the rest of the UK this applies to imports from the EU and other countries.
If you bring herbal smoking products into the UK payment of Tobacco Products Duty is due on the goods:
- at importation when declared on the customs import declaration to free circulation, along with any customs duty that applies and VAT
- on removal from a customs warehouse to free circulation along with any customs duty that applies and VAT
Payment of Tobacco Products Duty can be suspended by transferring the goods to an excise warehouse following release to free circulation (this means that all customs duties have been paid) from either the place of importation or a customs warehouse. This procedure must be undertaken by a registered consignor. Tobacco Products Duty will then be due and accounted for on removal from the excise warehouse when declared on forms W6 or W6D.
Further information on customs import procedures can be found in Volume 3 of the Tariff.
Duty-paid goods in the EU member state of dispatch – Northern Ireland only
If you bring UK manufactured tobacco (including herbal smoking products) from EU member states into Northern Ireland and the duty has already been paid on it in the EU member state it was dispatched from, you must secure the UK duty on commercial supplies of these goods before they are dispatched to Northern Ireland.
You can find further information about duty-paid schemes in Notice 204B. This applies only to Northern Ireland.
You’ll be able to pay tobacco product duty electronically by:
- Direct Debit
- Bacs Direct Credit
- Faster Payments by online or telephone banking
There are a number of situations where you might receive a penalty, for example if you:
- manufacture tobacco products (including herbal smoking products) in the UK and do not register with HMRC on time
- do not submit your return on time
- fail to pay assessments of duty that HMRC have issued due to late returns
- make a mistake on your return
Failure to register
If you manufacture herbal smoking products in the UK and have failed to register with HMRC you could be charged a penalty.
Failure to send your return on time
If you do not send your return by the due date you may be charged a penalty. The penalty date is the day after the due date for filing the return.
If you do not pay on time
If you do not pay the Tobacco Products Duty you owe by the due date then you may be charged a penalty. You should contact HMRC as soon as possible if you are having difficulty paying the duty that you owe.
Read what happens if you do not tell HMRC that you need to pay tax – failure to notify.
How HMRC calculate penalties
The penalty amount will be a percentage of the duty and tax that has not been paid, for example the amount of duty on herbal smoking products manufactured in premises not properly registered. The percentage used will depend on whether the error on which the penalty is being calculated was:
- deliberate and concealed
- deliberate but not concealed
- not deliberate
If you do receive a penalty you are entitled to a review and may appeal to an independent tribunal.
Find information on HMRC decisions – what to do if you disagree.