Processing and Customs Origin: A £4.7 Million Lesson for CFOs and CPOs
The correct customs origin right is just as important as accurate classification. Together with your commodity code, it determines the taxes, regulations, and trade conditions that apply to your goods. Get it wrong, and you can be exposed to fines, unaccounted for tax, or legal action.
Processing goods in a different country can result in a change of goods classification and customs origin, but every commodity has its own rules on when processing does and does not count.
On the 25th September 2025, a HMRC tribunal regarding customs origin provided valuable insights into the assumptions that can be made, the tests that are applied, and the exposure you have if you get it wrong. We explore the case in more detail in this article.
Contents
A Summary of the Dispute
A UK company was importing aluminium foil from Vietnam, declaring the goods with Vietnamese origin. However, on investigation, HMRC found that the Vietnamese factory was importing the foil from China before heating, cutting, and packaging it into the final product.
Although there was a degree of processing, HMRC determined that the goods had not changed significantly enough to reclassify the goods with Vietnamese origin. This meant that the anti-dumping duties associated with the Chinese origin were owed on past shipments.
In total, HMRC were seeking back payment of £4.7 million in underpaid duty and VAT – a significant financial blow for any business, but also a trap any business could fall into.
The importer disagreed, and the case was taken to tribunal.
The Legal Complications and Ruling
For the customs origin of a product to be changed, processing must result in a significant modification – and a new goods classification / commodity code doesn’t automatically grant it.
Relative to this example, rolls of aluminium foil can be reclassified by cutting the rolls to reduce the weight/size or by adding a backing, but the main character of the foil remains the same.
One test that authorities use is the question of whether it is economically justified. This is to identify whether the declared process adds genuine value or simply exists to exploit lower-duty routes.
In this situation, the process of diverting the goods to Vietnam for cutting and packaging added approximately 5% to the manufacturing costs. Therefore, it failed this test.
Additionally, the factory’s website clearly displayed that its purpose was ”to eliminate anti-dumping duties” – a clear effort to circumvent the ~35% anti-dumping duty rate for most producers of aluminium foil in China (individual supplier agreements exist).
Therefore, the tribunal found that HMRC’s claim that the goods should maintain Chinese origin was correct, and that the $4.7 million was owed by the importer.
The Key Lessons for Finance and Supply Chain Officers
This case highlights how important due diligence is when procuring goods, and the need for thorough consultation when considering the customs origin of processed goods.
As the importer, you are liable for any mis-declared preferential origin or other avoided taxes, including any exceptions for auxiliary taxes such as CBAM certificates.
Customs authorities are getting more stringent with their checks. Here are some of the ways you can safeguard your company against financial exposure:
Obtain Binding Tariff, Origin, or Valuation Information
Together, your commodity code, customs origin, and customs valuation are the foundation of your goods classification. They dictate how much tax you owe, alongside your other conditions for import, and a mistake with any of them can significantly impact your margins.
If the importer had sought out Binding Origin Information, they could have received legal advice on whether their declaration of the Vietnamese origin was correct. Once the verdict was returned, they could have avoided the higher manufacturing costs and factored the anti-dumping costs into their procurement figures.
Similarly:
- If you are unsure of your commodity code, obtain Binding Tariff Information.
- If you have special circumstances which make it difficult to ascertain your customs value, obtain Binding Valuation Information.
It is better to have certainty so that you are not underpaying or overpaying tax, and Customs Support Group helps you get that peace of mind. Whether it’s your initial classification or seeking further advice, we’re here for you.
Build Comprehensive Due Diligence Systems
Supply chain compliance is becoming more complicated. Ethics, origin, sustainability, and sanctions all drive buying decisions as much as price, and geopolitics quickly create circumstances where contingencies are needed.
And when you need to source new product, these elements create additional risk to your reputation and bottom line. This is where good due diligence makes a difference.
In this situation, the importer may have procured the goods directly from the factory in Vietnam. However, if they’d asked the right questions, they could have quickly exposed the risk and found a better solution.
(Related: A Procurement Officer’s Customs Checklist)
Prioritise Classification as a Whole
Your commodity code is only part of your goods classification, origin and valuation making up the rest of your foundation. However, this is still only the start.
Good classification means being able to justify your decisions, quickly ask the right questions of suppliers, and optimising your data to keep your systems cost-efficient.
In this case, the importer would have realised they need justification for the origin claim and verified it with a customs consultant, or sought binding information as an extra safeguard.
Customs Support Group helps you to unlock the hidden financial benefits inside your customs function, including the financial benefits of good classification. Contact us to explore how we can add value to your supply chain.
Avoid Risk with Customs Support Group
Financial exposure can remain hidden in your supply chain for years, but authorities will collect for all of it when it eventually comes out. Customs Support Group’s specialists are experienced at asking the right questions, spotting the gaps that authorities will want to explore, and executing remedial plans so you have better protection going forward.
You can rely on us for:
- Global Classification: Gain clarity on how your commodity code changes as you move goods through multiple territories and customs procedures.
- Duty and VAT: Understand which countries you can claim preference in, and how your landed costs or obligations are affected by changing suppliers.
- Procurement Vetting: Verify that sourcing goods from a prospective supplier won’t leave you exposed by working with our experts’ six-eye principle.
- Duty Management: Gain a commercial advantage or improve your cash flow by leveraging special procedures, where possible, that lower or suspend your duty.
