Customs and excise quarterly update – November 2025

Welcome to the November 2025 edition of RPC's Customs and excise quarterly update.

News

Freeport reliefs clarified in new HMRC guide

HMRC has published updated Help with Freeports – GfC14 guidelines, explaining the full suite of tax and customs-duty benefits available to businesses operating in UK Freeports.

Inside Freeport customs sites, firms can store or process goods under the Freeport special procedure, with import duty, import VAT, and even excise duty suspended while goods remain in the zone.

Meanwhile, in special tax sites, companies may access tax reductions such as zero-rate secondary Class 1 National Insurance, enhanced capital allowances on plant and machinery, and relief on business rates and property taxes.

The guidance highlights how to qualify, key record-keeping obligations, common pitfalls, and the process to correct errors.

Developing Countries Trading Scheme (DCTS): Goods Graduation from 1 January 2026

From 1 January 2026 until 31 December 2028, under the DCTS, the UK will suspend preferential customs duty rates on a range of goods imported from the “Standard Preferences” tier countries currently India and Indonesia. The graduated goods include, for India: products of milling, fats and oils, inorganic/organic chemicals, textiles (cotton, man-made fibres), apparel, carpets, iron/steel and precious metal articles. For Indonesia: selected chapters such as edible fats and oils, wicker manufactures, footwear and musical instruments. The change applies to UK importers and exporters to these countries who should review the impact this will have on duty costs and supply chains.

HMRC's Notice can be viewed here.

Import Control System 2 now live

HMRC has announced the transition from the Import Control System 2 Northern Ireland (ICSNI) to Import Control System 2 (ICS2) for entry summary declarations on goods moving from Great Britain to Northern Ireland. While businesses were expected to migrate by 1 September 2025, HMRC is allowing continued use of ICSNI until 31 December 2025. Traders using the Trader Support Service will be automatically registered for ICS2, while others must register via the EU Shared Trader Interface.

HMRC’s Guidance can be viewed here.

Case reports

Drinks and Food UK Ltd v HMRC [2025] UKUT 315 (TCC)

Drinks and Food UK Ltd (DFUK) appealed to the Upper Tribunal (UT) against the First-tier Tribunal’s (FTT) decision to uphold HMRC’s refusal of its claim for excise duty drawback under the Excise Goods (Drawback) Regulations 1995 (EGDR).

The dispute centred on whether:

(1)  the company’s claim was made within the statutory three-year time limit;

(2) HMRC had waived that limit; and

(3)  the company had complied with other procedural requirements, including those concerning duty-stamp obliteration and export documentation.

DFUK had paid excise duty on alcoholic goods in 2014 and sought to reclaim that duty after exporting the goods between December 2020 and April 2021 and submitted to HMRC a notice of intention to claim drawback in November 2020, and a formal claim in April 2021. HMRC refused the claim on three main grounds: (1)  it was out of time under regulation 7(6) of the EGDR; (2) it had not properly obliterated duty stamps under the Duty Stamp Regulations 2006 (DSR); and (3) it had failed to produce the required export evidence, such as CHIEF system S8 print-outs showing a “departed” status.

A subsequent review upheld HMRC’s refusal, leading the company to appeal to the FTT. The FTT dismissed the appeal, except for a small portion of the claim amounting to around £9,700.

The FTT's decision can be viewed here. 

DFUK appealed to the UT, arguing that HMRC’s refusal was unreasonable, that its 2019 correspondence with HMRC amounted to a waiver of the time limit, and that the FTT had misunderstood the scope of its jurisdiction. HMRC cross-appealed, arguing that the FTT had exceeded its powers in reviewing certain aspects of HMRC’s discretion.

UT's decision

The UT upheld the FTT’s decision. It confirmed that the FTT had jurisdiction under section 16(5), Finance Act 1994, to consider whether HMRC’s discretionary decision was reasonable, but it agreed with HMRC that it had acted lawfully in refusing the bulk of the claim. The UT accepted that a 2019 email from HMRC’s drawback team could be interpreted as an assurance that a late claim would be considered, meaning the time limit was not itself determinative. Nevertheless, DFUK still failed to meet the substantive conditions for drawback.

In the view of the UT, the requirement in Excise Notice 207 to obliterate duty stamps in accordance with the DSR, was clear and proportionate, and DFUK's agent had failed to comply with this requirement by not providing the necessary notice or record of stamp obliteration. It was also of the view that HMRC was entitled to reject parts of the claim for which no valid export documentation had been produced.

The UT's decision can be viewed here.

Why it matters

This decision provides important guidance on the scope of the FTT's jurisdiction under section 16(5), Finance Act 1994, and highlights the strict nature of compliance required under the drawback regime. While the UT accepted that HMRC’s communications could amount to a waiver of procedural time limits, it confirmed that such assurances do not excuse failure to meet other statutory conditions. The case highlights the need for exporters to maintain meticulous procedural compliance documentation, especially with regard to duty-stamp management and export evidence, if they wish to recover excise duty lawfully paid.

Kerrie Brennan v HMRC [2025] UKUT 00310 (TCC)

Ms Brennan appealed the FTT's decision, which upheld an excise duty assessment and a related wrongdoing penalty to the UT.

The case concerned a shipment of large “Euro bins” which were transported from Germany to Northern Ireland in containers which were described as wheelie bins but which were found to contain thousands of kilograms of duty-unpaid tobacco.

Before the FTT, Ms Brennan argued that she had arranged transport of the bins unaware of the illicit tobacco contained within them, and that she was not “holding” possession of excise goods for the purposes of Regulation 13 of The Excise Goods (Holding, Movement and Duty Point) Regulations 2010) (HMDP). She also contended that she had a reasonable excuse, for the purposes of paragraph 20, Schedule 41 to the Finance Act 2008, in relation to the wrongdoing penalty which HMRC had imposed.

The FTT dismissed Ms Brennan's appeal, holding that she was “concerned in carrying, removing, depositing, keeping or otherwise dealing with” the goods and that she did not establish a reasonable excuse.

Ms Brennan appealed to the UT, where she argued that the FTT erred in its analysis of “holding” and relied on the principle from R v Taylor and another [2013] EWCA Crim 1151 that an “innocent agent” not physically in possession of goods cannot be treated as "holding".

The FTT's decision can be viewed here.

UT's decision

The UT rejected Ms Brennan's appeal. It held that in excise duty law the concept of “holding” may include arrangements where the person arranges transport and the paperwork is in their name even if they do not physically hold the goods. Ms Brennan’s role in arranging transport, with the documentation in her name, meant the FTT was entitled to conclude that she was “holding” the goods for the purposes of Regulation 13, HMDP. The UT also held that Ms Brennan did not have a reasonable excuse. The factual findings of the FTT were not perverse or legally wrong, and Ms Brennan did not therefore satisfy the threshold for a reasonable excuse, under Schedule 41, Finance Act 2008.

The UT's decision can be viewed here.

Why it matters

This decision confirms that in the context of excise duty, “holding” goods can extend beyond physical possession to include situations where the taxpayer arranges transport and the consignment documentation names them. It also serves as a stark reminder of the high threshold that has to be met in order to establish a “reasonable excuse” in excise wrongdoing penalty cases. Taxpayers and businesses involved in logistics or goods transport, should remain alert to the risk of being caught out by excise‐duty obligations and the potential serious consequences for them if illicit cargoes have unwittingly been transported.

WM Morrison Supermarket Ltd v HMRC [2025] UKFTT 1145 (TC)

WM Morrison Supermarket Ltd (Morrisons) appealed to the FTT against a post‑clearance demand in the sum of £5,073,187.80, issued by HMRC for anti‑dumping duty (ADD) and import VAT, in respect of household aluminium foil imported between 22 March 2018 and 19 November 2020, and declared as originating from Thailand.

The main issue in the appeal was whether a factory in Thailand, operated by the exporter, which undertook certain final‑stage processing of the foil, had carried out the “last, substantial, economically‑justified processing or working” in the UK customs origin sense (under Article 60 of the Union Customs Code (UCC)), which would mean the goods were of Thai origin and would avoid ADD, or whether the processing was not economically justified (Article 33 UCC Delegated Regulation) and therefore the goods would remain of Chinese origin and subject to ADD.

Morrisons had bought aluminium foil manufactured entirely in China until May 2017, after which time the exporter group moved certain final operations to Thailand. The Thai operations accounted for about 5% of total production cost.

HMRC argued that the Thai factory was established with the dominant purpose of avoiding ADD and that the Thai processing was minimal and did not amount to the requisite “substantial processing”.

The FTT heard evidence from the Thai factory’s general manager, expert metallurgical witnesses, and reviewed corporate website/social media content of the exporter, that explicitly referenced to elimination of ADD.

FTT's decision

The appeal was dismissed.

Morrisons bore the burden of proof and the FTT applied the two‑stage statutory test: first, was the processing economically justified or was it principally aimed at avoiding ADD (Article 33 UCC‑DA); and second, if it was economically justified, did the Thai processing constitute the last substantial processing (Article 60 UCC).

On the first issue, the FTT found that the contemporaneous online material, for example, the maker’s website and buyer‑to‑buyer postings, contained clear statements that the Thai facility was opened to “eliminate anti‑dumping rate” and therefore provided objective evidence that avoidance of ADD was the principal or dominant purpose. Morrisons’ evidence of local‑market demand and export volumes was found to be insufficient and of reduced weight (partly because of deficiencies in its witness evidence). Accordingly, the processing was not economically justified.

With regard to the "substantial processing" question, the FTT concluded that even if the processing had been economically justified, the Thai processing effected only microscopic metallurgical changes and did not meet the qualifying threshold. The product before and after the processing appeared to be essentially the same, both met the British standard for household foil, and the cost share and extent of change were insufficient to amount to a new product or important stage of manufacture.

The FTT's decision can be viewed here.

Why it matters

This decision is significant for importers because it illustrates how the rules on non‑preferential origin are being rigorously applied by HMRC. It confirms that statements by exporters (including on websites/social media) can be persuasive evidence of intent. It also underscores that relatively modest finishing or packaging operations abroad may not satisfy the “last substantial processing” test under Article 60 UCC, especially where core manufacturing remains elsewhere. There is a heavy evidential burden on importers to show genuine commercial reasons for relocation of production and meaningful processing abroad. From a practical perspective, companies declaring origin overseas must ensure that communications and documentation support the commercial logic, and that the overseas operations are substantial, and not merely final packaging or minor finishing.