Customs and Excise quarterly update – February 2026

Welcome to the February 2026 edition of RPC's Customs and excise quarterly update.

News

UK publishes draft Carbon Border Adjustment Mechanism Regulations

The Government has published draft secondary legislation for the Carbon Border Adjustment Mechanism (CBAM), ahead of its planned introduction on 1 January 2027.

The draft legislation sets out key administrative requirements, including registration, return submissions, record-keeping, calculation of the CBAM rate, and treatment of overseas carbon pricing (Carbon Price Relief). HMRC has also issued supporting notices and an updated policy summary explaining how the regime will operate.

The draft regulations are subject to a six-week technical consultation.  Any responses or queries regarding the consultation should be submitted by email to cbampolicyteam@hmrc.gov.uk no later than 24 March 2026.

Businesses affected by CBAM should review the potential compliance and supply-chain implications ahead of implementation.

The draft regulations and technical consultation can be viewed here.

New Vaping Product Duty to apply from 1 October 2026

The Government has confirmed that Vaping Product Duty and a related Vaping Duty Stamps regime, will take effect from 1 October 2026, with duty charged at £2.20 per 10ml of vaping liquid.

The new excise duty will introduce a regulatory framework similar in structure to that applying to tobacco products, bringing enhanced compliance, approval and record-keeping obligations, alongside increased costs, for the sector.

Manufacturers, importers and excise warehousekeepers will be required to obtain HMRC approval from 1 April 2026, in advance of the regime going live.

HMRC's Guidance can be viewed here.

EU further delays Deforestation Regulation until December 2026

The EU has confirmed a further postponement of the EU Deforestation Regulation (EUDR), delaying its application for all operators until 30 December 2026, with an additional six-month grace period for micro and small operators.

EUDR prohibits the placing on, or export from, the EU market of specified commodities and derived products unless they can be demonstrated to be “deforestation-free”. The regime imposes enhanced due diligence, traceability and record-keeping requirements across supply chains, with scope driven by customs classification codes and country of production.

The revision also streamlines certain due diligence requirements to reduce administrative burden ahead of implementation.

The EU’s announcement and supporting materials can be viewed here.

Case reports

Juno Sourcing Ltd v HMRC [2025] UKFTT 1447 (TC)

Juno Sourcing Ltd (Juno) appealed to the First-tier Tribunal (FTT) against HMRC's post‑clearance demand (C18) in the sum of £1,373,884.73, comprising £490,523.81 of customs duty and £883,360.92 of import VAT. The C18 related to 52 consignments of personal protective equipment (PPE) imported between 14 April 2020 and 4 November 2020, where Juno acted as the importer of record (IoR). The goods included face masks, face shields, and aprons.

The main issue in the appeal was whether the PPE qualified for disaster relief from customs duty and import VAT under Article 1 of Commission Decision (EU) 2020/491 (the Commission Decision) and whether Juno’s claim for remission under Articles 117–120 of the Union Customs Code (UCC), was valid. Relief was available only if, on the balance of probabilities, the goods were imported by or for an approved organisation, including the NHS, or otherwise met the UCC remission criteria.

FTT's decision

The appeal was dismissed.

The FTT held that relief under the Commission Decision was conditional on the goods being imported by, or actually ending up with, an approved organisation, such as the NHS. In this case, the goods were not imported by the NHS or another approved organisation and the PPE consignments had not reached the NHS or other approved organisations. The mere fact that it was Juno's expectation that the goods would end up with the NHS, was not sufficient. Accordingly, the disaster relief claim failed.

With regard to the remission claim under Articles 117–120 UCC, the FTT concluded that none of the conditions for remission applied to the goods in question. The remission claim was therefore also unsuccessful.

Why it matters

This decision highlights that claims for disaster relief are strictly conditional. Relief is not granted based on intended or expected use alone; the actual delivery to an approved organisation must be demonstrable. Importers acting as IoR bear significant evidential burdens to substantiate both eligibility for relief and proper end‑use of goods. For PPE and similar emergency-related imports, documentation and tracking of delivery to approved recipients is critical to avoid post‑clearance demands.

The decision can be viewed here.

Stark Building Materials (UK) Ltd v HMRC [2026] UKFTT 123 (TC)

Stark Building Materials (UK) Ltd (Stark) appealed to the FTT against HMRC’s refusal to repay excise duty of £931,152.73, paid on hydrocarbon oil imported between 1 January and 17 May 2021, under section 9(4), Hydrocarbon Oil Duties Act 1979 (HODA).

The main issue in the appeal was whether Stark needed to be an “approved person” at the time of importation in order to qualify for repayment under section 9(4), or whether approval obtained before submitting the repayment claim would suffice.

Stark had imported hydrocarbon oil and subsequently used it for qualifying industrial purposes. HMRC argued that repayment relief under section 9(4) required the importer to have been an approved person at or before importation, and that Stark’s later approval was insufficient. Stark contended that its approved person status at the time of claiming repayment satisfied the statutory conditions.

FTT's decision

The appeal was dismissed.

The FTT held that in order to qualify for repayment under section 9(4), the claimant must have been an "approved person" at, or before, the time the oil in respect of which excise duty has been paid is imported. Approval obtained after importation did not meet the statutory requirement. The FTT emphasised that section 9(4) operates as a repayment mechanism only where the statutory conditions for relief under s 9(1) are met at the time of importation. Stark’s later approval could not cure the fact that the conditions were not satisfied when the duty was initially payable.

Why it matters

This decision is significant for importers of excise‑duty goods. It confirms that approved person status must exist at, or before, importation in order to claim repayment under section 9(4) HODA. Businesses should ensure that approval from HMRC is obtained in advance, as retrospective relief will not be available if the statutory conditions are not met at the time of importation. From a practical perspective, importers must carefully manage the timing of approvals and maintain clear records to preserve repayment rights.

The FTT's decision can be viewed here.

Yourway Transport Ltd v HMRC [2026] UKFTT 94 (TC)

Yourway Transport Ltd (Yourway) appealed to the FTT against HMRC’s decisions reducing its claimed import VAT credits and issuing associated VAT assessments relating to its importation of clinical trial drugs (trial drugs). The total sum in dispute was £4,329,955.

The main issue in the appeal was whether Yourway was entitled to a credit for import VAT it incurred on importing trial drugs on behalf of its (mostly US‑based) biopharma clients. The key question was whether Yourway, which did not own the goods before delivery, could nonetheless treat the import VAT as deductible input tax because it acted as agent for the biopharma companies and made supplies (transfers) to clinics and hospitals in EU countries in its own name, under section 47(1), Value Added Tax Act 1994 (VATA).

Yourway contracted with biopharma companies to import trial drugs into the UK, store them under regulated conditions, and deliver them to clinics and hospitals (mostly outside the UK) when ordered. The goods were owned by the biopharma clients until delivery, and Yourway was paid for its services. The trial drugs themselves were provided free of charge to clinics for clinical trials. HMRC reduced Yourway’s claimed VAT credits on the basis that, as agent and non‑owner of the goods, it lacked entitlement to recovered import VAT.

 FTT's decision

The appeal was allowed in part.

The FTT found that, although Yourway never owned the drugs, it acted as agent for its clients in its own name. Under the pre-Brexit version of section 47(1)(b), VATA, which applied at the time, this meant Yourway was treated as both importing and supplying the goods as principal, for VAT purposes. When combined with paragraph 6, Schedule 4, VATA, which treats the removal of business assets from the UK to another Member State as a supply of goods even without consideration, a deemed taxable supply arose. This created the necessary direct and immediate link between the import VAT and Yourway’s deemed taxable supplies, allowing the VAT on EU-destined drugs to be recovered as input tax.

In contrast, for trial drugs that remained in the UK, or were exported to non-EU countries, there was no equivalent legislation that treated the free trial drugs as a deemed supply, and therefore the import VAT could not be linked to any taxable output. As a result, input tax recovery was not available on those imports.

The FTT also rejected a public-law argument based on legitimate expectation. The precise amount of recoverable VAT is to be agreed between the parties.

Why it matters

This decision is significant for businesses acting as agents in international logistics and supply chains, particularly where they import goods they do not own and arrange onward delivery for clients. For importers and logistics providers acting on behalf of third parties, careful analysis is necessary to determine when import VAT credits can be recovered under the agent provisions and the associated direct and immediate link test for deductible input tax. From a practical perspective, businesses should ensure that contractual arrangements, documentation, and VAT treatment reflect the agency relationships.

The FTT’s decision can be viewed here.