Customs: The story so far
A look back at the changes in trade between UK and EU businesses
Over the last year, businesses across the UK have settled into their new reality: trade with the European Union (EU) is a little more complicated than it used to be. Free trade with the EU is now a thing of the past, and with more customs controls comes more financial and staffing pressure for many. But, with the uprise of new, innovative technology, businesses may be able to breathe a bit easier. Let's look back at what changed in 2021, so we can look forward to what's ahead.
Please note that this article is designed to give a general summary of customs controls changes for businesses trading between the UK and EU - it's not specific to any one type of goods or business scenario.
What's new with customs?
To put it simply: the key element of the new compliance obligations is that all businesses are now required to submit import and export declarations when moving goods between the UK and the EU.
To do this, a business must set up a few things first:
Get an EORI number
If you want to trade goods between the UK and EU, you'll need an Economic Operators Registration and Identification number (EORI number). Check which type you'll need on gov.uk.
Consider duty payment methods
When it comes to paying customs or excise duty and import VAT, you have options. Rather than paying duty at the border, many businesses opt to defer the duty using a deferment account. This creates a cash flow benefit as HMRC doesn't charge the deferment holder until the 15th day of the month following the physical import. Apply for a deferment account here.
Assign customs master data to goods
When moving goods, there is essential master data that needs to be assigned to goods. This includes the commodity code and the country of origin. These metrics may impact the amount of duty you are required to pay.
Traders have options when moving goods into the UK. They may decide to pre-lodge declarations, so that when they reach the border, they are fully cleared into UK free circulation. There is also an option to extend the period of submission of a full customs declaration, commonly known as Customs Freight Simplified Procedures (CFSP). These procedures allow goods to be physically imported, with HMRC requiring less data on entry than required by a full customs declaration and the business is then required to submit the 'full' set of information at a later date. A business may apply for its own authorisation or use the authorisation of a trade partner.
A phased approach: the UK Border Operating Model
The UK Border Operating Model is the UK government's implementation of new border controls in stages. It's broken into three phases:
Phase 1: Delayed customs declarations
Until 31 December 2021, a trader has 175 days to submit a full declaration after the physical import. After 1 January 2022, full declarations or traditional CFSP are the two key options for importers.
Phase 2: Pre-notification of products of plant and animal origin
Pre-notification to systems such as Import of Products, Animals, Food and Feed System (IPAFFS) is required from 1 January 2022.
Phase 3: Sanitary and Phytosanitary checks
Checks will commence from 1 July 2022 on plant and animal products.
Keeping up with commercial partners
Know your incoterms
Contractually agreeing to incoterms with commercial suppliers and customers is vital to keeping your goods moving at the border. Without the conversations and agreements regarding responsibilities, registrations, or awareness of declarations requirements, goods may become stuck at the border, potentially causing delays, and accruing storage fees.
Ownership and VAT recovery
Do your incoterms reflect which party is the owner of the goods and allow deduction of import VAT? Recently, HMRC announced that it will only allow businesses to recover import VAT paid at the border if it is the owner of the goods at the time of customs clearance. This means checking that ownership and incoterms are not conflicting.
The impact of added costs
Now that businesses trading between the UK and EU are required to submit and pay for customs declarations — a cost that can widely vary depending on how you choose to submit them — businesses are faced with a new question: who should bear the new cost? Is it the supplier, the customer, the business itself, or a shared cost of doing business?
The impact on Free Trade Agreements (FTA)
The UK leaving the EU is causing issues in relation to the traditional EU - UK - IE supply chain. Goods imported into the EU destined for Ireland that are forced to travel via the UK could be subject to a triple duty burden if the supply chain is not adjusted.
For some businesses, this means bypassing the UK, for others with more established processes, this may result in converting a UK distribution hub into a customs warehouse and availing from Returned Goods Relief on the movement back into Ireland.
Customs warehousing: the key to retaining the territorial preference of goods
Customs warehousing may be the key to retaining the territorial preference of goods and result in goods benefitting from zero duty charges on introduction into alternate beneficiary countries. Customs warehouses also allow for goods falling under an FTA with a non-manipulation clause to move from one territory, through a second, before being declared a preferential good in a third territory, as long as they remain under customs control when outside the country of dispatch and destination.
Rules of origin
Rules of origin and their impact on the duty liability of goods has been a hot topic throughout the last year. Before availing of preferential duties, products must provide evidence that they have met certain Product Specific Rules that confirm preferential origin in the territory of export, including:
- The way they are processed
- The proportion of non-origin originating content
- Whether the manufacturing process changes the goods at a commodity code level
It's up to businesses to know when to claim preferences, if they need proof determined by each FTA's legislation, and to share these preference claims with third parties.
Preparing for what's next
It's no secret that the last year has been one spent navigating and trialling unknown customs territory for many businesses. Or that this landscape will continue to change as new regulations are rolled out. But we hope this summary of the last year can help businesses prepare for the what's next. We may not have control over the future of customs controls, but we can shape the next chapter for businesses.
For more than a decade, Deloitte has been supporting clients' customs and trade needs. It currently delivers traditional customs brokerage services via Global Trade Bureau and is launching CustomsClear — an easy online software that lets businesses submit their own customs declarations for the first time.