Judges pull plug on retailer’s plea for zero rating on USB stick

Plugging a memory stick into your laptop is one of the simplest processes,
but when it comes to tax nothing is ever that simple.

Electronics retailer Maplin, the UK’s biggest specialist seller of consumer
electronics, had a spat with the taxman about a TV USB Stick. The stick plugs
directly into the USB portal of a PC and beams digital television directly on to
the computer.

Maplin wanted the kit zero-rated for import duty on the grounds that it was
an “electronic assembly” as opposed to paying 14% for bringing the goods into
the UK.

Unfortunately for Maplin, the taxman won the fight on a technicality at the
first tier tax tribunal, which could be a blow to other electrical retailers as
the UK prepares to switch off analogue TV streams next year.

Selling more than 15,000 different products in its stores which each have to
be classified in terms of tax, Maplin’s desire to arrange its tax affairs in the
most efficient way possible is clear to see.

The nuts and bolts of this particular case reveal how small the difference
can be between defining a zero-rating and a hefty tax bill.

HMRC argued the stick should remain classified for a 14% import duty since it
had an “outer housing”, meaning it was “not an electronic assembly”.

An electronic assembly under the current rules is an item that is a fixed
part of a data-processing machine, in this case a laptop, and must not have an
outer housing.

But Maplin countered that even though the stick has an outer housing it does
not change its character or functionality as an electronic assembly and should
be given a zero rating for tax purposes.

But judges agreed with HMRC that the stick’s housing gives the product a
different character that means it is not an electronic assembly as defined in
tax rules.

“The stick does not fit within the wording of the subheading as it is not
fitted or incorporated into an automatic data-processing machine but rather
provides a temporary connection when required. It is ­therefore correctly
classified,” judges said.

Once the stick is removed, it ceases to have functionality, judges added. It
does not come with the computer, it can be used with any machine and the
intellectual property rights relating to the stick arises outside of the

It would have been a major disappointment to HMRC if it had lost this case
because the number of other items which potentially come under the same umbrella
– USB sticks, and connection cables for cameras and mobile phones for example –
is significant.

Maplin had the option to take the case to the upper tier tax tribunal if it
felt strongly enough about the matter. The upper tier has been known to overturn
decisions. But the retailer confirmed to Accountancy Age it would not appeal.

HMRC is staying tight-lipped about whether there are similar cases being
fought by other companies in the same sector.

An HMRC spokesman said: “I’m afraid [HMRC] can’t discuss the affairs of any
individual taxpayers in this case, or whether there are other companies involved
in the same type of dispute.”

Do your duty

* Import Duty rates are set annually by the EU, and run from 1 January to 31

* All goods are classified to arrive at a rate of duty.

* The broad classifications are divided into 21 sections.

* There are approximately 14,000 sub-classifications.

* Import duty averages at between about 5% and 9% – but with extremes in some
cases between nil and 85%.

In our view

Tax cases can be fiendishly complicated and the stakes for companies
conducting business on the scale of Maplin are clearly high. The taxman can
expect no let up in the challenges to the rules, meaning more time batting cases
in the courts as it tries to keep the UK’s tax coffers topped up.

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