Consultation outcome

Tax Information and Impact Note - The Tobacco Products (Descriptions of Products) (Amendment) Order 2019

Updated 23 May 2019

Who is likely to be affected

This measure is expected to impact a small number of tobacco manufacturers, who are large companies and SME (Small and Medium Enterprises) tobacco importers.

General description of the measure

The measure inserts a description of tobacco for heating into the Tobacco Products (Descriptions of Products) Order 2003.

Policy objective

The measure maintains the effectiveness of the tobacco duty regime.

Tobacco for heating (also known as ‘heat not burn’) is a recent development in the tobacco market. These products contain processed tobacco that is heated but not burned as it is in conventional tobacco products.

The Tobacco Products Duty Act 1979 sets out the rules for calculating excise duty due on tobacco products. The existing duty categories capture tobacco designed for smoking but they do not specifically capture smokeless products (apart from chewing tobacco).

At present, there are only a small number of products using tobacco for heating on the UK market and HM Revenue and Customs (HMRC) assess these on a case by case basis to determine the liability to tobacco products duty. This is not efficient, particularly if the number of products on the market increases.

This description will provide clarity and certainty as to what is categorised as tobacco for heating and ensure that tobacco for heating is captured within the tobacco duty regime. The new category will mean that there is less opportunity for manufacturers to attempt to reduce their duty liability by producing products which do not clearly fall within an existing category.

Background to the measure

At Budget 2016, the government announced a consultation on the treatment of tobacco for heating. The focus of the consultation was a new duty category that could sufficiently differentiate tobacco for heating from existing tobacco products. The consultation ran from 20 March 2017 to 12 June 2017.

At Spring Statement 2018, the government published its consultation response document which announced its intention to legislate for a new duty category in Finance Bill 2018-19. Draft primary legislation was published for technical consultation on 6 July 2018. The draft clause for tobacco for heating was included in the Finance Bill 2018-19, published on 7 November 2018. This clause amends sections 1(1) and 1(3) as well as Schedule 1 to the Tobacco Products Duty Act 1979 to introduce a new category of tobacco product, called tobacco for heating.

The clause also included a power to amend the Tobacco Products (Descriptions of Products) Order 2003 to insert a description of tobacco for heating and to make consequential amendments to other regulations, for example, for the holding and movement of tobacco for heating within the excise regime.

Detailed proposal

Operative date

HMRC intend to make and lay a Statutory Instrument amending the Tobacco Products (Descriptions of Products) Order 2003, to describe the new category of tobacco for heating, effective from 1 July 2019. The existing temporary arrangements for the treatment of tobacco for heating will remain in place until 1 July 2019.

Budget 2018 announced that the duty rate for tobacco for heating will commence on 1 July 2019.

Current law

The primary legislation for tobacco products duty is contained in the Tobacco Products Duty Act 1979, which sets out the categories of tobacco product and contains the duty rates for those products.

The Tobacco Products (Description of Products) Order 2003 describes tobacco products for the purposes of the Tobacco Products Duty Act 1979.

Proposed revisions

This Statutory Instrument will insert a new article 9 into the Tobacco Products (Description of Products) Order 2003, which will describe tobacco for heating, ensuring that this category of tobacco product is distinct.

Summary of impacts

Exchequer impact (£m)

2018 to 2019	2019 to 2020	2020 to 2021	2021 to 2022	2022 to 2023	2023 to 2024

These figures are set out in Table 2.1 of Budget 2018 and have been certified by the Office for Budget Responsibility. More details can be found in the policy costings document published alongside Budget 2018.

Economic impact

The measure is not expected to have any significant macroeconomic impacts.

Impact on individuals, households and families

This measure has no impact on individuals as it only affects businesses.

There is no impact on family formation, stability or breakdown.

Equalities impacts

Due to differences in tobacco consumption, any changes to tobacco duties will have an equalities impact. Men are slightly more likely to smoke than women.

Impact on business including civil society organisations

This measure is expected to impact a small number of tobacco manufacturers, who are large companies and SME tobacco importers. These businesses will benefit from the measure as it aims to provide clarity and certainty on the future tax treatment of heated tobacco products. The administrative burden is expected to be negligible. Businesses will incur one off costs, including familiarisation with the new rules. It is not expected that there will be any on-going costs.

There is no impact on civil society organisations.

Operational impact (£m) (HMRC or other)

There will be a negligible impact on staff resourcing for HMRC.

Implementation of the policy as a whole will incur an initial cost estimated at £830,000 to amend HMRC’s IT systems and additional IT maintenance costs of approximately £38,000 over 5 years.

Other impacts

Other impacts have been considered and none have been identified.

Monitoring and evaluation

This measure will be monitored and evaluated through communication with the taxpayer groups affected, revenue receipts and information collected by HMRC on the appropriate duty returns.

Further advice

If you have any questions about this change, please contact Excise Enquiries:

• Phone: 0300 200 3700
• Email: holding.movement@hmrc.gsi.gov.uk

Or write to:

Tobacco Policy – 3rd Floor West
Ralli Quays
3 Stanley Street
Manchester
M60 9LA
United Kingdom

Declaration

Robert Jenrick MP, Exchequer Secretary to the Treasury has read this tax information and impact note and is satisfied that, given the available evidence, it represents a reasonable view of the likely costs, benefits and impacts of the measure.