Customs and excise quarterly update - November 2024

Welcome to the November 2024 edition of RPC's Customs and Excise Quarterly Update.

News

1. Following consultation, the government's Autumn Budget 2024 update has confirmed that the UK Carbon Border Adjustment Mechanism (CBAM) will commence on 1 January 2027, with legislation to be included in the Finance Bill 2024-25. Unlike the EU's phased CBAM, the UK’s version will immediately impose carbon charges on imported goods. In contrast to the EU's CBAM, electricity remains out of scope for the UK's CBAM and glass and ceramics are no longer included in the UK's CBAM. Key updates include a higher registration threshold of £50,000 and the use of default emissions values until 2030. In addition, there will be a criminal offence imposed for fraudulent evasion of the UK CBAM. HMRC will establish a CBAM industry group, engage international stakeholders, and publish guidance prior implementation.

The consultation outcome document can be viewed here.

2. As part of its Autumn Budget 2024, the government has published a response to its consultation on Vaping Products Duty. The stated intention behind the introduction of the new duty is to make vaping products less affordable for young people. From 1 October 2026, a flat-rate excise duty will apply to all vaping liquids at £2.20 per 10ml. To preserve the incentive for smokers to switch from tobacco to vaping, the government will increase tobacco duty by £2.20 per 100 cigarettes or 50g of tobacco.

The consultation response document can be viewed here.

3. HMRC has published updated Guidance in relation to safety and security declaration requirements for importing goods from the EU. From 31 January 2025, all goods imported from the EU to Great Britain will require a simplified Entry Summary Declaration. Businesses should coordinate with their supply chains and may submit declarations through HMRC’s S&SGB platform. Although responsibility lies with carriers, importers or intermediaries can submit declarations on their behalf.

The Guidance can be viewed here.

Case reports

1. Nexans Norway AS v HMRC [2024] UKFTT 782 (TC)

This case concerns the customs duty classification of an underwater composite cable used in the Seagreen offshore windfarm. Nexans Norway AS (Nexans), argued that the cable should be classified to Code 85 44 70 00 10 or Code 85 44 70 00 90 in the UK Tariff, which attracts 0% customs duty, while HMRC contended it should be classified to Code 85 44 60 90 00, which attracts 2% duty.

HMRC issued an Advanced Tariff Ruling (ATaR) to Nexans which was appealed to the First-tier Tribunal (FTT). Nexans claimed that the cable’s fibre optic component, used for data and temperature safety monitoring, gives it distinct functions beyond just electricity transmission. The question in issue was whether the cable’s fibre optic element justified a different classification.

The FTT allowed Nexans' appeal. A physical inspection of the cable showed that the fibre optic component made up only 0.3% of the cable's cross-sectional area and accounted for just a small fraction of its total weight. However, the FTT concluded that the cable effectively performed two distinct and independent functions, both at a high level. It found that neither the electrical nor the fibre optic component served as the primary function or gave the cable its essential character. Rather, the cable was designed to perform both functions in a complementary way, with each enhancing the other.

Why it matters

Although this case involves a highly specialised product, the FTT's detailed analysis of the classification rules and related case law holds broad relevance for anyone involved in classifying goods for customs purposes. The decision is likely to be relevant to wind farm developers operating in the UK and using the same type of composite cable.

The decision can be viewed here.

2. Petmaster Ltd v HMRC [2024] UKFTT 718 (TC)

Petmaster Ltd (Petmaster) appealed to the FTT against HMRC’s refusal to restore 24 tonnes of seized cat litter. The litter was seized and forfeited from an unapproved Fulfilment House (FH). Following a review decision refusing restoration, the litter had been destroyed and any restoration would therefore be by way of financial compensation.

The FTT allowed the appeal on the basis that HMRC's decision refusing restoration was unreasonable. The FTT directed HMRC to re-make is restoration decision (and for a different HMRC officer to re-make the decision) taking into account the FTT's findings which included that:

• HMRC wrongly claimed Petmaster did not pay import VAT and initially disputed ownership, both errors impacting the decision; 
• Petmaster, led by Turkish-speaking director Mr Oguz, acted as an "innocent actor," who was misled by the FH in relation to its approved status;
• it was reasonable in the circumstances that Petmaster, through Mr Oguz, did not search a register of FH which he did not know existed; and
• Petmaster’s significant financial investment and the financial impact of non-restoration on its business.

Why it matters

This is the first FTT case involving the third-country Fulfilment House Due Diligence Scheme (introduced by HMRC in 2018) and will be of broad relevance to FH's and their clients.

The decision can be viewed here.

3. Proeza Soluvel Unipessoal LDA v Director of Border Revenue [2024] UKFTT 809 (TC)

This case concerns an application by Proeza Soluvel Unipessoal LDA (PSU), for wasted and/or unreasonable costs pursuant to rule 10(1)(a) or 10(1)(b) of the Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009 (the Tribunal rules) arising from an appeal to the FTT against a decision of the Director of Border Revenue (DBR) to restore seized excise goods for a fee. The DBR sought to strike out PSU's appeal, arguing that only a Magistrates' Court had jurisdiction to assess the legality of the seizure through condemnation proceedings, which had already been initiated by a third party. PSU challenged the DBR's actions, arguing that the DBR had failed to act on timely correspondence requesting condemnation proceedings. PSU objected to the strike-out application and applied for wasted costs for time spent on the case. The DBR eventually withdrew their strike-out application but opposed PSU's claim for costs.

The application for costs was granted due to the DBR's unreasonable conduct in pursuing an unwarranted strike-out application. Despite knowing the goods were subject to condemnation proceedings, the DBR applied to strike out the appeal and failed to communicate essential information internally. The DBR’s legal team did not respond to PSU's timely objection which led to PSU incurring the costs of preparing the strike out application. The FTT concluded that the DBR's conduct had been unreasonable but not egregious, and awarded PSU £367 in costs, conditional on confirmation regarding VAT and an indemnity statement.

Why it matters

As this decision demonstrates, where the circumstances justify it, consideration should be given to applying for wasted costs against the DBR. The decision also provides a useful summary of the principles and relevant case law the FTT will consider when deciding whether to award costs under rule 10 of the Tribunal rules. 

The decision can be viewed here.