Advisers are being urged to help their clients to conduct supply chain reviews and revisit post-Brexit customs workarounds, as the introduction of new EU reporting and compliance requirements prompts UK exporters to question the efficiency of their current processes.

Andrew Thurston, Customs Duty Senior Manager at MHA, says that almost five years on from Brexit and customs process and administration is still proving problematic when it comes to exporting to the EU. At the same time, the introduction of new environmental reporting and compliance rules might mean that some UK exporters need to change their supply chain set-ups to avoid an extra compliance burden.

Since Brexit, many EU customers saw the customs part of the supply chain as an added burden that they wanted to avoid. In response, many UK businesses sell in Europe by using the Delivery Duty Paid (DDP) Incoterm, an international shipping agreement where the seller is responsible for the import formalities into Europe, including local VAT compliance obligations and customs compliance in the EU. 

Administrative discrepancies

However, administrative discrepancies between how goods are declared on import and the agreements with EU agents can result in problems down the line. Part of the problem relates to how they set up their shipping agreement with their courier service or shipper, Thurston explains. 

“They might present the paperwork correctly, be VAT registered in that country and charge VAT. However, when the goods are moved and declared on import, if the agreement with the agent doesn’t tally with how they’re managing that flow, it can result in the customer being declared as the importer. And that creates a whole host of potential VAT issues and trying to get the declarations amended,” Thurston says.

For advisers looking to guide their clients through the process, it’s about making sure that the exporter has a full understanding of how the goods are supplied and transported, and how they’re managing that in terms of their Incoterms, according to Thurston. 

“They might not incur VAT on import, because of things like deferment waivers, but if they do get a VAT inspection in the EU, it could result in a significant tax bill. We have several ecommerce businesses that have sold to private individuals, and that have ended up with a VAT liability that is taking years to get back, or may not be recoverable due to inability to amend the customs declarations.”

Avoiding a residual tax risk

Clients selling under DDP Incoterms need to make sure that what they think they’re doing is actually happening, to avoid a residual tax risk that might cause a problem down the line. Reviewing existing customs processes is also essential to make sure it is the most effective way of conducting cross-border trade and to manage both current and long-term movements, Thurston says, particularly for those organisations in the scope of new reporting and compliance requirements.

The introduction of new environmental reporting rules – including the carbon border adjustment mechanism (CBAM), the EU deforestation regulations (DR), or the plastic packaging tax – means supply chain reviews are key to see if changes to the supply chain are needed to streamline and avoid extra compliance

From 2026, CBAM requires importers of certain types of products into the EU – including cement, fertiliser, iron and steel, electricity, gas – must be able to provide details of the emissions generated in their manufacture. Importers will submit an annual report or return and have to pay an emissions tax. 

“If you’re in scope of CBAM reporting or other compliance, it may be worth considering setting up a local entity in the EU, because the risk is that agents who are doing this reporting at the moment might say they don’t want to do that any more because it’s too much of a risk. It’s about making sure that they don’t suddenly have a problem with their supply chain that they can’t manage.”

Documenting emissions inputs

“UK companies that export to the EU will need processes in place to document their emissions inputs, but also the inputs from their suppliers, to be able to provide that information to their EU customers. Because it’s completely outside the scope of customs and normal tax, it’s an area that UK businesses might not be fully aware of. For advisers, it’s looking at the types of goods that are exported, and asking, has that company got to set up a process to be able to provide emissions data to their EU customers?”

Bear in mind, too, that the UK CBAM will cover different products, and the EU DR (unlike its UK counterpart) will use geolocation requirements. Advisers should be aware of these complexities and advise their clients accordingly. “It’s about understanding what that company exports, and do they need to have any consideration of these regulations, because that might affect how they sell goods into the EU, and that might mean they have to change their supply chain to be able to continue to trade,” Thurston says.

Initially, post-Brexit the focus for UK exporters tended to be on managing supply chains to maintain the flow of exports, but now they’re looking at restructuring to make their supply chains more efficient, Thurston says. “So rather than importing into the UK then sending goods directly to different EU countries, they might consider setting up a local entity to facilitate direct imports into the EU.”

Whatever your approach, good record keeping is vital. A clampdown by HMRC on exporter claims of preferential origin means it’s essential that firms have the necessary records knowledge and to be able to manage that, Thurston says. “Without the required evidence, the company importing those goods will be subject to the full tariff. Again, that affects the supply chain and potential business relationship, because customers in the EU could potentially be subject to 6.5% duty going back three years or to whenever that trade started.”