New data from the HMRC on the ‘tax gap’ caused by the illicit tobacco trade has been called into question.
According to the HMRC’s Measuring Tax Gaps report, it was estimated that £1.3bn was lost through unpaid tobacco duty in 2024/25, with a further £0.4bn in VAT lost on undeclared tobacco. While the reported loss in undeclared tobacco has remained at that level since 2022/23, HMRC figures report that the loss decreased over the past five years, from £1.7bn in 2020/21.
The overall tobacco duty gap is calculated by summing the duty gaps for cigarettes and hand-rolling tobacco. HMRC reported that the tax gap for cigarettes was 12% and 21% for hand-rolling tobacco respectively, with both having decreased when compared to the previous year.
However, JTI says these official estimates are far too low and completely at odds with the government’s own initiatives to toughen up illicit tobacco enforcement.
Corporate affairs & communications director at JTI, Nicky Small, said: “The new estimate from HMRC, which suggests the amount of tax lost to illegal tobacco has fallen, is deeply flawed. The figure bears no relation to what we are seeing on the ground through our own investigations – nor what is reported by others in the sector.
“Illegal tobacco is being sold openly across the UK at prices legitimate retailers simply cannot compete with. The Government itself has recognised the seriousness of the problem through a series of recent announcements on tougher enforcement.
“It is time for a total rethink of the way HMRC calculates the annual tobacco tax gap. The latest figures mask the true scale of Britain’s illicit tobacco epidemic.”
More on illicit tobacco
A JTI pack swap survey, in which smokers are asked to show the pack they are using, suggests non-UK duty-paid products now account for an estimated 42% of cigarette consumption and 61% of hand-rolling tobacco consumption.
Meanwhile, recent test purchasing activity commissioned by JTI also highlighted the extent to which illegal tobacco products are widely available at prices significantly below legal products.
Test purchasers visited locations across the country in 2026. In several areas, more than half of the independent retail outlets selling tobacco visited were found to be selling illegal tobacco. More than half (54%) of independent tobacco retailers visited in Andy Burnham’s constituency of Makerfield in June 2026 were also found to be selling illegal tobacco, with illegal 50g packs of Amber Leaf found on sale for as little as £5, compared with the recommended retail price of £46.35 for a legal 50g pouch.
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