HMRC rakes in £1.6bn from sin taxes

HM REVENUE & CUSTOMS has strengthened its crackdown on illicit cigarette and alcohol trading, with its investigations generating £1.63bn in extra tax this year, an accountancy group has found.

Figures given by HMRC to UHY Hacker Young show that the taxman’s investigations into sin taxes are up 6% on the year ending March 2015.

The cigarette and alcohol black market has seen an uptake in trade following the increase in investigations and the rise in taxes, with HMRC estimating that as many as six billion cigarettes consumed in 2014 to 2015 were purchased illicitly, without any tax being paid.

This represents 14% of the total UK market for cigarettes which is a significant concern for HMRC as tax on cigarettes make up 80% of the cost price.

UHY also warns of the economic dangers of alcohol. Between 2014 and 2015, HMRC seized 5,281,646 litres of beer, 189,669 litres of spirits, and 1,489,538 litres of wine.

Roy Maugham, tax partner at UHY Hacker Young said duty on cigarettes and spirits had “consistently increased well above inflation – but the production cost of the goods is low”, making them a prime target for smuggling.

He added: “HMRC has been attempting to tackle the problem for some time and not without successes, but smuggling is very difficult to eliminate altogether. At points HMRC’s efforts have gone too far – for example they have been criticised for seizing and destroying legal imports of alcohol and tobacco intended for personal consumption.

“At a time when HMRC is under significant political pressure to maximise the tax take, cracking down on those avoiding ‘sin taxes’ generates considerable additional revenue, and is broadly popular with the public,” continued Maugham.

In his latest Budget, chancellor George Osborne announced a freezing of duty rates on beer, spirits and most ciders to help British pubs.

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