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HMRC aims to crack down on the illicit sale of tobacco products through a new multimillion-pound contract with De La Rue.

The five-year, £3.5m deal involves the deployment of De La Rue’s track and trace technology on 1.7bn packets of cigarettes and hand rolling tobacco sold in the UK each year.

The EU Tobacco Products Directive, Article 15, means it is now a legal requirement for all tobacco products to be traceable, in order to cut down on counterfeit products.

The digital solution will be supplied by the security printer’s expanding Product Authentication & Traceability business. It involves De La Rue issuing a code on behalf of HMRC to manufacturers to use on their tobacco products.

These markers can then be traced through the system. De La Rue will manage the service for HMRC and will deal with all the relevant parties involved in serving the UK market for tobacco products.

De La Rue chief executive Martin Sutherland said: “We are delighted to be working with HMRC here in the UK to provide this track and trace service and to partner with them on rolling this out to the wider industry.”

According to the latest HMRC statistics relating to tobacco tax gap estimates, the illicit markets in cigarettes and hand-rolling tobacco resulted in £1.9bn in lost tobacco duties and a further £600m in lost VAT, during 2016-2017.

De La Rue had sales last year of £493.9m. A strategic revamp involves plans to double the size of the £40.1m Product Authentication and Traceability division over three years.

A De La Rue spokesperson said the group had a contingency plan in place with HMRC around Brexit.