Tough action from HMRC to tackle illicit tobacco trade welcomed

HMRC estimates that 2.5 billion illicit cigarettes and 3,500 tonnes of illicit hand-rolling tobacco were consumed in the UK in 2018/19.

It says this not only has an impact on legitimate retailers, but “cheap cigarettes” often finance organised crime.

HMRC published a 12-week consultation today (December 1), to consider a range of measures to tackle the illicit tobacco trade.

Kemi Badenoch, Exchequer Secretary to the Treasury, said evasion of tobacco duty both robs the Exchequer of revenues and blunts the effectiveness of tobacco duty as a tool to reduce smoking.

“Since its peak in 2000, the UK’s illicit market for cigarettes has reduced by more than a third and hand rolling tobacco by nearly half. Despite this success, the Government is not complacent and recognises that the risk presented by the organised criminal groups behind the illicit tobacco trade remains high and is constantly evolving,” she said.

The proposals include tougher, more effective, sanctions to tackle the sale of illicit tobacco, with a focus on deterring those small-scale regular offenders who play a key role in street level distribution.

Although international and national criminal gangs coordinate the supply of illicit tobacco, most illicit sales in the UK are made by small-scale operators, says HMRC. In 2018/19 local authorities received more than 2,900 complaints about local illicit tobacco sales in small retail shops, off-licences and domestic premises. These three locations accounted for 75 per cent of all tobacco complaints received by local authorities.

In a joint operation with Police Scotland last month, four million illicit cigarettes were uncovered in a Glasgow warehouse, worth an estimated £1.6 million in lost duty and taxes.

A tobacco factory in Hamilton, South Lanarkshire, was also uncovered and two industrial mixing machines, a tobacco shredding machine, packaging and 45kg of tobacco seized.

Three men were charged with Excise Duty fraud and money laundering offences and Joe Hendry, assistant director, Fraud Investigation Service at HMRC, said: “Tackling criminal trade is at the heart of our strategy to clampdown on the illicit tobacco market, which costs the UK around £1.9 billion a year. This is theft from the taxpayer and undermines legitimate traders.”

Earlier last month, a Newcastle father and son, who led a tobacco crime gang that smuggled more than five million illegal cigarettes into the North East, were jailed.

HMRC said the pair orchestrated the delivery and sale of tobacco products worth more than £1.6 million in unpaid duty.

Caroline Austin assistant director at HMRC’s Fraud Investigation Service, said: “This was a highly organised and sustained attack on the public purse.

“Cheap cigarettes come at a cost, as they often finance organised crime and we will continue to pursue those who commit tobacco fraud and steal taxpayers’ money.”

Measures included in the consultation include:

• Extending the ability to enforce selected track and trace sanctions to Trading Standards;
• A new penalty of up to £10,000 for holding or possessing products that do not comply with the track and trace requirements;
• Power to seize any track and trace-compliant tobacco products where they are found alongside product that does not comply with the track and trace requirements;
• The withdrawal of the track and trace operator ID from those retailers which are found with products that do not comply with the track and trace requirements; and
• The withdrawal of the track and trace operator ID from retailers that have had their ability to sell tobacco restricted or curtailed under any other legislation.

Since May 2019, the track and trace system has required every packet of cigarettes manufactured in, or imported into the UK, to be marked with a unique identifier (UID) and anti-counterfeiting security markings. An ID Issuer, appointed by HMRC, generates these UIDs, which it sells to manufacturers and importers for incorporation onto each unit packet in a scannable format. Each unit packet UID is then electronically linked to similar identifiers that appear on all aggregated packaging (carton, mastercase and pallet).

The ACS welcomed the proposed sanctions to tackle tobacco duty evasion and extending HMRC traceability enforcement powers to Trading Standards officers.

ACS chief executive James Lowman said: “The illicit tobacco market damages legitimate retailers and is dangerous for consumers. We have long called for tough action against the illicit trade, and welcome this consultation which aims to ensure that those selling illicit tobacco are stopped from doing so. We will also be working to advise our members to make sure that they do not unwittingly fall foul of the tough enforcement measures we need.”

In previous submissions to Government, ACS has consistently called for greater enforcement action against the illicit tobacco market.

The consultation closes at 11.45pm on February 23, 2021 (https://www.gov.uk/government/consultations/sanctions-to-tackle-tobacco-duty-evasion).