HMRC yield doubles from investigations into ‘sin taxes’

Publications that covered this story include the Financial Times on 30 October and Accountancy Live on 31 October.
  • Almost £3bn generated from smuggling and big business tax avoidance
  • Big business excise duty investigations revenue soars 1100%
  • ‘Hard Brexit’ could see smuggling problem worsen

HMRC’s yield from investigations into underpayments of ‘sin taxes’ doubled this year to almost £2.99bn*, our research shows.

HMRC’s additional revenue from investigations into unpaid excise duty on products such as cigarettes, alcohol and those relating to gambling is up from the £1.46bn collected in 2015/16.

The rise in extra revenue from investigations is partly being driven by the UK’s continued smuggling problem around cigarettes and alcohol.

This is a major issue in the UK because of the high level of duty levied on cigarettes and alcohol which drives demand for smuggled goods. The UK has one of the highest tax rates in Europe on cigarettes – with tax making up 84% of the average cost of cigarettes in the UK.

Additionally, HMRC data out on October 26 2017 shows that the tobacco tax gap stood at £2.4bn for 2015/16.

Andrew Snowdon, partner and head of corporate tax at our London office, says: “A doubling in additional compliance revenue from cigarettes and alcohol shows just how big of an issue smuggling of these products is.”

“With prices for alcohol and especially cigarettes continuing to rise, it would be no surprise if fraudsters looked to take advantage by smuggling more of these products in.”

Revenue from investigations into large businesses surges by over 1100%

Investigations into large businesses have also contributed to the increase in HMRC’s additional tax take. Additional revenue from excise investigations into large businesses grew at a dramatic rate to £198m in 2016/17 – more than ten times the £16m generated in 2015/16.

HMRC often target the underpayment of excise duty by focusing on companies who have business structures to avoid paying the full amount of duty on cigarettes, alcohol, and gambling products.

Andrew Snowdon continues: “Big businesses are not breaking the law in this area but HMRC feel they are pushing the envelope too far.”

Cross-border smuggling could get far worse in the case of a ‘Hard Brexit’

The problem with smuggled goods could substantially worsen should negotiations to leave the European Union end in a ‘Hard Brexit,’ as could the likelihood of businesses looking at ways to reduce their tax bill.

Leaving the customs union would result in importers paying an extra levy to move goods into the UK, resulting in higher prices. Consequently, the demand for cheaper goods could increase.

HMRC’s yield from investigations into tax paid on cigarettes and alcohol more than doubled this year

*Data provided to UHY Hacker Young by HMRC