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HMRC internal manual

Tobacco Products Duty

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HM Revenue & Customs
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National Advice Service Enquiries - Calculating the recommended retail selling price

You may be asked by potential importers of cigarettes how to calculate a recommended RSPfor the purposes of establishing the amount of ad valorem duty which would be payable.

Where there is no existing RSP (ie the brand is not currently sold within the UK) thefirst importer of the brand may set one for duty purposes. Whilst cigarettes may beretailed for less than this price, they should not be sold for more than the RSP becausethe ad-valorem duty element is calculated on the RSP.

The RSP may be calculated with the help of the following formula:
 

PRICE = FACTOR COST + SPECIFIC DUTY  
       
    1 - AD VALOREM FRACTION – VAT FRACTION  

If the ad valorem duty element = 22 % and VAT = 17.5%

the formula reads:
 

PRICE = FACTOR COST + SPECIFIC DUTY  
       
    1 – 11/50 – 7/47  

For example, assume:

A Factor cost of £0.70 per 20 cigarettes

Specific element of TPD of £1.80 per 20 cigarettes

Ad Valorem Element of TPD at 22 %

VAT at 17.5%

The formula then reads:
 

PRICE = 0.70 + 1.80 = 2.0132  
       
    1 – 0.22 – 0.14893617021 = 0.631063832979  
       
RSP = £3.22 per packet 20 cigarettes  

Notes:
 

  • The Factor Cost will include all charges, expenses (other than TPD and VAT) and profit margins for the importer, wholesaler and retailer.
  • The calculations apply only where there is no current recommended retail price, (ie the brand is not already sold within the UK).
  • In case of doubt or difficulty please contact the Tobacco Team.