HMRC hauls in £3.9bn from sin taxes

There has been a 49% hike in the extra tax raised as a result of investigations into the underpayment of sin taxes, with HMRC collecting £3.9bn last year

This compares with £2.6bn raised in 2017/18 and is triple the amount collected in 2016/17, which totalled £1.3bn.

Sin taxes refer to the taxes and duties levied on alcohol, cigarettes and products related to gambling.

UHY Hacker Young analysed the tax take, stressing that HMRC’s focus has been on cigarette and alcohol smuggling into the UK by criminal gangs, with the tax authority maintaining a team of specialist investigators in its fraud investigation service targeting this area.

The firm says high levels of excise duty in the UK has been driving the illegal importation and sale of alcohol and cigarettes in recent years, with the government adding an extra 28p of excise duty to packs of 20 cigarettes in the Autumn Budget 2018, putting the average pack price at £10.80.

It warns that a ‘hard Brexit’ could lead to a further upturn in smuggling. In the event of a no-deal, imports from EU countries will be subject to the same limits as imports from nations outside of the EU. The duty-free limit in this situation would reduce cigarette allowance to 200, down from 800 and wine to four litres, down from 90 litres.

The Wine and Spirits Trade Association estimate that the added cost of import documentation could cost the alcohol industry £70m a year. The UK is already heavily reliant on imported alcohol, importing £878m of wine from France and £615m from Italy last year.

Clive Gawthorpe, partner at UHY Hacker Young, said: ‘HMRC’s investigations into smuggled cigarettes and alcohol are one of its biggest earners.

‘However, the amount of extra tax collected shows the scale of the problem. Many consumers are not willing to pay the higher prices that result from the high taxes that the UK levies on drinks and cigarettes. For lower earners, these taxes make up a high percentage of their income.

‘With a no-deal Brexit still on the table, high tariffs and import documentation could become a reality for vendors. This could result in more people looking to cut corners and smuggle products in illegally. HMRC will be watching.’

Recent investigations HMRC into the smuggling of cigarettes and alcohol into the UK include convictions for a lorry driver for smuggling 8m cigarettes, worth £2.5m in unpaid duty, into the UK disguised as grapes; three family members in Berkshire sentenced to jail after smuggling 2.5m cigarettes into the UK, worth £1.3m in lost tax, sometimes hidden in toy train sets; and two London-based brothers who evaded £3.6m in unpaid tax by distributing smuggled alcohol in the UK, and were jailed for a total of over 12 years.

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