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HMRC internal manual

Tobacco Products Duty

Accounting procedures: Duty deferment: financial security

Financial security for duty deferment is required in the form of a guarantee given by an approved bank or insurance company. The guarantor can be liable for up to twice the amount shown on the guarantee because before payment is due for the first month another month’s liability can be deferred.

The amount must cover all the TPD duty likely to be deferred in one month on removals from registered premises where the monthly liability is £5 million or less.

Traders with a monthly liability of between £5 million and £50 million are permitted to have a partially secured guarantee. The first £5 million is fully secured but only 10% of the balance between £5 million and £50 million need be secured. The following example demonstrates the principle.

  • Monthly average TPD liability is £200 million.
  • The first £5 million is fully secured, requiring a guarantee of £5 million.
  • 10 per cent of the liability between £5 million and £50 million (ie £50m - £5m x 10% = £4.5m) is secured, requiring a guarantee of £4.5 million.
  • No guarantee is required for the liability in excess of £50 million.
  • The total guarantee required is, therefore, £9.5 million (ie £5m + £4.5m = £9.5m).

If the trader requests, a single guarantee may cover other excise duties and customs duty. In that case part of the guarantee is allocated to each component, eg TPD, customs duty and VAT. Alternatively one guarantee may be provided for all deferrable TPD liabilities on removal from registered premises, and a separate guarantees for any other deferred excise duties, customs duty and VAT.

In either case where the guarantee covers the TPD due on removals from more than one registered premises, CDO must be notified of the liability for the individual sites.

At peak trading periods the trader may request extra cover, although an increase in the actual guarantee would only be necessary if it was for less than £50 million.

Traders must keep a separate total of each day’s duty liability and monitor the running total against their deferment guarantee limit. They should inform you when 90% of their permitted monthly liability is exhausted because they will need to use one of the direct payment methods if the limit is reached.