In a recent tribunal between HMRC and Star Images Enterprises, a licensed dolls and figures importer, the complexity of tariff codes and the correct interpretation of explanatory notes came under the spotlight. The case involved iconic characters like ‘Chucky’ from Child’s Play, ‘The Hulk’ and ‘Captain America’ from The Walking Dead, and highlighted the need for precision in assigning tariff codes, as well as an informed interpretation of the HS book and explanatory notes by experts.

Star Images Enterprises found itself facing two C18 Post Clearance Demand Notices from HMRC for the underpayment of Customs Duty and Import Tax. The root cause? Importing 189 different figures under a zero-rated import code when HMRC say they should have been assigned a tariff code which attracted a 4.7% duty. In tariff classification, the combination of accurate data and expert knowledge is essential to assign the correct tariff code to your goods. Simply looking up a code in the tariff book or an online tool, without considering the section, chapter, and explanatory notes, often leads to a wrong classification and incorrect duty payment. And this is the case here. It’s important to understand the properties of a product when assigning HS codes in order to do it correctly, as explained here in this blog about what makes up a HS and HTS code.

So, why is it crucial for businesses to invest in the right classification platform to assign correct tariff codes?

Risk of errors and unplanned costs

The large number of classification codes available increases the potential for errors, leaving businesses vulnerable to unplanned fines, penalties  and shipment delays if they are caught by HMRC in getting things wrong. In the case of Star Images Enterprises, a seemingly straightforward zero-rated code turned out to be a costly mistake. HMRC argued that the toys and figures should have been classified under a code which attracted a 4.7% duty and this was discovered through a lengthy audit process. Income duties are levied based on commodity codes assigned to the item being imported. Typically, the onus is on an importer to declare which code applies to their items. These codes are diverse and specific and for a lay reader, might be considered similar in attributes, but in fact carry different duties.

Knowledge and expertise matter a great deal in classification

The tribunal between Star Images Enterprises and HMRC shed light on the variations in rule interpretation, emphasising the need for dialogue in the classification process to clarify uncertainties. This is where the expertise of our TariffTel team is invaluable for customers when they come across a particularly complex product as highlighted with M&S and classifying some of their more complex Summer products.

The tribunal unraveled a debate over the main factors which could determine the correct classification, including whether figures represented humans or non-humans, if they were dolls or statuettes, and whether figures with additional items constituted a play set or a figure with accessories. The questions led to broader discussions, such as whether superheroes are human, if character backstory matters, and whether the figure serves a play or display purpose.

To read more of the arguments which both sides used to justify their position for classifying, the full judgement can be found here.

Lessons learned from the Star Images Enterprises case

The case demonstrated that interpretation of classification rules can significantly vary, impacting importation costs and goods’ profitability. The final judgment assigned the 189 figures to five different classification codes, with different suggestions from the importer, HMRC, and the tribunal for the same items.

Having the right classification platform in place is not just a matter of compliance but a strategic move to safeguard your business from costly errors, uncertainties, and unforeseen penalties. The Star Images Enterprises case serves as a poignant reminder that interpretation and customs knowledge should be a vital part of every classification solution. The consequences of getting it wrong are too great.

TariffTel’s combination of advanced customs data and our unrivalled team expertise create a precision solution for every business prioritising trade efficiency and growth.

If you want to find out more about a tariff code solution that’s right for your business or want to learn how your business could benefit from TariffTel, get in touch with our team.