The UK lost £1.7bn in tax revenue in the financial year 2024/25 due to the illegal tobacco trade, according to new ‘tax gap’ figures published by HMRC.
HMRC’s Measuring Tax Gaps report estimates that £1.3bn was lost through unpaid tobacco duty, with a further £0.4bn in VAT lost on undeclared tobacco.
The tax gap data looks at how much revenue is lost across different sectors, including beer, spirits, tobacco and fuel. However, the UK’s leading tobacco company JTI, says the official estimate is far too low – and completely at odds with the government’s own initiatives to toughen up illicit tobacco enforcement.
The HMRC estimate does not reflect JTI’s own market data, test purchasing and local investigations, which point to a large, visible and growing illicit tobacco trade on Britain’s high streets.
Nicky Small, Corporate Affairs & Communications Director at JTI, 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.”
JTI’s own 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.
Recent test purchasing activity commissioned by JTI has 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.
In Makerfield, illegal 50g packs of Amber Leaf were found on sale for as little as £5, compared with the recommended retail price of £46.35 for a legal 50g pouch. Both government and industry recognise that illegal tobacco is a major issue.
A joint HMRC and Border Force strategy has previously warned that substantial profits are being made from the distribution and sale of illegal tobacco.
The Government has recently pledged to create a new High Streets Organised Crime Unit, put more Trading Standards officers on the streets and increase closure orders for illegal shops to 12 months.