The current craze for vintage clothing gave rise to a guideline decision concerning the import duty classification of used garments in which trenchant criticism was levelled at the tax authorities’ perverse approach to the issue.
The case concerned a company that imported vintage clothing in bulk. HM Revenue and Customs (HMRC) took the view that duty should, over a period of almost three years, have been paid on such consignments at 12 per cent. The company was issued with a back-dated demand for almost £110,000 and a £2,000 late payment penalty.
In challenging those decisions before the First-tier Tribunal (FTT), the company argued that the majority of garments that it imported fell within the category of ‘worn clothing’, on which duty was payable at 5.3 per cent. HMRC responded that, in order to be described as ‘worn’, the relevant garments had to be so holed, frayed or generally tatty that most people would throw them out as not worthy of being worn any more.
In upholding the company’s appeal, the FTT found that HMRC’s interpretation of the law, whilst convenient from its point of view, was unjustifiably narrow and restrictive. Whilst signs of wear had to be readily noticeable, garments did not have to be in rags or beyond repair in order to be classified as worn.
Applying a 12 per cent flat rate to all the garments imported by the company would render its business model unworkable and HMRC’s stance was, in the circumstances, plainly wrong. The obvious solution was to sample consignments and agree an apportionment between the higher and lower rates of duty. Both the demand and the penalty were overturned.