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Taxation of tobacco and related products

This section covers excise on imported tobacco products, protocols for duty rates and payment (Article 6 of the WHO FCTC) and measures to tackle the illicit trade (Article 15 of the WHO FCTC) as both come under HM Revenue and Customs in the UK. The UK has among the highest tobacco taxes in the world, and the most stringent requirements for tackling the illicit trade. For more information see 2019 World Bank report; United Kingdom: Tackling Illicit Tobacco.

Tobacco Products Duty rates

UK duty rates are set by HM Treasury in the Budget, usually held annually. In the 2020 Budget the UK committed to implement a tobacco tax escalator of RPI +2% for the duration of this parliament. See 2019 World Bank report, United Kingdom: Tackling Illicit Tobacco for tobacco tax changes since the tax escalator was first implemented in 1993.

Legislation covering tax and illicit trade is set out below.

Finance Act 1976

Excise duties on the import of tobacco products have existed since 1660 but this Act harmonised excise duties with the requirements of the European Economic Community.

  • Made 29 July 1976, UK wide; new excise duty came into force 10 May 1976.

Tobacco Products Duty Act 1979

Sets out provisions for calculating and changing tobacco duty rates, for payment, for tackling smuggling of illicit tobacco, and on fiscal marks to indicate excise duty on tobacco products has been paid.

  • Made 22 February 1979, UK wide.
  • Stipulates that duty rates are to be calculated in reference to retail price of a cigarette packet.
  • Stipulates that duty rates may always be changed but only by up to 10% of the pre-existing rate and not by longer than one year – after one year a new order on duty rates must be made.
  • Restricts the amount of tobacco that can be removed from market for home use during the three months after new excise duty rates are announced (anti-forestalling period).
  • Imposes a duty on tobacco manufacturers not to facilitate smuggling and bans supply of tobacco products to smugglers including via oversupply of tobacco; imposes penalties.
  • Enables the provision of regulations requiring tobacco products to carry fiscal marks to act as indicators that the proper amount of excise duty has been paid.

The Tobacco Products Regulations 2001

Sets out provisions for the manufacture and supply of tobacco products and payment of duty.

  • Made 8 May 2001, UK wide; came into force 1 June 2001.
  • Requires premises to be registered in order to manufacture tobacco products, to be known as ‘registered factories’; tobacco products can only be manufactured in registered factories.
  • Gives authorities permission to revoke registration for failure to comply with regulations.
  • Sets out rules for calculation, payment of tobacco products duty, penalisation for offenders.
  • Sets out information manufacturers must provide before the excise duty point for their products including brand name, recommended price, packet sizes, and description of product.
  • Built on Tobacco Products Duty Act 1979 to require fiscal markings on tobacco products to indicate ‘UK Duty Paid’ to distinguish between legitimate and illicit trade; imposes penalties.

Finance Act 2006

Various financial regulations; only those to limit illegal trade of tobacco into the UK included below.

  • Laid before Parliament 19 July 2016; UK wide.
  • Imposes a duty on tobacco manufacturers to avoid supplying cigarettes or hand-rolling tobacco to persons likely to smuggle them into the UK.
  • Requires manufacturers to maintain policies and supply information to limit illicit trade.
  • Enables authorities to impose penalties on tobacco manufacturers who do not comply.
  • Excise Notice 477: tobacco duty - duty not to facilitate smuggling sets out the detail - financial penalties of up to £5 million can be levied.

The Excise Goods (Holding, Movement and Duty Point) Regulations 2010

Transposes Chapters I to V of EU Council Directive 2008/118/EC regarding general arrangements for excise duty into UK law, including for tobacco products.

  • Made 3 March 2010, UK wide; majority of regulations came into force 1 April 2010.
  • Sets out rules for excise goods, point at which excise duty is paid, and payment of the duty.
  • Sets out rules for holding, movement, and excise of goods under duty suspension.
  • Sets out specific excise rules for chewing and heated tobacco.

The Tobacco Products Manufacturing Machinery (Licensing Scheme) Regulations 2018

Sets out framework for a licensing scheme for tobacco products manufacturing machinery. See also Impact Assessment and Explanatory Memorandum for more information and background.

  • Made 23 January 2018, UK wide.
  • Stipulates that a person may not manufacture, purchase, acquire, own, or be in possession of manufacturing machinery for tobacco products without a license.
  • Sets out conditions for gaining a license, license administration, penalties, and enforcement.