Customs Duty Classification Reclaims: A Needle In A Haystack

Understanding the Harmonised System in Customs Classification

Harmonised System (HS) codes are the international language for classifying products for customs purposes. They are used by over 200 countries to streamline taxes and monitor trade. Each HS code dictates the tariff applied to an imported or exported product. Without precision, businesses risk either overpaying taxes or facing penalties for misclassification. Under the intense pressure of meeting urgent demands for sales, classification errors are inevitable.

Adam Wood, Head of Commercial at Barbourne Brook commented:

“As an experienced customs consultancy, we regularly see a link between in-house teams working at a frantic pace to get goods into the country and the frequency of human error. There are over 5,000 HS codes to choose from (translating into over 17,488 commodity codes here in the UK), and the process can be very tricky, especially when the product could fit into multiple categories. One approach to this problem is to choose the code with the higher rate, which reduces the risk during an HMRC audit but also increases the cost of sales.”

In some cases, there are discrepancies between the language and terminology used within the trade and that used by HMRC, which causes confusion. In a recent tribunal between a toy importer and HMRC where the correct duty rate on figurines was debated at length, the classification of individual items came down to some very intricate points, such as:

• Whether the superhero figure represented a human or non-human
• Whether the figures were dolls or statuettes
• Whether figures that came with additional items constituted a figure with accessories or a play set

Case Study: Barbourne Brook Customs Compliance Solutions

Where an incorrect classification code has been used and a business has overpaid customs duty, there is an opportunity for a reclaim.

In a recent project, Barbourne Brook successfully reclaimed over £1 million on behalf of a large retail client, by working with the client’s in-house HS classification team to review customs activity.

The organisation had submitted over 58,000 lines of customs declarations over a three-year period, which needed to be analysed for potential errors.

Using highly refined methodology and expertise to analyse the data, Barbourne Brook quickly identified errors on just 336 lines relating to 31 different products.

By extracting these errors, making some changes in HS codes and submitting a retrospective amendment to HMRC the business was able to make a £1 million reclaim, that had a significant impact on the profit and loss accounts.

Wood commented on reclaim opportunities:

“These types of projects are not conceptual. They can turn into significant cash injections and ongoing savings for businesses that diligently seek external assistance.

Barbourne Brook consultants have access to an array of tools that are not typically available to in-house teams, including additional explanatory notes, global databases of classification decisions, court cases and committee meeting notes from several government bodies.

The team draws on an extensive pool of knowledge with over 100 years of collective classification experience, across all industries. In marginal cases, consultants take a deep dive into the details and find the lowest possible rate whilst maintaining compliance. If the case warrants, it is also possible to apply for formal rulings in the form of an Advanced Tariff Ruling.”

Assistance for Companies Importing Goods into the UK

It can be uncomfortable drawing on the expertise of an external consultancy to verify and potentially improve the work of an in-house team, but with such a vast quantity of data and unavoidable opportunities for human error, it is often the only way to ensure best practice. Our clients see our services as a surgical tool to complement the existing work being done in-house.

In the last 12 months, Barbourne Brook has uncovered £4.9 million in potential reclaims for clients.

Finding the right details in a vast sea of data is not solely focused on looking harder, it is about looking smarter. In the world of international trade, precision pays.

Risk Free Engagement

Barbourne Brook offers customs duty reclaim services on a contingent arrangement. This means there is no upfront investment and payment is a percentage of a successful reclaim, once the funds have cleared back from HMRC. The time window for reclaim opportunities is three years from import.

If you would like to verify your declaration history and get clarity over potential overpayments, contact Adam Wood at Barbourne Brook for a no obligation about how this service could work for your business.