Customs and excise quarterly update - February 2025

Welcome to the first edition of 2025! In this edition, we report on significant news items from critical changes to the Warehousekeepers and Owners of Warehoused Goods Regulations 1999 (WOWGR) to the newly implemented EU General Product Safety Regulation (GPSR). In our case law section, we analyse three recent decisions relating to the classification of wetsuits and aluminium roller banner stands and excise duty penalties. Read on for our detailed insights and analysis.

News

1. On 29 January 2025, HMRC announced that the Modernising Authorisations (MA) project will be closed following a government spending review. This means that a new digital customs and excise authorisations system will not be delivered at this time. However, HMRC has advised that the knowledge gained from stakeholder engagement during the project will be retained, and ongoing improvements in guidance and customs handbooks will continue.
   
   A copy of HMRC's announcement can be viewed here.
   
   
2. The WOWGR have been extensively amended by The Excise Duties (Miscellaneous Amendments and Revocations) Regulations 2024, which are intended to modernise compliance frameworks and improve oversight within the alcohol duty suspension regime. One major change is the removal of the requirement that revenue traders can only store goods in an excise warehouse for longer than 72 hours if they are an authorised warehousekeeper, a registered owner, or they have a duty representative. Regulations 2, 4(7) to (11), 5, 7 and 8, come into force on 3 March 2025 and all other excise miscellaneous provisions came into force on 23 December 2024. Businesses operating in duty suspension regimes should review their processes and due diligence accordingly.
   
   Further detail concerning these changes can be viewed here.
   
   
3. The GPSR, effective from 13 December 2024, introduced a host of new measures aimed at strengthening consumer protection in a rapidly evolving digital economy. Notable changes include: 
   
   Enhanced safety obligations: Businesses must ensure that products meet higher safety standards before being placed on the market. This includes conducting comprehensive risk assessments and providing clear instructions and warnings for consumers.
   
   Online marketplace accountability: Platforms such as Amazon and eBay are now required to ensure that products sold by third-party sellers comply with EU safety laws.
   
   Improved traceability: All economic operators must implement systems to track products through the supply chain to enable faster responses to safety issues and recalls.
   
   For UK businesses trading in the EU, the GSPR also requires the appointment of an authorised representative within the EU to handle compliance matters. Failure to adapt to these changes could lead to significant business disruption and reputational damage.
   
   Further details of the GSPR can be viewed here.

Case Studies

O'Neill Wetsuits Ltd v HMRC [2024] UKFTT 1071 (TC)

O'Neill Wetsuits Ltd (O'Neill) appealed to the First-tier Tribunal (FTT) an Advanced Tariff Ruling issued by HMRC, which classified their neoprene wetsuits under commodity code 6113 0010 00, typically used for rubberised textile fabrics, attracting an 8% duty. O'Neill disputed this classification, arguing that the wetsuits should be classified under code 4015 9000 00, which applies to vulcanised rubber apparel, attracting a lower 4% duty rate.

FTT decision

The FTT reviewed the wetsuits composition, which included neoprene (a type of rubber), reinforced with a textile fabric. The FTT considered whether the wetsuits characteristics were more aligned with textile-based goods or rubber-based products.

The FTT concluded that the wetsuits primary composition of rubberised textile fabric meant that they fell under the classification of 6113 0010 00. In terms of the nature of the product, the FTT considered that neoprene, while a type of rubber, had in this case been applied to a textile fabric, making the wetsuits more fitting for the classification under 6113 0010 00.

The FTT also noted that while the wetsuits did contain rubber, they were not entirely made of vulcanised rubber (which would align with the 4015 9000 00 code), as the textile fabric played a significant role in the products essential character. The FTT therefore upheld HMRC's assessment of the wetsuits under the higher tariff rate.

Why it matters
This case is significant as it highlights the complexity of tariff classifications and the potential financial impact of duty rates on businesses. It demonstrates the importance of assessing the primary material characteristics of goods when determining the appropriate duty classification.  The FTT's detailed analysis of the classification rules and related case law will be of interest to anyone involved in classifying goods for customs purposes.

The decision can be viewed here.

Quantum House Holdings Ltd v HMRC [2025] UKFTT 00117 (TC)

Quantum House Holdings Ltd (QHH) was a holding company and part of a VAT group that included a subsidiary, Innotech Digital and Display Ltd (IDD). QHH was not an importer of goods, but IDD imported aluminium roller banner stands (RBS) into the UK for onward sale. Until 30 August 2018, the uniform approach across the EU was to treat RBS as furniture with a 0% duty rate. However, following the issuing of a combined nomenclature explanatory note (CNEN), HMRC considered that RBS should be treated as an aluminium frame and base cassette with a duty rate of 6%.

Neither QHH nor IDD were aware of the change effected by the CNEN, and they continued to import RBS as furniture after 30 August 2018. Further, due to an apparent error, IDD was listed on the relevant C88 customs form as the consignee for the RBS when they were imported but QHH's unique Economic Operators Registration and Identification (EORI) number was used on the C88 and not IDD's EORI. HMRC subsequently issued QHH with a C18 Post Clearance Demand Note (the C18), in respect of the unpaid duty on the RBS, which QHH appealed to the FTT.

QHH contended that the C18 was invalid on the grounds that  RBS was furniture or, in the alternative, RBS were a base metal fitting with a duty rate of 2.7%. QHH also argued that HMRC could not rely on the CNEN, as it could not be applied retrospectively; any change in classification could only be applied from the date on which QHH became aware of the change. In addition, QHH was not liable for the customs debt because its EORI had been used in error and QHH were not estopped from relying on that error to invalidate the C18.

FTT decision

The FTT dismissed the appeal, finding that the RBS is another article of aluminium and not furniture. On the issue of liability, the FTT found that the identity of the declarant must be by reference to the EORI number as the only unique identifier across the Customs Union. As QHH's EORI number was used on the C88 form, it was the declarant and therefore liable for the customs debt. The FTT also observed that, where an error had been made as to the identity of the declarant in the C88 form it could be corrected by amendment, which QHH had not sought to do.

Finally, even if it was wrong on the liability point, and having regard to the Supreme Court's decision in Tinkler v HMRC [2021] UKSC 39, the FTT found that QHH was estopped from relying on that argument. That was because, inter alia, QHH had not raised the liability argument until the appeal came before the FTT and the parties had, until that time, proceeded on a common assumption that QHH was liable, and it was not unconscionable for HMRC to rely on estoppel in circumstances where "six figures of otherwise properly owed duty … would not be claimable by HMRC".

Why it matters

It remains to be seen whether QHH will seek to appeal the FTT's decision, but as matters currently stand, the decision highlights the importance of ensuring that importers have effective processes in place so that they become aware of changes in customs classifications and have adequate oversight of the customs agents completing customs documentation on their behalf.

The decision can be viewed here.          

B&M Retail Ltd v HMRC [2024] UKUT 00409 (TCC)

B&M Retail Ltd (B&M) was issued with an excise duty penalty in the sum of £1,172,340.94, by HMRC under paragraph 4 of Schedule 41, Finance Act 2008. The penalty related to the handling of excise goods without the necessary approval. B&M contested the penalty, claiming it had a 'reasonable excuse' for the alleged non-compliance. The FTT ruled in favour of HMRC and B&M appealed to the Upper Tribunal (UT).

UT decision

The UT considered whether the FTT had erred in its decision, in particular in assessing the credibility of witness evidence and the application of the 'reasonable excuse' defence. The UT upheld the FTT's decision, concluding that B&M had not demonstrated that it had a reasonable excuse for its non-compliance and accordingly the penalty had been appropriately imposed.

Why it matters

This case highlights the importance of businesses dealing with excise goods to maintain detailed records. It also highlights the importance of thorough and regular internal compliance checks in order to minimise the risk of inadvertent breaches of excise regulations.

The decision can be viewed here.