The report below appeared in FBHVC Newsletter 1/2009, and related to a case that reached the High Court in July the previous year. Goodman Derrick LLP are FBHVC Trade Supporters and specialise in providing advice to vehicle collectors.
VALUE FOR IMPORTATION, FBHVC Trade Supporter wins clarification in High Court
Martin Emmison, Goodman Derrick LLP
The regulations relating to taxation on the import of goods and chattels from outside the EU are complicated, with both customs duty and VAT to consider. In general, motor cars and motorcycles come under heading 87.03 (motorcars and other vehicles principally designed for the transport of persons). Customs duty is payable at 10%, and VAT was, at the time of this case, 17.5%, both calculated on the value at the time of importation.
In certain circumstances, however, older cars and bikes may be considered to fall instead under heading 97.05 (collections and collectors’ pieces of zoological, botanical, mineralogical, anatomical, historical, archaeological, paleontological, ethnographic or numismatic interest). Customs duty is nil, and VAT is calculated at the reduced rate of 5% for these items.
Obviously, anyone importing an old car or bike will wish to have it considered as a collectors’ piece of historic interest. Equally obviously, HM Revenue and Customs cannot rely simply on an importer’s claims to justify ‘historic interest’ but has to apply established tests. Vehicles made before 1950 or connected with famous people or events generally qualify but others have to pass four tests, which stem from a decision by the Court of Justice of the European Communities in 1985. The vehicles have to be:
• rare;
• no longer in normal use for the purpose for which they were originally made;
• bought and sold outside the normal vehicle trade; and
• of high value.
That’s the background. Last year, the FBHVC secretary had a request for help from someone who had, in 2005, imported from New Zealand a 1955 Zephyr convertible. HM Customs & Excise (as it then was) initially argued that this car failed most of the tests (and specifically the test of ‘high value’), but this view was successfully challenged in two tribunals.
HM Revenue and Customs, as it had now become, conceded that the car qualified under the first three tests, but decided to appeal the tribunals’ decision to the High Court on the basis that it failed to meet the ‘value’ test. They said that to qualify as being of high value, it would have to have been worth at least £20,000 at the time of import. They arrived at this figure by multiplying the £7,000 value of a very modest new car by three, and rounding down.
FBHVC does not have the resources to provide assistance in such circumstances, but thought the case may be of interest to Martin Emmison, a partner in London law firm Goodman Derrick LLP. Goodman Derrick is a FBHVC Trade Supporter and Martin specialises in providing legal advice for those buying and selling historic vehicles.
The appeal was heard at the Royal Courts of Justice in July where the case was argued before Sir Andrew Park by Matthew Collings QC, who is also a collector of historic cars. Sir Andrew’s judgment, finding against HMRC, was handed down on 2 October thus reinforcing the decisions of the previous tribunals, and establishing that considering value in reference to modern vehicles was inappropriate. Instead, it was necessary to consider the market value (agreed by all parties at a nominal figure of £10,575) against its value as scrap (£75), the sum of the value of its component parts (£2,500) and its utility value (its value simply as a means of transport, ignoring any rarity or historic value), which was determined to be less than the gross value of the component parts.
The High Court’s decision means that in future cars which are worth less than £20,000, but which meet the other criteria for classification under heading 97.05, will not be subject to an arbitrary bar to more favourable rates of tax and import duty, which should assist the inflow of imported classic cars into this country.
It may be of interest, particularly to trade members of FBHVC, that HM Revenue & Customs appear to be carrying out retrospective reviews of vehicles that have been imported into the UK from outside the EU under the advantageous 97.05 Tariff Classification as ‘collectors’ pieces of historical interest’. If HMRC believe that vehicles, which are not entitled to be so classified, have been granted the effective 5% VAT rate (with no import duty), they can raise a retrospective assessment called a ‘Post Clearance Demand’. The law permits them to go back three years.
This has happened to a trade client of my firm in respect of a large body of cars. The first stage of appeal is an internal departmental review process inside HMRC, and the next stage would be an appeal to an independent VAT Tribunal.
My advice to any member who may be contacted along these lines by HMRC is to take it seriously, because they mean business. Don’t simply respond to their enquiries on an offhand or ‘back of the envelope’ basis. Assemble your information carefully - or ask the FBHVC secretary for our contact details.
Subsequent Developments
HM Revenue and Customs, aware of the problems arising from differing interpretations of the regulations, sought clarification of the relevant explanatory notes from the European Commission.
In November 2009, the relevant part of the “Explanatory Note to the Combined Nomenclature” relating to motor vehicles was amended to read as follows:
9705 00 00 Collections and collectors’ pieces of zoological, botanical, mineralogical, anatomical, historical, archaeological, palaeontological, ethnographic or numismatic interest
1. This heading includes motor vehicles which are:
- in their original state, without substantial changes to the chassis, steering or braking system, engine, etc.,
- at least 30 years old, and
- of a model or type which is no longer in production.
However, motor vehicles are deemed not to be of historical or ethnographical interest and are excluded from this heading when the competent authorities establish that the motor vehicles are not liable to evidence a significant step in the evolution of human achievements or illustrate a period of that evolution.
Such vehicles must also possess the requisite characteristics for inclusion in a collection by:
- being relatively rare,
- not being normally used for their original purpose,
- being the subject of special transactions outside the normal trade in similar utility articles, and
- being of greater value.
2. It also includes as collectors’ pieces of historical interest:
(a) motor vehicles, irrespective of their date of manufacture, which can be proved to have been used in the course of an historic event;
(b) motor racing vehicles, which can be proved to be designed, built and used solely for competition and have achieved significant sporting success at prestigious national or international events.
3. Articles of a kind used as parts and accessories for the above-mentioned vehicles are classified in this heading if they are collectors’ pieces themselves, whether or not they are intended to be fitted into those vehicles.
Proof can be supplied by appropriate documentation, for example, reference books or specialised literature, or by opinions from recognised experts.
The above Explanatory Notes apply, mutatis mutandis, to motorcycles.
Replicas are always excluded (generally Chapter 87).
The main change is that there is now more emphasis on originality and less on age - previously, any vehicle made before 1950 would qualify as a collectors’ item: now it might not if it has been modified or is incomplete. It also opens the possibility of HMRC asserting that a particular vehicle fails ‘to evidence a significant step in the evolution of human achievements or illustrate a period of that evolution’ and leave it to the importer to prove otherwise.
.jpg "nvr09082 (Large).jpg")