HMRC sinks its claws into cat scratching posts
18 October 2022
A recent customs appeal has illustrated the often strange logic that applies when determining the correct duty rate payable on imported goods.
Cozy Pet, a retailer of pet products, became involved in a dispute with HMRC over the correct customs duty rates payable on a range of cat accessories it imported from China. The company sold cat scratchers in various sizes, ranging from a single scratching post to more complex ‘cat trees’ with ladders between levels and added toys and resting areas. These items were made of MDF wood and covered in a mixture of plush fabric and coils of rope to provide cats with scratching surfaces, sleeping areas and toys to divert them from scratching and lying on household furniture.
At the time of import, Cozy Pets declared the goods to customs as ‘articles made of wood’, to which a nil rate of duty applies. On a later inspection, HMRC disagreed, taking the view that they were articles made of knitted textiles, which attract customs duty of 12 per cent. As a result, the company received a retrospective bill for additional customs duty and import VAT of £34,000.
On appeal, the First-tier Tribunal has broadly supported HMRC’s position, deciding that it was the plush fabric and rope coverings, rather than the wooden frame, that gave the cat scratchers their essential character for customs duty purposes. The judge thought that the same items with a bare wood finish would not tempt cats away from household furniture and therefore would not serve their intended purpose.
As a result, Cozy Pets had to pay customs duty at 12 per cent on the items that were predominantly covered in plush material. However, the tribunal made a modest reduction to the company’s bill by finding that some items’, which were predominantly covered in rope rather than fabric, were eligible for a 6.3 per cent rate of duty as items made of woven textiles.
The tribunal also likened the situation to an earlier court ruling where it was decided that filled ink cartridges for printers should be classified as ink rather than parts of a printer. Where a product is made of two or more different materials or components, it is the function the article is intended to serve that determines the basis of duty payable. Therefore, in the earlier case, even though the ink would have been useless without the cartridge, it was the duty rate for ink that applied. On the same basis, even though the cat scratchers would be useless without the stability and structure of a wooden frame, the tribunal decided that it was the fabric that gave them their essential character for customs duty purposes.
This case shows how it is not always easy to identify the correct tariff classification for imported goods, and that mistakes can lead to a hefty, backdated bill from HMRC. It is always advisable for importers to check the position for new products at the outset, and to consider asking HMRC for a binding ruling to confirm the correct duty rate if there is any doubt.
Cozy Pet, a retailer of pet products, became involved in a dispute with HMRC over the correct customs duty rates payable on a range of cat accessories it imported from China. The company sold cat scratchers in various sizes, ranging from a single scratching post to more complex ‘cat trees’ with ladders between levels and added toys and resting areas. These items were made of MDF wood and covered in a mixture of plush fabric and coils of rope to provide cats with scratching surfaces, sleeping areas and toys to divert them from scratching and lying on household furniture.
At the time of import, Cozy Pets declared the goods to customs as ‘articles made of wood’, to which a nil rate of duty applies. On a later inspection, HMRC disagreed, taking the view that they were articles made of knitted textiles, which attract customs duty of 12 per cent. As a result, the company received a retrospective bill for additional customs duty and import VAT of £34,000.
On appeal, the First-tier Tribunal has broadly supported HMRC’s position, deciding that it was the plush fabric and rope coverings, rather than the wooden frame, that gave the cat scratchers their essential character for customs duty purposes. The judge thought that the same items with a bare wood finish would not tempt cats away from household furniture and therefore would not serve their intended purpose.
As a result, Cozy Pets had to pay customs duty at 12 per cent on the items that were predominantly covered in plush material. However, the tribunal made a modest reduction to the company’s bill by finding that some items’, which were predominantly covered in rope rather than fabric, were eligible for a 6.3 per cent rate of duty as items made of woven textiles.
The tribunal also likened the situation to an earlier court ruling where it was decided that filled ink cartridges for printers should be classified as ink rather than parts of a printer. Where a product is made of two or more different materials or components, it is the function the article is intended to serve that determines the basis of duty payable. Therefore, in the earlier case, even though the ink would have been useless without the cartridge, it was the duty rate for ink that applied. On the same basis, even though the cat scratchers would be useless without the stability and structure of a wooden frame, the tribunal decided that it was the fabric that gave them their essential character for customs duty purposes.
This case shows how it is not always easy to identify the correct tariff classification for imported goods, and that mistakes can lead to a hefty, backdated bill from HMRC. It is always advisable for importers to check the position for new products at the outset, and to consider asking HMRC for a binding ruling to confirm the correct duty rate if there is any doubt.
