Judges concluded that Build-A-Bear Workshop’s accoutrements are made for stuffed toys, not “humanoid” dolls, and the company was unsuccessful in its three-year legal struggle to avoid paying a £660,000 tax penalty.
Bosses battled HMRC in three courts over customs duty requests that date back to 2012 that were placed on the clothing, wigs, and footwear worn by their adorable creatures.
They would pass through customs with a “zero” rate of duty if they were classified as doll accessories, but 4% in customs duty if they were classified as stuffed toy accessories.
Despite the company’s complaints that they were obviously doll accessories, revenue bosses wanted they be classified as stuffed toy accessories.
Build A Bear’s justification that the shoes are “humanoid accessories” since “bears do not wear shoes” was among them.
The business was founded in the US 25 years ago and provides youngsters a special “workshop experience” where they may choose a skin for a furry toy of their choice before having it stuffed and dressed.
Since then, it has established a strong presence on UK high streets, bringing in more than £97 million in revenue last year from all over the world.
Now that the company’s toy shoes are specially designed for a bear’s foot, not that of a “humanoid” doll, the Court of Appeal has upheld a decision that the company’s shoes are taxable and decided in favor of the taxman.
The court was informed that youngsters participate in stuffing the skin of the BAB stuffed dolls or animals, which start at £12.50, with assistance from a shop employee “before it is stitched into the finished BAB stuffed toy,” during the Build A Bear (BAB) experience.
When a tax judge at the First Tier Tribunal decided in favor of HMRC in 2019, the furry toy company lost the initial tax battle.
The wigs and clothing in question were examined by Judge Harriet Morgan, who made the following ruling: “whilst the clothing items can plainly be used on any toy or doll of an appropriate size, the fact is that they are, according to their objective design characteristics, suitable primarily for use with stuffed toys.”
The size and rounded shape of the footwear, as designed specifically to fit BAB’s stuffed bears, clearly indicates that the footwear is suitable for use principally, in the sense of for the most part or chiefly, with stuffed bears, she concluded after looking at the disputed footwear, which consisted of football boots, walking shoes, slippers, and sandals.
The tax dispute then moved before the Upper Tribunal, which in April of last year again ruled in favor of HMRC.
Build-A-Bear Workshop UK Holdings Ltd also appealed the judgements against it to the Court of Appeal in London in a final effort to get the £660,000 tax bill overturned.
The Build-A-Bear company, according to Lady Justice Wipple, has “traditionally centered” its business on fuzzy creatures, notably bears, but in 2009 the company created the “Sweetheart” line of teddy dolls with human features that go by the names “Honey” and “Daisy.”
The judge added: “The accessories in dispute are all sold and used with both stuffed bears (the “BAB Bears”) and with the Sweetheart and Lalaloopsy dolls (the “BAB dolls”). Beginning in 2015, BAB also sold a range of four “Lalaoopsy” dolls in human form under license.
However, a lot of the BAB clothing has unique elements to “accommodate the particular non-human features of the BAB Bears,” as the judge put it.
There are unique loop-holes in the wigs sold for dressing up a BAB Bear that “enable the protruding ears of a bear to be pulled through so that the wig sits better on the bear’s head,” as well as slits in pants and shorts that allow access for a bear’s tail.
Build-A-legal Bear’s team contended in the Appeal Court that HMRC’s strategy was defective and criticized Judge Morgan’s conclusion that the footwear was made expressly for bear wear.
The boots’ rounded shape made them “equally suitable for BAB Bears as for BAB Dolls,” claimed Laurent Sykes, the group’s QC.
He said that the judge’s decision that they were better suited for usage with BAB Bears was irrational given that bears do not wear shoes and that as they are humanoid accessories, they naturally belong in the same category as humanoid toys.
However, Lady Justice Whipple, who was sitting with two other judges, dismissed the appeal, stating that there was “no illogic” in concluding that footwear was “suited primarily for use with BAB Bears.”
According to the evidence in front of the judge and for the reasons stated by it, “this was a conclusion that (the judge) was allowed to draw,” she added.
She rejected Build-A-appeal Bear’s and determined that the contested products, including the footwear, should be categorized as made for stuffed toys.
The judge also mentioned that although the loss cost BAB £660,000 right away, it will also have an impact on the business’s finances in the long run.
“A bigger amount of customs duty is actually at stake,” she added. “The judgment of the questions addressed on this appeal will have ramifications in relation to following imports.”