John Davison give advice relevant for all businesses that import or export, including those that currently only ship goods to and from the EU.

Issue

There are many customs reliefs available to businesses that import and export. This will include businesses that currently only move goods to and from the EU. When Brexit occurs the EU becomes a third country for customs purposes and movement of goods will be subject to the full customs regime. Should, however, the UK remain in the customs union following Brexit the current regime will remain and goods will be accounted for using the usual current systems.

Customs declarations

Customs entries are the responsibility of the importer or exporter, although they are often made by an agent or freight forwarder. The accuracy of the entry remains, however, the legal responsibility of the exporter/importer.

An Economic Operator Registered Identification (EORI) Number is required for importers and exporters. If the business does not have an EORI it must apply to HMRC for this (email: eoriteam@hmrc.gov.uk).

Import entries are made to CHIEF (Customs Handling of Import and Export Freight) computer on a Single Administrative Document (SAD) known as form C88 in the UK. The declaration must give accurate information on the following:

  • Correct commodity code (aka tariff number or HS (Harmonised System) Code);

  • A true statement of value in line with the WTO Valuation Agreement (Customs Notice 252);

  • Customs procedure code (CPC) indicating briefly the reason for import, eg home use, temporary import, commercial samples, etc.;

  • Full details of the importer (consignee) including EORI which is similar to the VAT Number but not the same;

  • Name and address of the consignor;

  • Origin (nationality) of goods;

  • Any relevant additional information related to import licence, quota or preference documents must be stated on the C88 SAD (single administrative document) entry document; and

  • Routine details such as weights and dimensions, description of goods, unique consignment reference numbers and transport document information.

CHIEF is being replaced by the new Customs Declarations System (CDS). Most entries will now be made with CDS. This is an improvement on the CHIEF system as past entries can be located and it also provides tariff information. The CDS can also be located on the UK government gateway and this allows the business to make entries rather than using an agent. A guide to CDS is available at GOV.UK website. The CDS roll out has been a little slower than first envisaged but it is expected that all imports and exports should be made using this system later in 2019.

Valuation

The correct valuation of goods is a crucial element of the import declaration. Incorrect valuation will lead to extra demands for duty, penalties and interest charges. It is important to include all the costs of the goods imported (including any periodic costs that may be payable such as royalties). Costs are all costs that lead to the goods being purchased and brought to the UK and can include:

  • Delivery costs to the border such as transport, insurance and handling fees;

  • Brokerages, selling commissions but not buying commissions;

  • Royalties and license fees;

  • Goods and services provided free of charge;

  • Materials and parts included with the goods such as tags and labels;

  • Tools, dies, moulds, tooling fees and similar items;

  • Materials consumed in producing the imported goods;

  • Engineering, development, artwork, design fees and plans;

  • Containers and packing materials;

  • Proceeds of resale if shared with the seller; and

  • Export duties or taxes paid in the country of origin or export.

The cost of the goods imported is the first and most usual method of valuation. Other valuation methods are to be used where there is a relationship between the buyer and seller. These methods are:

  • Method 2 – the value of identical goods produced in the country of export or origin;

  • Method 3 – the value of similar goods;

  • Method 4 – the selling price of goods sold in the UK (or EU if the UK is still in the EU);

  • Method 5 – The cost of production; or

  • Method 6 – Any reasonable method that can be used to determine the value of the goods.

Reliefs

Unless there is some form of relief or duty suspension, VAT and duty are payable at the point of import. Without this payment the goods will not be released by HMRC. After Brexit goods imported from the EU will also be subject to the same duty regime, although this will depend upon the terms of the negotiations with the EU. Where the terms of the withdrawal agreement include the UK being in a customs union with the EU these import and export reliefs will not apply to movement of goods between the UK and the EU. It is, however, important to be aware of reliefs that are available.

The most significant relief available to importers is VAT and duty deferment. This allows the VAT and duty payable to be deferred. Where duty is deferred the amount deferred will be taken from the importer’s bank account in the middle of the month following import (on the 15th or the next working day if the 15th is the weekend). Thus, for goods imported in March, the amount deferred is debited from the bank account on 15 April. The VAT due will be payable on the importer’s next VAT return and this VAT can be reclaimed according to the normal VAT rules. Details of duty deferment can be obtained in Notice 101 (see www.gov.uk) and from HMRC by emailing them at cdoenquiries@hmrc.gsi.gov.uk.

Duty payable can also be reduced by claiming a preference. This allows some goods to be subject to a reduced rate of duty depending on where they originate from. This is usually to help promote development in developing countries. HMRC’s leaflet regarding preferences is at www.gov.uk.

Other duty relief schemes include:

  • Temporary admission — goods that are imported for a specific use for a limited period (such as exhibitions and conferences). No duty is payable on import, but the goods must be exported at the end of their use (www.gov.uk);

  • Inward processing — goods imported for processing in the UK, and then re-exported after processing. The relief is that no duty is payable on the goods imported for processing and export (www.gov.uk);

  • Outward processing relief — this reduces the duty payable on goods that have been imported into the KU, if they have been previously been exported from the UK for processing. The duty payable is the duty that would be due on the imported goods, less the duty that would be payable on the exported unprocessed goods as if they had been imported (www.gov.uk);

  • Warehousing — Goods can be stored duty and VAT free in an approved customs or VAT warehouse. Duty is payable when the goods move into free circulation within the EU (www.gov.uk);

  • Community system of duty relief — certain goods that promote culture and science, charities, capital goods animals etc. can be imported duty free. More information can be found from the HMRC link to the National Imports Relief Office (see link below);

  • Duty suspensions or quota goods — some goods are subject to reduced or nil duty until a quota of imports is reached (www.gov.uk);

  • Returned goods relief — Exported goods that are re-imported are free of duty (www.gov.uk); and

  • End-use relief — some goods are relieved of duty where they end up in certain specified products (such as aircraft or in the space industry) (www.gov.uk).

As a general rule the application for the relief must be made before the import or export occurs. Furthermore, the record keeping requirements are strict, failure to keep the appropriate records will mean duty, and perhaps penalties, will be applied. More information on these reliefs can be obtained from HMRC’s helpline: 0300 200 3700.

The National Imports Relief Office controls imports on certain goods from outside the EU and what tax and duty reliefs may apply (www.gov.uk).

Conclusion

Utilising these reliefs will be advantageous to any importer and also many exporters. Considerable amounts can be saved through the correct application of the reliefs and by making use of the administrative reliefs that are available. The application of reliefs can be complicated and advice should be sought and the HMRC guidance studies. Goods that do not fall fully within the relief are not eligible for the relief.

Last reviewed 16 May 2019