Post Brexit Planning and Compliance

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What is the Customs Union of the European Union (EU)?

28 members states that form the EU have free movement of goods across all member countries. National rules involving companies, business and enterprise must comply with those set by the EU. There are no tariffs between member states, but there is a common tariff when dealing with non-EU member countries. There is no control over the movement of goods or people within EU members, but there is across the border with non-member countries.

What are the implications for a deal or no deal?

Where the UK leaves the EU with a deal:

  • The UK leaves the EU.
  • Maintains a “de facto” membership of the EU.
  • Transition period until 31st December 2021.
  • The questions are whether EU tariffs would be applied, whether Customs Declarations will be required, whether the EU free trade agreement will still apply, the EU Customs Code and relevant laws including Export Control Law will continue to apply, and whether sanctions, embargoes and RPS continues. RPS empowers the Commission to adopt certain implementing measures in accordance with the regulatory procedure with scrutiny?

Where the UK leaves the EU without a deal:

  • The UK leaves the EU.
  • No longer a part of the Single Market and Customs Union.
  • No more use of the Free Trade Agreement.
  • All EU laws cease to apply.
  • There is no transition period.
  • Effectively the UK not only exits the EU agreement, it exits agreements with the world, given all UK trade over the period of being an EU member has had to be done through the EU. That is until the UK can form new direct agreements with countries outside of the UK which it is now doing.
  • There are questions as to whether Customs Declarations will be required, whether Customs Controls need to be implemented, whether Free Trade Agreements (FTA) are immediately revoked, and whether sanctions, embargoes and RPS will continue?

The Impact on both the EU and on the UK when the UK leaves the EU

  • 54% of UK imports were from the EU (£345 billion).
  • The UK had a £64 billion trade deficit with the EU.
  • Services accounted for 40% of UK exports to the EU.
  • Companies in Germany, Spain, Belgium and Netherlands is be the most affected due to their high trade volumes with the UK.
  • Germany is felt to want the EU to agree a deal with the UK without further delay. They vote similarly to the UK on EU matters, which given the large contribution to the EU by each, united voting means a large voting-block. Germany are therefore currently working on their relationship with France. Germany also export a huge amount of their goods to the UK, particularly from their important automotive sector.

The Cost of a No Deal for the UK

  • Both direct and indirect operational costs.
  • Compliance costs.
  • Customs duty.
  • Customs current skill levels and therefore education costs.
  • Implementing customs procedures and systems to aid and speed up the correct input.
  • Missed free trade opportunities.
  • Legal costs.
  • Delays in supply and payment, leading to longer payment terms and the associated costs to cover that.
  • If there is no deal, the UK has already agreed a six-month transition period for imports, however this reduces to three months for products requiring a health certificate, such as food.

Is the UK’s position stronger than we are being led to believe?

The UK is the 5th largest global importer. The UK is therefore a highly desirable market for all countries to operate it, not only for the maturity in its development cycle, but also because of the UK’s relatively small geographic area and dense areas of high population, making distribution fast and efficient. The UK is also a single language speaking country. This all creates a significant opportunity for countries to import into the UK. A trade agreement has bene struck with Japan. This is the first trade agreement by the UK in over fifty years and it has taken a fraction of the time it has taken the EU to strike such agreements over the years. The same is expected of a deal with Canada soon. It is interesting that since the UK’s vote to leave the EU, the EU has significantly sped up the trade agreement processes, and has now agreed some excellent deals. It is clear the EU does not want to lose other members, which is possible if the UK is seen to be doing better outside of the EU.  

The UK is the 10th largest global exporter, with an expectation from some that this position will move to as high as 6th in time. This will be down to a number of factors including the UK governments proactivity in helping export activity, as well as businesses being used to the more stringent processes required to trade with established EU members, which will be similar to trading anywhere in the world. The way businesses currently trade within the EU is quite different to trading with counties outside the EU.

The UK’s banking services forms a significant part of the UK’s service export trade. Feedback from this sector tells us that they fear compliance challenges as opposed to the ability to secure business.   

If bi-lateral agreements can be formed quickly with countries around the world, duties can be kept down and trade processes simplified. However if free-trade agreements can be formed then this will make trade even easier with mixed cargo permitted.

The key is for UK business to have the right export and import procedures in place, whether they use a freight forwarder or not. Any mistakes will not only cause delay, but they will also have some cost impact. With the vast majority of road freight hauliers being based overseas there is the need for them to get in and out of the UK without delay, so well developed processes without error are going to be essential.  

The UK will introduce a Global Tariff for post EU, which will reduce costs for some sectors and increase costs for others. The tariffs numbers will also increase from eight to ten digits from the 1st of November 2020.

The World Trade Organisation (WTO) 

Developed following World War II, the WTO is the only international organisation dealing with the global rules of trade. Its main function was to ensure trade flows smoothly, and if there is conflict, it acts as a neutral mediator. Sadly this has not worked so well with the USA and China more recently.

The WTO prefers countries to have Free Trade Agreements, but if not, World Customs Rates are paid. Under the WTO Trade Facilitation Agreement of 22nd February 2017, the aim is to further smooth the path of trade and to reduce Red Tape. In January 2021 the UK will join this agreement, which should make it significantly easier to export to what has traditionally been more difficult markets such as South America and Africa, reducing delays and up to 14% in costs. Therefore the WTO will play a key role in how the UK trades internationally.

EORI Number

An EORI number is a unique identification number that is assigned by a customs authority in a member state to economic operators within the EU.  It is made up in part from the VAT number (if you have one) and goes on every Customs Declaration. If your number is on the Declaration, the shipment is your responsibility, and is not the responsibility of any Freight Forwarder acting for you. The number is used to track and register customs information, and it will be essential to use for UK businesses post-Brexit.

Market Access Database

This tool, offered through the EU, provide a significant amount of information on customs duties, notes for Rules of Origin as well as country specific overviews. The UK currently still has access to this database, but future access depends on the terms of any deal struck with the EU.

The Role of HMRC

HMRC is the UK’s division of the civil service whose role is to ensure tax is paid by all those liable to pay tax, correctly and on time. Taxes collected include VAT, Income Tax, Capital Gains Tax and Customs Duty. It also compiles trade statistics, carries out trade assurance checks, carries out security and frontier checks and polices licences. There is amply support for businesses on the HMRC web site for those who need it.

When HMRC collects Customs Duty, a large part of this duty currently goes to the EU. It is thought the £40 billion EU ‘divorce bill’ will soon be recovered from this duty being retained by the UK.   

UKCA

There are plans to replace the current EU based CE safety symbol with a UKCA mark if there is no deal between the EU and the UK. This applies to goods such as toys and electricals, where their mis-manufacture or incorrect design is more likely to cause injury. While the UK has accepted the EU’s CE mark for now, it could be that the UK will have to retest goods that are switching from the CE mark to the UKCA mark.

Customs Handling Import & Export Freight (CHIEF)

This UK system records all declarations to Customs and allows freight handlers to complete customs information electronically. It is also part of HMRC’s risk assessment process as it decides which consignment or goods within a consignment need a physical inspection and/or have their documentation examined. This gives legitimate goods faster passage. There are plans however now in place to replace the system with an updated version.

Custom Declaration System (CDS)

These current box entries are being replaced by data elements which are split into eight groups. They will be detailed within the Import and Export Tariff. The Customs Procedures Code (CPCs) will be split into two parts. The CHIEF entry numbers will be replaced by Movement Reference Numbers. Current CHIEF users will need to confirm their EORI registration details, their company’s Government Gateway account details, register for CDS and authorise their software application.

In order to understand the changes to the Import and Export Tariff, go to www.GOV.UK

So, lets step back a moment and define an Export

At present, an export for the UK is anything shipped outside of the EU member countries. All exports require a Customs Declaration for HMRC. This is usually completed by the exporters appointed Freight Forwarder, however, although this is a complex area, especially with multi-commodity codes, with the right training this can be done by the business themselves.

Once the consignment has left the UK/EU, the exporter will receive a copy of the Customs Declaration from their Freight Forwarder (if they are using one), which provides official proof of export.

Brexit Planning

Having left the EU, the UK is in a transition period that end at 11pm on the 31st of December. Planning is the key to greater international trade success post Brexit. The opportunities are there with so many countries keen to gain access to the rich UK market and reciprocate with access to their own markets, particularly where British designed and or made goods are highly desired. Only recently did the USA overtake the UK as the largest exporter of goods and services to Qatar, such is the desire the British goods in that country.

Differences in Exporting to the EU post Brexit

Thorough consideration regarding the individual elements of the trade journey of every consignment is key to the smooth flow of goods, especially in the early days of the transition while processes and systems are still bedding in.

Differences in the process at the UK port of despatch include:

  • An Export Customs Declaration
  • An Export Certificate for products of animals
  • An Export Licence for dual-use goods, for example, goods that also have a military use
  • Carnet for temporary export, for example, items for an exhibition
  • Wooden packaging must be ISPM15 compliant

Differences in the process at the EU port of arrival include:

  • Tariffs on imported goods if there is no trade deal.
  • An import Customs Declaration.
  • Products of animal origin must go through a border inspection post which will slow down the import process.
  • Imported goods will be subject to inspections which will slow down the import process.

If there is no deal, the UK will revert to trading on WTO terms, referred to as ‘Most Favoured Nation’ (MFN) terms. Tariffs will therefore be applied to all goods and services from the to the UK to the EU.

The Process for International Trade

Step 1 – goods sold to the customer outside the UK

Step 2 – commercial paperwork generated, including the export certificates and licences

Step 3 – goods shipped to the port of loading

Step 4 – customs agent prepares export entry and security declaration

Step 5 – goods cleared to depart by HMRC

Step 6 – goods exported and shipped to the country of destination

Stage 1 – Enquiry or Receiving an Export Order

Points to consider having received an enquiry or order, include:

Breadth of documentation for the country of documentation

Product description

Incoterms

Terms of payment (Letters of Credit?)

Transport mode

Inspection Certificates (by the third arty agent SGS?)

Insurance requirements

Certificate of Origin

Preference Certificate (EUR/ATY?)

Export Licence

Dangerous Goods

Embargoed Goods

Cost from Clearing Agents

Is it clear what the country of origin is for each product being supplied.

Check the goods meet preferential rules of origin if a free trade agreement exists.

Apply for an EORI Number, if this is your first export

Insurance costs, if this is your responsibility

Orders are what we all aim for and need, but it must always be questioned whether each order is right for you? Will you make money out of it, or, is this a necessary learning curve or an opportunity perhaps to get a ‘foot-in-the-door’? Or, are the demands and the risks simply too high? Filling order books with high risk low margin orders can mean the opportunity to take the lower risk higher profit orders are lost.

Stage 2 – Commercial Paperwork

It is useful to ask whether a Freight Forwarder has an EDI system allowing data to be electronically transferred from your system to theirs, reducing errors and speeding up the process of administration.

The following documents feed the Customs Declaration / C88 / SAD. They need to be generated by the time the goods are ready for despatch:

  • Packing list
  • Preference Certificate / Preference Declaration (if you are a registered exporter with HMRC).
  • Other certificates (e.g. phytosanitary or conformance).
  • Commercial Invoice
  • Certificate of Origin / Origin Declaration
  • Bill of Lading /AWB / CMR (if full load). These are usually generated by the carrier.

Stage 3 – Goods Shipped to the Port of Loading

  • Most carriers will collect from your premises.
  • Sea freight has to be weighed in order to obtain a Verified Gross Mass (VGM).
  • Airfreight cargo will be x-rayed by a regulated agent or at the airport.

Step 4 – Export Entry

The Customs Agent completes the SAD export entry which is received by HMRC who then issue a P2.

At this stage the Customs Agent will require the following:

  • Exporter name and EORI number.
  • The 8-digit commodity code for each product.
  • County of origin for each product, which ideally should be on the invoice.
  • Confirmation of the Procedure Code(s) (CPC), for example, demonstrating a permanent or a temporary export.
  • Commercial documents.
  • Export Licences where relevant.

Step 5 – Goods Cleared for Export

  • On arrival at the destination port, the goods will be processed for clearance.
  • A Declaration Unique Consignment Number (DUCR) is assigned to each export in order to identify each export consignment.
  • CHIEF validates the export entry data, performs a risk assessment before communicating electronically with other Government and commercial computer systems to enable clearance.

Step 6 – Goods Exported & Reconciliation

  • Once goods are exported, the agent will receive an S8 departure confirmation print.
  • Ensure your agent provides you with a copy of the import entry (SAD & P2) which must be kept for six years.
  • Track your shipment until you are assured it has arrived at its destination. For road freight, request a signed CMR form from your client or haulier.
  • Reconcile the shipment against internal logs and MSS reports (Management Support System Data).

Key to good compliance for any possible HMRC audits is to maintain a clear system containing records of all documents showing proof of export and proof of delivery. If you are using ExWorks, ensure you ask for and receive a copy of the shipment and delivery proof for your records.

It is more than possible for businesses to carry out the process detailed above with trained staff however, Freight Forwarders are experienced in this specialism. A good A.O credited Freight Forwarder will be more useful than ever going forward.

Export Documents

  • Packing list
  • Commercial Invoice
  • CMR note (Convention International de Merchandise par Route) – Road
  • Airway Bill – Air
  • Bill of Lading – Sea
  • If required:

Export licence and end user undertaking.

Dangerous goods note.

Letter of Credit.

Origin Certificates.

Phytosanitary Certificates (issue by the Forestry Commission’s Cross Boarder Plant Health Service to the equivalent National Plant Protection Organisation (NPPO).

  • Proof of export – C88 / SAD / Customs Declarations

Commercial Invoice

A Commercial Invoice should include:

The seller and buyer details.

Ship from and to.

Buyer PO number / Seller Invoice Number.

Incoterms and named place.

Goods – Description.

Goods – Quantity.

Goods – Commodity Codes.

Goods – Country of Origin.

Goods – Currency & Value

Payment Terms.

Shipping Marks.

Number of pieces, weights and measurements.

Any other declarations required – Dangerous Goods, Origin Certificates, Export Licences.

Customs Declaration (C88/SAD Document)

The C88, also known as SAD (Single Administrative Document), is used for declaring imports and exports to HMRC. It standardises the format for import, export and transit declarations throughout the EU. There are 54 boxes, but required data fields vary according to the type of entry, goods and the customs procedure applied. Customs Declarations will need to be filed in a no deal situation.

Businesses will need to decide how they want to manage the declaration process, whether this is using an intermediary, use specific software or have an end to end service.

CHIEF, which is The Customs Handling of Import and Export Freight system, records all movement of goods by land, sea or air, and it allows exporters, importers and freight forwarders to complete customs formalities electronically. Information entered into CHIEF must be accurate, timely and complete, and is the responsibility of imports and exporters to ensure details are correct. CHIEF is in the process of being replaced by the Customs Declaration Service (CDS).

Common entry errors include:

  • Box 22 – incorrect currency or a decimal error in the value declared.
  • Box 34 – incorrect country of origin.
  • Box 2 or 8 – incorrect EORI of importer or exporter.
  • Box 45 – incorrect VAT adjustment applied.
  • Box 48 – incorrect deferment number.
  • Wrong invoice link to Declaration.

C88 Document

Box 1

  • Declares the type of use of the document; Export (EXD) or Import (IMD).
  • Community Status of the goods; T1 or T2.

Box 3

  • Number of forms used.

Box 4

  • Loading lists (if relevant).

Box 5

  • Number of items being declared in total.

Box 6

  • Number of packages.

Box 7

  • Commercial reference number.

Box 9

  • Fiscal representative if different from box 2,8 or 14.

Box 12

  • Value declared.

Box 13

  • Common Agriculture Policy (CAP) information.

Box 15 (x2)

  • Country of export (when consigned). Note the country of export and origin can be different.

Be aware that couriers often club all goods together under the same code and source of origin, but this must not happen given goods must be individually documented for the HMRC to trace when required.

Box 16

  • Country of origin.

Box 17

  • Country of destination.

Box 18

  • Means of transport.

Box 20

  • Value declared.

Box 21

  • Transport at border crossing.

Box 22

  • Currency and value declared.

Boxes 23 & 24 are not used in electronic versions.

Box 25

  • Code: Mode of transport.

Box 26

  • Inland transport.

Box 29

  • Office of exit/entry.

Box 30

  • Location of goods.

Box 31

  • Main description area.

Box 32

  • Item number.

Box 33

  • Commodity Code.

Box 34

  • Country of Origin Code.

Box 35

  • Gross weight.

Box 36

  • Preference.

Box 37

  • Procedure code (CPC).

Box 38

  • Nett weight.

Box 39

  • Quota claim.

Box 40

  • Document reference.

Box 41

  • Supplementary unit.

Box 42

  • Item price (not often used).

Box 43

  • Valuation method code, e.g. Method 1 – Transaction Price.

Box 44

  • Additional information e.g. licence number / customs authorisation number .

Box 46

  • Statistical value.

Box 47

  1. Calculation of taxes
  2. Tax type e.g. A00 duty / B00 VAT
  3. Tax base e.g. customs value / VAT value
  4. Rate of duty / VAT in percentage & actual amount to pay
  5. Method of payment e.g. deferment

Box 48

  • Deferment details.

Box 49

  • Customs warehouse reference.

Box 50

  • Holder of any transit / customs guarantee

Box 51

  • Intended EU offices of transit

Box 52

  • Guarantee details of validity.

Box 53

  • Office of destination (and country).

Dangerous Goods

  • If dangerous goods are handled regularly, a Dangerous Goods Safety Advisor (DGSA) must be appointed and hold a vocational training certificate that complied with the health & Safety at Work Act 1974. Responsibilities include:
  • Monitoring compliance.
  • Advising on transportation.
  • Produce and annual report to management on the movement of dangerous goods by the business.
  • Investigating and reporting on any incidents.

Dangerous Goods Regulations

  • Hazardous cargo has to be packed and transported in accordance with international rules.
  • Cleared marked according to the danger.
  • Comes with the correct documentation – Dangerous Goods Notes, IATA Shipper Declaration (air) and Materials Safety Sheets (MSDS).
  • Stowed and segregated to prevent interaction.

Export Controls

Points to note:

Ignorance is not an excuse where goods have not been controlled correctly. It needs to be established whether goods are under the dual use classification (strategic goods for military use) or not, which applies to technical data as well. The Export Control Organisation (ECO) has been replaced by the Export Control Joint Unit (ECJU) and bring together experience from the Department of International Trade, the Foreign and Commonwealth Office and the Ministry of Defence.

Import & Export Licences

Post Bexit, shipments from the EU to the UK, and visa-versa, will require an import/export licence. Current licences issued will be invalid post Brexit.

Types of Licences

Standard Individual Export Licence (SIEL)

  • Used for specific items, destinations, quantities and persons.
  • Valid for 2 years (permanent) or 1 year (temporary), or until all quantities are exhausted or revoked.

Open General Export Licence (OGEL)

  • Used for less sensitive destinations for dual use items.
  • Suitable for unlimited shipments of specific items to specific destinations.
  • Must comply with all Terms and Conditions and keep the appropriate records.

Restrictions & Prohibitions

Restrictions and prohibitions can apply to the following categories:

  • Waste
  • Agricultural products
  • Medicinal products and narcotics
  • Cash
  • Chemicals
  • Iron and steel
  • Instruments of torture
  • Labelled medicinal products
  • Publications or media likely to harm minors and unconstitutional publications
  • Cultural assets
  • Food and feed
  • Plant protection products
  • Plants and products containing vegetable substances
  • Product safety
  • Rough diamonds
  • Textile products and clothing
  • Animals and products containing animal substances
  • Weapons and explosive substances

Origin Documents and Trade Agreements

Approaches to Substantial Transformation

  • Percentage or Value Criterion – Origin is based upon a product’s characteristics, such as its final price (value), the price and the value of foreign or local inputs.
  • Tariff Classification Criterion – Origin is simply based upon the tariff classification of a final good and the components used using the Harmonised System (HS).
  • Specific Processes Criterion – Origin is based upon specific manufacturing or other specific processes which were necessary to produce a good.

Preferential Trade Documents

The EUR1 Movement Certificate is used to claim preferential duty rates on goods exported to countries outside the EU that have a preferential trading agreement with the EU.

The agreement specifies which products are covered, and which products have even lower or zero duty. The condition of Origin is that products must be entirely manufactured, processed or transformed in an EU member country. Customs Notices define the Rules of Origin and the EUR1 Movement Certificate complies with these notices.

From HMRC Customs Notice 828, the preference giving countries are:

Algeria

Morocco

Tunisia

Egypt

Chile

Jordan

Lebanon

Syria

Iceland

Canada

Norway

Switzerland

Liechtenstein

Faroe Islands

West Bank

Gaza

Israel

Albania

Andorra

Japan in 2019

Bosnia-Herzegovina

Ceuta &Melilla

Macedonia

Croatia

Mexico

Montenegro

Serbia

South Africa

South Korea

Turkey – ATR1 (Customs Notice 812) and EUR1 (828) for coal and steel products.

Origin Documents

European Community (EC) Certificate of Origin

EC Certificates of Origin (non-preferential origin) are issued by the Chamber of Commerce. They are accepted by countries that do not have any preferential trade agreements, but they are used because of a legislative and Customs requirement to do so, and the importer may want goods of a certain origin. These countries include Russia, China, India and Pakistan. 

Arab Certificate of Origin

The reasons for the use of the Arab Certificate of Origin are the same as above, but may also be required by a Letter of Credit. If a consignment is of EU origin the invoice to support this is required. If some items are not of EU origin then evidence of their origin must be attached to either include an invoice from the non-EU supplier, a suppliers Declaration, or a Certificate of Origin from the country of origin. Arab-British Chamber of Commerce Certificates of Origin are given to the following countries, some of which are members of the Arab League:

Algeria

Bahrain

Djibouti

Iraq

Jordan

Kuwait

Lebanon

Libya

Morocco

Oman

Qatar

Saudi Arabia

Somalia

Sudan

Syria

Tunisia

United Arab Emirates

Yemen

The Rules of Origin Facilitator

A website called the Rules of Origin Facilitator https://findrulesoforigin.org/home/index, set up by the ITC, WCO and WTO, is the first global online resource on tariffs, trade agreements and rules of origin designed with SMEs in mind. This is a free-resource facility.

Generalised System of Preferences (GSP)

Established by the Trade Act of 1974, GSP promotes economic growth in developing countries by eliminating duties on up to 4,800 products when imported from one of 119 designated beneficiary countries and territories into the EU. The UK Government has made it clear that it wishes to maintain GSP post Brexit

Importing

If the UK leaves the EU without a deal being agreed, the UK will revert to WTO terms which will mean tariffs on goods between the UK and the EU. Import Declarations will be required, and products of animals will go through border inspection. A percentage non-classified goods will also go through inspection.

Step 1 – Purchase from Supplier

  • Agree Incoterms with the supplier.
  • Decide on the transport mode.
  • Consider how to arrange payment e.g. Letter of Credit.
  • Check what import duty rates will apply.
  • Check if goods require import licences or whether there are additional controls.
  • Obtain quotes from clearing agents.
  • Apply for EORI number if this is your first import.
  • Put insurance in place.

Step 2 – Commercial Paperwork

A supplier should provide copies of the following documents prior to the goods arriving. Often the originals are withheld until payment is received:

  • Commercial invoice
  • Packing list
  • Certificate of Origin / Origin Declaration (may be included on invoice)
  • Preference Certificate / Preference Declaration (may be included on invoice) where goods are imported under a country to country preferential agreement
  • Bill of Lading (a document issued by a carrier to acknowledge receipt of goods for shipment, whatever the mode of transport) / AWB (Air Way Bill) / CMR (Convention on the Contract for the International Carriage of Goods by Road)
  • Other certificates e.g. phythosanity, conformance….
  • Insurance, if the supplier is responsible for this within the contract

Step 3 – Goods are on their way

Once shipped, you, or your appointed agent, need to keep an eye on their expected time of arrival (ETA) to ensure timely clearance on arrival.

  • Goods can usually be tracked on the carriers website using the AWB (Air Way Bill) or BOL (Bill of Lading). The latter is a legal document that passes from the carrier to the shipper and details the product, quantity and destination of the goods. It also serves as shipment proof when the goods are delivered at the predetermined destination.
  • The carrier should advise you in advance when the goods are due for arrival at the port
  • If licences are required, you should apply for these in advance of the goods arriving

Step 4 – Import Entry

The Import Agent completes the C88 import entry which when received by HMRC issue the E2. At this stage the Import Agent will require the following information:

  • Importer name and EORI number.
  • Commodity codes for each product.
  • County of origin for each product (this should be on the invoice).
  • CPC codes (Customs Procedure Codes) which identifies your reason for movement
  • Method of payment e.g. by Duty Deferment Account which allows an importer or an importing agent to pay one payment per month as opposed to paying for each individual consignment. Alternatively, charges on imported goods can be paid for using the immediate payment accounting system known as FAS (Flexible Accounting System).
  • Commercial documents.
  • Import licences where applicable.

Step 5 – Goods arrived in the UK

It is recommended collection of goods from the port is booked ahead of arrival as you have usually 24 hours to collect items from an airport or 3 days from a sea port before incurring storge charges.

Note that in the case of a no deal Brexit, when importing from the EU, without a Transitional Simplified Procedure or Deferment Facilities your goods may be delayed. It allows you to delay submitting your full declaration by letting you submit less information at the time the goods enter the UK, and delay paying for import duties and VAT.

On arrival the customs entry will be officially processed:

  • Customs will determine whether goods are cleared instantly or require a document check, x-ray or physical examination.
  • Other government department may wish to place holds or examine the goods e.g. Port Health, Forestry or Trading Standards.
  • Customs duty and taxes will be collected at this stage by Customs. In the case of FAS you will need to arrange a bank transfer ASAP.

Stage 6 – Delivery

  • Unload your goods from your carrier ASAP to avoid potential detention charges.
  • Check the condition of the packages before signing the driver’s delivery note, and note on the delivery note any that are damaged.
  • Ensure your agent provides a copy of the import entry (C88 & E2) which needs to be retained for 6 years.

Payment of Duties

This can be done in a number of ways:

  • HMRC may authorise regular imports to operate a Duty Deferment Account (deemed a debt). The importer deposits a Bond with HMRC as security for monthly payment of duty accrued on successive months. Duty is deferred until the following month.
  • Infrequent importers can use a Freight Forwarders account for a charge.
  • FAC (Flexible Accounting System) is a system where your carrier provides you with a completed FAS Payment Advice Form from which you make a BACs payment. The form is emailed to HMRC and once payment is cleared the goods can then be delivered.

Customs Duties

  • Import duties and taxes must be paid on goods from outside the UK before goods can be released into free circulation.
  • Duty will be paid on the Commodity Code and calculated on either of the following Incoterms:

            CIP (Carriage and Insurance paid). CIP is used for all modes of transport with  responsibility transferring at any agreed-upon location in the origin country.

            CIF (Cost Insurance Freight) or typically ‘CIF Manchester’ as the named      destination follows CIF. This means the value of the goods sold includes the          cost of the goods, insurance and the freight. CIF only applied to sea freight.          Responsibility transfers at the origin seaport.

  • VAT is based on the duty value, which is the value of the goods as well as the shipping costs to the delivery point. It is either 20%, 5% or zero.
  • On imports these costs contribute to the ‘landed cost of the product’.
  • Whatever the invoice shows, a calculation will be applied by HMRC.
  • HMRC duty rates on certain products will increase to reduce where is has seen fit to do so in order to stop product dumping or to gain added revenue from more restricted goods such as cigarettes and alcohol.

Valuation

The value determines the customers duty and VAT paid on imports, and forms the basis of trade statistics compiled by HMRC. There are various valuation methods:

  • Method 1, 2 and 3 – (The Transaction Value) – based on the price paid of the imported goods, identical goods, or, similar goods imported at the same time.
  • Method 4 – (The Deductive Method) – based upon the selling price of the goods or similar goods.
  • Method 5 – The Computed Value – based on the cost of producing a product as well as the profit and expenses.
  • Method 6 – The Fall-Back Method – based on reasonable means

Incoterms as a valuation method includes freight, insurance, import and taxes and duties.

Denied Party Screening (DNP)                                                                                                                      

While not a legal entity, DNP occurs where counties impose sanctions and embargoes to ensure people or organisations from the home nation do not deal with specified countries, companies or persons.

Commodity Codes

Classification in the EU is based upon the harmonised System (HS) which defines the first 6 digits. While many counties subscribe to this system, if your classification is from overseas it is worth checking whether it’s applicable to the UK.

TARIC is the EU tariff. For Exports you need 8 digits, for Imports 10 digits. TARIC uses the HS number, plus the subheading number, plus the end number for the specific nation.

Commodity codes are found at: www.giv.uk/trade-tariff  They are used to classify good to ensure:

  • The correct duty and VAT is paid
  • Know if duty is suspended on your goods
  • Know if preferential rates can be applied
  • Know if you need to obtain import or export licences
  • Know whether excise or antidumping duties apply
  • Avoid paying interest back for incorrect classifications
  • Avoid seizure of goods or delays due to their movement

Commodity codes should cover parts as well as a main unit.

Whether you have an agent working on your behalf or not to move goods to and from the UK, the you as the importer or exporter has a legal responsibility to ensure the correct classification is applied.

To access Commodity codes go to:

https://www.gov.uk/governemt/collections/uk-trade-tariff-volume-1

https://www.gov.uk/governemt/collections/uk-trade-tariff-volume-3

https://www.gov.uk/trade-tariff

It is worth getting a Binding Tariff Information (BTI) from HMRC to confirm what the tariff code should be. 

Incoterms (International Commercial Terms)

  • There are 11 different sets of Incoterms
  • Make up part of a legally binding contract/agreement between the buyer and the seller.
  • In most instances they dictate who pays for each element of the shipment.
  • It is possible to use them to mitigate compliance, financial and insurance risk by defining the transfer of risk between parties in the supply chain.
  • Incoterms determine delivery, risk and costs.

Which departments should be involved within your organisation?

  • Procurement – the Purchase Order (PO) should set out the specific Incoterm rule to establish cost/risk.
  • Finance – Incoterms on the PO will provide an explanation as to what additional costs need to be included in the Landed Cost.
  • Accounting – will be able to accept or reject invoices for freight services based upon the Incoterms on the PO.
  • Import Department – will be able to supply correct instructions to the Customs Broker based on the Incoterms on the shippers invoice.
  • Sales Department – provides quotes to customers which reflect Incoterms which are suitable for the sale and delivery of the goods.

2020 Incoterms

Any mode of transport

  • EXW (Ex Works)
  • FCA (Free Carrier)
  • CPT (Carriage Paid To)
  • CIP (Carriage and Insurance Paid)
  • DAP (Delivered at Place)
  • DPU (Delivered at Place Unloaded)
  • DDP (Delivered Duty Paid)

Sea and inland water

  • FAS (Free Alongside Ship)
  • FOB (Free on Board)
  • CFR (Cost & Freight)
  • CIF (Cost, Insurance & Freight)

Incoterms v. Contract of Sale

  • Incoterms do not deal with the transfer of property/title of the goods sold, the contract of sale does this.
  • Incoterms only become part of the contract when they are incorporated into it.
  • To incorporate Incoterms 2020 into a contract a clear statement has to be made e.g. CIF Shanghai Incoterms 2020. It is important to state the date and the name of the place.

EXW (ExWorks)

  • The risk is on the importer as they are responsible for both the Customs Declarations and the Customs paperwork, which is why many importers will not enter into such an Incoterm.
  • This is a contencious Incoterm as it is not officially an export and it may flag you up to HMRC who will want to see full records.

FCA (Free Carrier)

  • Similar to above but goods loaded at the factory when risk moves to the carrier.
  • You are responsible for the Declaration which is better for compliance as you can prove shipment.
  • Make sure ‘FCA/factory or town’.

FAS (Free Alongside Ship)

  • Only used on water.
  • Risk passes when goods alongside ship.

FOB (Free On Board)

  • Once goods are loaded the risk passes.

CFR (Cost & Freight)

  • Common on sea.
  • Risk passes when loaded.

CIF (Cost, Insurance, Freight)

CPT (Carriage Paid To)

  • Risk passes when goods are loaded onto the first vehicle.
  • Common in the EU.

CIP (Carriage & Insurance Paid)

  • Carriage and insurance paid to an agreed destination.

DAP (Delivered at Place)

DPU (Delivered Place Unloaded)

  • The seller unloads the goods onto the floor.
  • Used when specialist unloading equipment needed, or particular risk.

DDP (Delivered Duty Paid)

  • The risk is on the exporter as they are responsible for both the Customs Declarations, Customs paperwork and any import tariff.

Putting the right terms in place for the market being exported to is key. Some markets enable items to be reclaimed by the importer, which you as the importer cannot reclaim.

AEO (Authorised Economic Operator)

AEO is a customs status awarded to businesses directly involved in the international supply chain of goods. It demonstrates you are compliance ready.

AEO was introduced in the EU in 2008, in response to the World Customs Organisation (WCO) SAFE Framework of standard, which aim to secure and facilitate legitimate global trade.

There are two types in the EU:

AEO-C – Customs simplifications

Benefits:

  • Moving goods in temporary storage between different member states.
  • A notification waiver when making an Entry In Declarant’s Records (EIDR).
  • A 70% reduction in a deferment account guarantee.
  • When available, undertaking centralised clearance.
  • Completing a self-assessment.

AEO-S – Supply chain security focus

Benefits:

  • A lower risk score which will be incorporated into customs risk management systems which is used to determine the frequency of customs checks.
  • Consignments may be fast tracked through customs controls.
  • Recognised status across the EU.
  • An industry ‘kite mark’ and useful marketing tool.
  • Potential for mutual recognition with countries outside the EU who have adopted the WCO framework.

Requirements of an AEO Operator

  • Involved in international trade, into and out of the EU. Not available to those just moving free circulation goods within the EU.
  • 3 years good compliance record on customs and tax.
  • Customs records available for auditing.
  • 3 years solvency prior to the AEO application.
  • Security standard for AEO-S including risk and threat assessment.
  • Practical standards of compliance for AEO-C

Within the USA, where import and export regulation is arguably considerably tighter than in the UK and the EU, a new extremely efficient system developed in the Silicon Valley has been introduced. It is hoped this will soon come to the UK.

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