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HMRC internal manual

Tobacco Products Duty

Manufacture: Unaccountable losses

During the manufacture of tobacco products there will inevitably be some loss of tobacco leaf that cannot be accounted for. This loss will show as a discrepancy in the materials reconciliation of receipts and stock against production (as declared on the Production Account), waste and other permitted disposals.

The principle that this inevitable loss should not result in a duty charge is reasonable but determining an acceptable level of loss can be difficult. Actual losses may vary according to the product and the type of machinery used. Experience has shown that monthly losses of around 1 per cent of the tobacco entering the factory may be expected. This is only a guide figure. It is important to establish the level of loss your particular trader considers normal. You should verify that this is reasonable by examining the method of calculation used to arrive at the percentage loss figure and by making a comparison between this and the actual losses in manufacture.

The trader should be required to advise you of any incidence of losses occurring above their expected level and notify you of the outcome of any investigation. Also those losses, which occur suddenly or inconsistently, should be further investigated. In cases where you are not satisfied with the trader’s explanation you should consider assessing/issuing a demand for duty if you have evidence or reasonable grounds for believing that any shortfall has been removed for consumption.