With a majority of businesses struck with unforeseen challenges in the last year – COVID-19, Brexit, redundancies, shattered supply chains, it’s no wonder many SMEs have yet had the opportunity to get their head around the new trading regime with Europe. If you consider the government advice on trade more challenging than undertaking a PhD, read on, as we’ve attempted to simplify the essentials for you.
The right to move goods freely between the EU and UK has ended, necessitating businesses to prepare import and export declarations, safety and security declarations and consideration of tariffs, excise and VAT procedures. The UK Government has introduced UK customs procedures on a staggered basis, sensibly extending import border control processes until January 2022, allowing business to focus on their recovery from the COVID-19 pandemic.
Whilst a ‘thin’ trade deal between the EU-UK was negotiated, as set out in the Trade and Cooperation Agreement (TCA), providing the foundation of the future EU-UK relationship, it allows for further negotiations to improve the current Agreement. For an exported product to qualify for tariff-free trade under the terms of the EU-UK TCA, it must have either been wholly obtained, or been subject to a significant amount of processing, in the EU or UK. Or to put it another way, the EU-UK TCA only benefits goods that can legitimately claim to have been made in the EU or UK.
We’ll leave the treat of VAT procedures for another day. It would be unfair to spoil you in one sitting!
IMPORT – IN A NUTSHELL
1.Obtain a UK EORI Number
Ensure your business has an Economic Operator Registration and Identification (EORI) number to trade outside the UK, to be used on all customs declarations. Your EORI number will start with GB, followed by your VAT number and three additional numbers at the end (i.e. GB234567896000).
2. Identify the commodity code for your goods
This is an 8-digit code for exports and a 10-digit code for imports. The code system is developed by the World Customs Organisation (WCO) to classify goods. It is crucial to cite the correct commodity code, to identify your product, any applicable duty rates and licensing. If cited incorrectly, this could result in delays at the border, disgruntled customers and penalties from HMRC.
3. Determine the value of your goods
This is the cost that customs duties are levied on. The calculation is based on the value of goods (less any discounts) + insurance + freight + delivery costs to the customer’s location.
4. Set up a Duty Deferment Account
This enables importers to defer payment of duties, (excise duty, customs duty and import VAT) for up to 45 days and pay through Direct Debit rather than on individual consignments, easing cash flow. Application is made to HMRC.
5. Establish whether your goods are subject to controls
If you supply military, “dual use” or other controlled products or you obtain such goods from suppliers in the EU, either you or your suppliers may need licences, prior to notifications or registrations in order to continue with such trade. Such requirements could give rise to delays whilst the relevant conditions are complied with.
6. Determine the origin of your goods
Customs duties are not payable under the Trade and Cooperation Agreement (TCA) if the goods qualify through the Preferential Rules of Origin. Goods which fail to comply will not benefit from the preferential (zero) tariff rate. No customs duties will be levied by either Party (EU or UK) on goods originating from the other Party, where they have been:
a)“wholly obtained” by that party or
b) produced in that Party exclusively from originating materials in that party or
c) the products produced in that party but incorporate non-originating materials, provided they meet the relevant Product Specific Rules.
7. Select the correct Customs Procedure Code (CPC)
This is a 7-digit code used to identify the reason for export/import and applicable customs regime. The code describes the shipment and how it will be processed by customs. It will also indicate whether duties or taxes are to be collected, suspended or waived.
8. Submit your customs declaration
If your business has access to the Customs Declaration Service, you can submit the Single Administrative Document (SAD)/Form C88 yourself. Importers moving non-controlled goods can use the deferred declarations scheme or complete a full customs declaration.
Customs declarations are complicated. The consequences of non-compliance will result in fines, penalties, potentially imprisonment, bankruptcy and strike off. Businesses may feel more comfortable using an intermediary such as freight forwarders, brokers, customs agents or fast parcel operators to submit declarations on their behalf.
9. Make import duty payments
payments
Import duty payments may need to be paid prior to release of your goods by HMRC, unless your goods benefit from the duty suspension regime or are utilising the Duty Deferment Scheme. A Duty Deferment Account (DDA) enables importers to defer payment of duties, (excise duty, customs duty and import VAT) for up to 45 days, easing cash flow.
10. Maintain records
HMRC requires all businesses to keep and preserve records and accounts for at least 4 years for customs, unless there is a criminal investigation in which case the 10-year rule applies. Excise records should be kept for at least 6 years, as should VAT records. It is crucial to maintain a robust system to enable HMRC to conduct audits effectively. Records must be accurate and up to date; legible; readily accessible and available for inspection at all reasonable times. Although record-keeping is your responsibility you should be aware that if you use an agent or freight forwarder you are ultimately liable for any incorrect information they provide to HMRC.
EXPORT – IN A NUTSHELL
1.Obtain a UK EORI Number
Ensure your business has an Economic Operator Registration and Identification (EORI) number to trade outside the UK, to be used on all customs declarations. Your EORI number will start with GB, followed by your VAT number and three additional numbers at the end (i.e. GB234567896000).
2. Agree Incoterms® with your EU Customers
Incoterms make clear the responsibilities for each party along the shipment lifecycle from leaving origin to arrival at their destination. They determine who pays for each aspect of freight, insurance and duties. Where Incoterms and a contract conflict, the terms of the contract will take precedence. It is important to reflect the Incoterms according to the contract requirements.
3. Classify your products using commodity codes
As outlined above, this is the 8-digit code used for exports, used to classify goods into a commodity group to identify the product, duty rates and licensing requirements.
4. Determine if your Goods Require an Export Licence
All countries have an export control policy, legislation and enforcement mechanisms. Whether you need an export licence will be determined by:
If you supply military, “dual use” or other controlled products or you obtain such goods from suppliers in the EU, either you or your suppliers may need licences, prior to notifications or registrations in order to continue to trade with Europe. Such requirements could give rise to delays whilst the relevant conditions are complied with.
5. Check your Pallets Conform with ISPM15 Rules
The EU require all wood pallets to be heat-treated at 56? to prevent the spread of pests and have specific markings to confirm they meet legal requirements. You, your packing service or freight forwarder must make sure any solid wood packaging you use meets the requirements. If you do not follow the rules your packaging could be rejected or destroyed.
6. Select the Correct Customs procedure code (CPC)
The Customs Procedure Code (CPC) is a 7-digit code used to identify the reason for export/import and applicable customs regime. The code describes the shipment and how it will be processed by customs. It will also indicate whether duties or taxes are to be collected, suspended or waived.
7. Establish the origin of your goods
For an exported product to qualify for tariff-free trade under the terms of the EU-UK TCA, it must have either been wholly obtained, or been subject to a significant amount of processing, in the EU or UK. Or to put it another way, the EU-UK TCA only benefits goods that can legitimately claim to have been made in the EU or UK.
8. Declare your Export to Customs
If your business has access to the National Export System (NES), you can submit the export declaration and appropriate licences yourself. Small businesses, often use agents or freight forwarders to process their goods under Customs Freight Simplified Procedures (CFSP) not least because these have the necessary software.
Customs declarations are complicated. The consequences of non-compliance will result in fines, penalties, potentially imprisonment, bankruptcy and strike off. Businesses may feel more comfortable using an intermediary such as freight forwarders, brokers, customs agents or fast parcel operators to submit declarations on their behalf. It is estimated such declarations will cost between £35-50.
9. Attach Commercial Paperwork to the Consignment
This makes it clear what products are where in the shipment, making it easier for customs to check at the port, helps HMRC if they need to open a shipment and makes it easier for the customer to locate what they need, (useful in a large shipment). It is good practice to send a copy of the packing list to the customer and attach the lists ideally to the outside of the parcels/boxes/containers. Through identifying the weight of the consignment on the packing list, this helps keep track of weights and avoid overloading ships or aircraft.
10. Maintain Records
HMRC requires all businesses to keep and preserve records and accounts for at least 4 years for customs, unless there is a criminal investigation in which case the 10-year rule applies.
SME Brexit Support Fund
The SME Brexit Support Fund could give you up to £2,000 to help with training or professional advice, if your business has up to 500 employees and no more than £100 million annual turnover.
Find out more information on eligibility for the fund and apply online.
Applications will close on 30th June 2021 or earlier, if all funding is allocated before this date.
Help is at hand
Acuity Law understands adapting to new rules, introducing customs regimes and getting it right can be challenging, which is why we have set up our Trade Desk to support our clients and mitigate business interruption.
For guidance on these issues, please contact Acuity Law partner, Katrina McWhinnie, direct:
Katrina McWhinnie
Partner
katrina.mcwhinnie@acuitylaw.com
Katrina is a member of Acuity Law’s International Trade and Science & Technology Parks team.
