The UK’s combined illicit tobacco market appears to have contracted in recent years, new HMRC data for 2017/18 suggests.
The total tobacco tax gap - the difference between the amount of tax that should have been paid to HMRC and what was actually paid - fell to £1.8bn in 2017-18, down from 2.4bn in 2016/17, according to HMRC’s Measuring Tax Gaps data.
The figures for 2017/18 equate to an estimated total loss of £1.4bn in tobacco duties and a further £0.4 bn in VAT.
The cigarette illicit market share was estimated to account for 9% in 2017/18 – a fall from 15% in 2016/17.
This resulted in an estimated loss of £0.8bn in duty and a further £0.2bn in VAT, giving a total loss of £1bn, down from 1.7bn in 2016/17 – in line with falling UK duty-paid cigarette consumption.
UK duty-paid cigarette consumption has declined steadily from 49.5 billion cigarettes in 2005/06 to 27.5 billion cigarettes in 2017/18.
However, the UK hand-rolling tobacco illicit market share grew to account for an estimated 32% in 2017/18, up from 27% in 2016/17.
This resulted in an estimated loss of £0.7bn in duty and a further £0.2bn in VAT, giving a total loss of £0.9bn.
The figures come as retailers across the UK continue to navigate the application process for their Track and Trace codes, which form part of the new legislation to crack down on the illicit tobacco trade.
The first Track and Trace-compliant tobacco packs, which boast an array of new security features, are expected to enter the wholesale channel by the end of this month.
Only retailers who have their Economic Operator Identifier Code and Facility Identifier Code will be able to buy the new Track and Track compliant packs.