A recent tribunal between HMRC and an importer of licenced dolls and figures, including Child’s Play villain ‘Chucky’ and Walking Dead characters ‘The Hulk’ and ‘Captain America’, has raised concerns about the complexity and interpretation of classification codes. HMRC issued two C18 Post Clearance Demand Notices for the underpayment of Customs Duty and Import Tax against Star Images Enterprises, which had imported 189 different figures under a zero-rated import code which was zero rated for duty.

There are over 16 000 classifications codes currently in use in the UK but some of the descriptions appear to overlap and the descriptions are open to various interpretations – leaving a significant potential for errors and leaving businesses exposed to unplanned demands and penalties.

So how can businesses de-risk their classification processes?  Is it possible to verify classification codes before submitting a declaration?

And is there an opportunity for open discussion before fines are issues if/when HMRC disagrees with your interpretation?

An image of a person signing a piece of paperwork.

In the case of Star Images Enterprises, HMRC concluded after audit that the toys/figures should have been classified under a code which attracted 4.7% duty, rather than the code they had assigned (which was zero rated).

During the tribunal the two parties argued it out over detailed factors such as:

1. Whether the figure represented a human or non-human (to which the answer was unclear)

2. Whether the figures were dolls or statuettes

3. Whether those figures that came with additional items constituted a figure with accessories or a play set

To answer these questions a huge amount of discussion and debate covered questions such as:

• Are superheroes human or non-human?

Does that backstory of the character get taken into consideration?

• Is the figure a play item or for display purposes?

The case demonstrated that the interpretation of the rules can vary considerably, with significant implications for the cost of the importation and indeed the profitability of the goods.  Previous cases were used to support the final judgement.

While the importer and the HMRC initially were initially debating which of two different classification codes were correct, the final judgement assigned the 189 figures to five different classification codes – and in many cases the importer, HMRC and the tribunal all suggested different classification codes for the same item.

An image of people having a discussion.

Adam Wood, Head of Commercial at Barbourne Brook advised businesses on the best way to approach the situation:

“The takeaway from this case is that customs classification is complicated – especially in sectors like this where very small characteristics can be key. When selecting codes, importers need to remember that the devil is in the detail, and that rules, interpretations of rules and the history of previous cases are all relevant.

“Where there is a lack of clarity and import quantities are significant, there are additional measures that can be taken to reduce risk. Queries can be submitted to HMRC by email one item at a time, although this is non-binding and discrepancies and misunderstandings based on the information submitted can result in HMRC changing tack during audit. Customs consultancies can provide invaluable support and guidance on classification based on industry experience and history of relevant past cases.  Where necessary consultancies can help businesses obtain an advance tariff ruling, which is guaranteed.”

“For some businesses it may be worth taking a proactive approach at the development stage, by making small changes to the item which could potentially take it from one classification code to another – saving a significant percentage on import costs and making a critical impact to the business proposition.”

Contact Us

For further information, or to discuss any aspect of your customs duty, call Adam Wood for a confidential, no-obligation conversation on 01905 914031 or you can email Adam at adam@barbournebrook.co.uk.

About Barbourne Brook

Barbourne Brook are a proactive team of customs duty planning experts with a wealth of knowledge and insight in the customs sphere, offering scalable solutions backed by industry-leading technology.

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