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image of cat scratching post | accountingweb | Fur flies in £34k pet-care supplier customs case
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Fur flies in £34k pet-care supplier customs case

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The classifications of items imported by a pet-product supplier were subjected to great scrutiny in this case to see if they came up to scratch.

4th Jun 2024
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Cozy Pets Ltd, imported pet-related products for sale in the UK. These included cat trees (climbing frames for cats), cat scratchers and pet playpens. With respect to these products, Cozy Pets had adopted tariff codes that attracted a 0% rate of import duty, but HMRC disagreed and issued C18 post-clearance demand notices for a total of £33,824.29. 

On appeal, the first tier tribunal (FTT) determined that HMRC’s customs classifications were correct and dismissed the appeal, except in respect of single-column cat scratchers, which attracted a lower rate of customs duty. Cozy Pets appealed to the upper tribunal (UT) regarding all other products. HMRC did not appeal in respect of the single-column cat scratchers.

Customs categories

Because the importation of the products pre-dated the UK’s departure from the European Union, the applicable legislation was the combined Nomenclature (CN) in annex 1 to EC Council Regulation 2658/87. This provides a list of eight-digit codes, which classify products for customs purposes. To assist in the interpretation of these classifications, explanatory notes are published by both the World Customs Organization and the EU Commission. Furthermore, the EU Commission can introduce classification regulations that describe specific products and attach a CN classification to them.

The dispute between HMRC and Cozy Pets was about which CN classification code to attach to the products that Cozy Pets had imported.

Tied in knots

Cozy Pets’ cat trees and scratchers are made of wood and cardboard, covered with knitted fabrics and sisal cord. Cozy Pets claimed these should be classified as articles of wood, which attract 0% customs duty, while HMRC argued they were knitted textile articles, taxable at 12%. The issue for the UT was whether the “essential character” of these items derived from their wooden structure or their fabric covering.

Although there is no customs classification specifically for cat trees or scratchers, the EU Commission has issued a relevant classification regulation. Implementing Regulation 350/2014 describes a woven fabric box for cats with attached platforms and tubes. The classification regulation provides that the woven textile fabric gives the product its essential character, as it attracts cats to scratch or sleep on it. The FTT had concluded that Cozy Pets’ products were the same as those in the regulation, thus classifying them as textile articles. However, it applied CN code 6307 90 10 for knitted textile articles instead of the regulation’s code 6307 90 98 for woven textiles.

Ripping yarns

Both parties agreed that the FTT erred in considering the products identical to those in the regulation. However, HMRC maintained that the FTT’s conclusion was correct if one reasoned by analogy with the regulation. Cozy Pets argued that such an approach would be invalid. Either the regulation applied or it did not – there was no middle ground. The UT rejected Cozy Pets’ argument, noting that such a rigid approach would undermine the regulation and would render the detailed reasoning it contained redundant. 

Cozy Pets also argued that the classification regulation was irrelevant since their products used knitted fabric, rather than woven. The UT disagreed and held that the type of fabric used was not decisive. The regulation’s reasoning focused on the respective roles of wooden and fabric elements in achieving the product’s intended purpose, not the type of fabric used. Therefore, the UT upheld the FTT’s decision and held that, although the FTT misapplied the regulation, the conclusion was ultimately correct.

Scratching the surface

The UT next addressed the pet playpen panels, used to form barriers or enclosures for pets. Cozy Pets classified these as fencing, but HMRC argued they were other articles of iron or steel wire. The FTT had determined, based on the explanatory notes, that the fencing classification was reserved for articles that were to be incorporated into other items through manufacturing. Since the playpen panels were finished products, the FTT held that they could not be classified as fencing.

The UT held that this was an error of law. The explanatory notes allowed for various uses of articles classified as fencing, including incorporation into other finished products. This did not restrict the category exclusively to such uses. HMRC argued that the matter should be remitted to the FTT to remake the decision. The UT, however, held that would be unnecessary. The FTT had already made all the findings necessary to properly classify the panels and Cozy Pets’ appeal was allowed.

Paws for thought

The UT’s nuanced decision is a reminder of the significance of purposive interpretation of the legislation where possible. Although the CN categories are incredibly fact-specific, it is still important to understand the published reasoning behind classifications where they are available.

Replies (4)

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By Justin Bryant
04th Jun 2024 17:08

Bad, awful puns like this are my pet hate.

Thanks (2)
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By FactChecker
04th Jun 2024 22:52

Those items are not "pet-related products" they are simply 'cat toys' ... if they didn't amuse the cats or obtain their engagement, they would have failed in their intended purpose.

The idea that each item has to have its own determination within the VAT regs is insane and only makes profitable work for lawyers.

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Replying to FactChecker:
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By ruth.julian
05th Jun 2024 18:39

The CN is classification for customs duties only. The VAT rate follows from domestic VAT regulations. The printed CN was so large that it took 2 men and an estate car to port it between EU commission and World Customs Organization. There were about 10 codes for a purse or wallet as I remember.

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By dmmarler
05th Jun 2024 08:44

They are not just toys - the climbing poles are good exercise for cats cooped up indoor indoor in winter. My Swedish friends have one which goes up through the centre of the house for better access between the lounge sofa and the spot on the upstairs landing where all the hot water pipes converge beneath the floor carpet. You can tell the central heating timer has just kicked in by the position of the cat.

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