Policy paper

Tobacco Duty: Raw Tobacco Approval Scheme

Published 14 December 2016

Who is likely to be affected

Any individual or business carrying out a controlled activity, which is any activity involving raw tobacco. The scheme allows for certain exemptions from the requirement to be approved.

Raw tobacco is any part of the plant that has been harvested, but doesn’t yet meet the definition of any tobacco products as defined in UK law.

General description of the measure

This measure introduces regulations that set out the framework for a Raw Tobacco Approval Scheme. They make provision for applications for approval to carry on any activity involving raw tobacco, the conditions and restrictions which may apply to such an approval and allow certain exemptions from the requirement to be approved. They also ensure that certain enforcement provisions apply in relation to raw tobacco.

Policy objective

The objective of the measure is to reduce the risk of evasion of Tobacco Excise Duty by prohibiting the use of raw tobacco by an unapproved person, to prevent the illegal manufacture of tobacco products. The introduction of a new forfeiture power and penalty will be effective, proportionate and dissuasive.

Background to the measure

A domestic approval scheme to control the use of raw tobacco was announced at Budget 2015, following a consultation which was undertaken between 20 October 2014 and 30 January 2015. A technical consultation was undertaken in summer 2015 on the definition of raw tobacco and other legitimate uses for non-smoking purposes.

Primary legislation was introduced in the Finance Act 2016 (FA 2016) which included powers to make regulations which would set out the administrative framework of the approval scheme, and certain exemptions from the need for approval. A consultation has also been undertaken on the draft regulations between 19 September 2016 and 14 November 2016.

HM Revenue and Customs (HMRC) have published guidance on the measure in Excise Notice 2003: tobacco duty – the Raw Tobacco Approval Scheme on 14 December 2016.

Detailed proposal

Operative date

From 1 January 2017 businesses and individuals will be able to submit applications for approval. On 1 April 2017, the prohibition on carrying out a controlled activity without an approval will come into force as will the related penalty provisions and forfeiture power.

Current law

Section 179(1) of the FA 2016 inserted new sections 8K to 8U into the Tobacco Products Duty Act 1979 (TPDA), including vires for setting out in secondary legislation the detail of the approval scheme and to exempt certain activities from the prohibition. The TPDA amendments also include powers to impose a:

• regulatory penalty for a breach of a condition of approval or exemption
• power of forfeiture for a breach of the prohibition
• penalty to apply to any breach of the prohibition

Section 179(2) - (4) of FA 2016 made related amendments to TDPA and the Finance Act 1994, facilitating the introduction of the approval scheme and establishing rights of appeal and review.

The amendments made by section 179(1) - (4) of the FA 2016 don’t come into force until such a day as appointed by regulations.

Proposed revisions

The Finance Act 2016, Section 170 (Appointed Days) Regulations 2016 will appoint the days on which the amendments made by section 179 of FA 2016 will come into force. The appointed days are (1) December 2016 except for the coming into force of the prohibition. The appointed day for the coming into force of the prohibition is 1 April 2017.

In addition the Raw Tobacco (Approval Scheme) Regulations 2016, which set out the detail of the administrative framework for the approval scheme and the detail of certain exemptions from the requirement to hold an approval, will come into force on 1 January 2017.

Summary of impacts

Exchequer impact (£m)

2016 to 2017	2017 to 2018	2018 to 2019	2019 to 2020	2020 to 2021
+5	+10	+10	+10	+10

The exchequer impact was set out in Table 2.2 of Budget 2016 and has been certified by the Office for Budget Responsibility as ‘Tobacco: enforcement’. More details can be found in the policy costings document published alongside Budget 2015.

Economic impact

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

Impact on individuals, households and families

HMRC has been unable to identify any domestic uses for raw tobacco and therefore anticipate there will be no impact on individuals and households. This measure is not expected to impact on family formation, stability or breakdown.

Equalities impacts

This measure is not expected to have an equalities impact.

Impact on business including civil society organisations

This measure is expected to have a negligible impact on businesses and civil society organisations.

For the 20 to 40 businesses we expect to apply, the one off costs of familiarisation with the new scheme, and of being approved are expected to be negligible. The new approval scheme will based on existing tobacco excise approval schemes minimising the impact on legitimate users of raw tobacco.

The ongoing costs of new approvals, providing a reference number and additional record keeping are expected to be negligible. HMRC expect that all legitimate users will already be collecting the required records.

Operational impact (£m) (HMRC or other)

A negligible impact on HMRC to administer a simple approval scheme. This scheme will be based on existing tobacco excise approval schemes.

Other impacts

Justice impact test: There will be a limited number of regulatory breach penalties due to the small number of approvals expected. Other impacts have been considered and none have been identified.

Monitoring and evaluation

The measure will be monitored through information collected from the results of enforcement and compliance activity.

Further advice

If you have any questions about this change, please contact Wendy Longworth on Telephone: 03000 587927 or email: wendy.longworth@hmrc.gsi.gov.uk.