14 January 2021: Despite the eleventh-hour EU-UK trade agreement, companies that trade between the UK and the EU face a whole host of new customs rules and regulations. ICAEW has issued new guidance on rules governing the origin of goods and warns businesses might end up having to pay customs charges or penalties if they fall foul of the rules.

Following the end of the transition period for the United Kingdom’s withdrawal from the EU, the UK-EU Trade and Cooperation Agreement (TCA) stipulates that no tariffs or quotas apply to trade between the two – as long as goods "originate" in the other party. However, this means that businesses moving manufactured goods between the UK and the EU will need to understand the complex rules around origin, often for the first time. 

As explained in ICAEW’s new helpsheet ‘Brexit: Determine where your goods originate’, the importer of goods pays any customs duties but can rely on a ‘statement of origin’ from the exporter. Therefore, the rules on origin will be relevant to anyone who trades in goods, including manufacturers buying in components, suppliers and retailers. 

Where a product contains components from different countries, then complex and product-specific "rules of origin" are used to determine where the end-product is deemed to originate.

Under the new rules, the exporter can provide evidence of origin in a self-declaration – little more than a simple and standard declaration on the commercial invoice (or other commercial document) accompanying the shipment.

Alternatively, the importer can rely on information it has received itself that evidences the origin of the goods. That must be kept for four years. If challenged by HMRC and satisfactory evidence of the origin of the goods cannot be provided, tariffs may apply and penalties may also be charged for incorrect declarations. HMRC’s investigations can go back three years.

Growing complexity

John Boulton, ICAEW Director of Technical Policy, said it was likely that many ICAEW members – either those working in business or acting as external advisers – would find they now need to understand potential customs consequences. 

“It’s about being aware of this because it’s complicated, quite technical and may require some investigation to understand how it applies to your business and what controls you need to have in place,” said Boulton.

“For many UK businesses, it won’t be an issue because they’ll be clear that everything they export definitely originates from the UK, or for EU businesses – the EU,” he added. However, he warned that the growing complexity and global nature of supply chains meant many companies could have products that need more nuanced consideration. 

Frank Haskew, Head of ICAEW’s Tax Faculty, said it was important to remember that the rules work both ways, both for exports from and imports into the UK. 

“Under the TCA, zero tariffs apply only to goods originating in the other customs territory, and there are detailed rules which set out when goods qualify and what documentation and declarations are needed to evidence origin,” said Haskew. “This is therefore an issue not only for those who export from the UK but also for those who import goods from the EU.”

“It’s about recognising that trade will continue with the EU, but companies need to understand how these issues apply to their business. Indeed, this may be a new way in which finance departments can add value to the business,” Boulton added. “We want to help members upskill with familiarity in this new area. Finance teams may not initially have visibility of these issues, but they will rapidly become apparent if there is a customs investigation.”

Duncan Reed, partner at UK law firm TLT, commented that to remain competitive, businesses exporting products to the EU may well end up changing production processes or changing suppliers to fit within the tariff-free regime: “There’s often a very subtle difference between what counts as a substantial change to an imported product and what doesn’t, which could result in a tariff being applied with sometimes a hefty increase in the retail price.”

“Ensuring that you have the documentary evidence available to substantiate the origin of products and their component parts will be key. This means working more closely with suppliers to ensure that this information is as accurate as possible. Retention of records will also be important in case of any potential customs issues that may arise in the future,” Reed said.

ICAEW ‘s guidance on origin accompanies similar Brexit-related support to business on issues that can potentially affect the rate of customs duty applied to imports. They include the customs value of the goods and the category the goods fall into which are also relevant in calculating any customs duties that are due.

Further resources

• ICAEW guidance of rules of origin available here. 
• ICAEW’s Brexit hub also offers a range of resources to help members navigate new rules.