Since the UK left the EU on 31 December 2020, many more businesses have been required to classify movements of goods into and out of Great Britain as imports and exports. Previously, when businesses had traded exclusively with the EU, these movements would have been classified as acquisitions and dispatches. How should businesses minimise their costs, manage their risks, and ensure that imported and exported goods are processed efficiently?

1. Give clear instructions to agents

Many businesses will choose to use an agent to handle their import and export process. This could be a freight forwarder, customs agent or broker, or a fast parcel operator.

An agent cannot act on behalf of a business without written instructions showing whether they are acting ‘directly’ or ‘indirectly’. Most agents act directly, meaning they are not liable for keeping records, the accuracy of the information provided, or for any customs duty or import VAT that is due.

It is therefore vital that the business gives the agent clear instructions. Not only does this reduce the risk of error, but the agent can also become jointly and severally liable if they are considered to make a deliberate or unreasonable error.

As a minimum, the business will need to give the agent:

• its EORI number;
• evidence of any goods it intends to import or export (for example, invoices or contracts);
• a description of the goods to be imported or exported;
• any required licences or certifications;
• net and gross weights; and
• transport details.

2. Regularly review tariff classifications

Commodity codes classify goods for import and export declarations. This is important as the commodity code determines the amount of customs duty – and sometimes the import VAT – that the importer will be required to pay.

It is important to review commodity codes on a regular basis as they can change. Furthermore, a small change to the product itself can shift the product to a different commodity code. A small difference in the commodity code can make a big difference to the duty amount payable.

Businesses can check the commodity code for a product by using the trade tariff tool.

There are some products that can be quite difficult to classify. If a business is unsure of the correct classification, it can contact HMRC’s Tariff Classification Service to get non-binding classification advice.

If a business is still unsure or requires more certainty, it is also possible to obtain a legally binding ruling from HMRC.

3. Allow at least 24 hours for paperwork to be tied up

It is important to note that customs paperwork will not be processed in real time so businesses should ensure applicable documents are filed at the appropriate time.

HMRC’s system has to communicate with a number of other systems that are on different platforms. This can take time to do, as there may be some manual interventions required.

An example of this is where products of animal origin have to be pre-notified to the Department for the Environment, Food and Rural Affairs (DEFRA) Import of Products, Animals, Food and Feed System (IPAFFS). The DEFRA guidance is that 24 hours’ notice to pre-notify is required.

Other examples are:

• where common transit system (T1/T2) documents are needed;
• an appointment at an Inland Border Facility is required for the discharge; or
• where duty is paid by the Flexible Accounting System.

4. Ensure proof of origin

Some products can be imported duty-free if they are imported from a country (or trading bloc) with which the UK has a free trade agreement.

For example, the EU-UK Trade and Cooperation Agreement allows duty-free trade between the UK and the EU, provided certain conditions are met. One of those conditions is that the goods originate in the UK if being exported to the EU, or originate in the EU if being imported into the UK.

Unless the trade agreement says otherwise, a business will need to prove to HMRC that it can claim preference (a lower duty rate) based on the origin of the goods being imported. The type of proof required will depend on the category of goods being imported.

It is also possible to reduce or remove rates of duty on imports from developing countries into the UK if those countries and products are included in the UK Generalised System of Preferences. Again, it will be necessary to obtain and retain proof of origin of the goods.

5. Use postponed VAT accounting if possible

Since 1 January 2021, it has been possible for businesses importing into the UK to use postponed VAT accounting (PVA) to account for the import VAT payable through their UK VAT return, rather than paying the VAT to clear the goods at the border. This speeds up the process at the border as no payment has to be made before the goods are imported. It also provides a significant cash-flow advantage as the import VAT payable can, in most cases, be recovered through the same VAT return.

This provides additional advantages to businesses using duty deferment accounts, as they will only be required to provide a guarantee for the duty amount, rather than the VAT and duty amount.

There are some occasions where PVA cannot be used so businesses should check this.

Recovery of import VAT is subject to the usual conditions regarding VAT recovery.

6. Request a copy of all your import/export documents

In most cases, the requirement to keep relevant records relating to importing or exporting remains with the business. Businesses should not rely on their agent to keep all the relevant information and should ensure that they keep their own records. This not only becomes crucial in case the agent ceases to trade, it can also speed up response times when dealing with HMRC enquiries.

7. Check whether VAT registration is required before shipping

Importing and exporting often has VAT implications and can lead to VAT registration requirements in other territories.

Businesses should ensure they are clear on who has legal title to the goods before they are shipped. Although Incoterms are often a good indicator of this, they do not always reflect reality.

8. Consider using special procedures

Depending on a business’s activities, it may wish to consider using customs special procedures to improve its cash flow (and potentially achieve a duty saving).

Special procedures include:

• inward processing (which may allow a business to delay or reduce customs duty or import VAT on goods brought into the UK for processing or repair);
• authorised use (which may allow a business to reduce customs duty payable if goods are imported for a specific use);
• customs warehousing (which may allow a business to delay or reduce customs duty or import VAT on goods brought into the UK for storage); and
• temporary admission (which may allow a business to use goods in the UK for up to two years or more without paying customs duty or import VAT).

9. Treat each transaction as if HMRC will check it

Failure to submit a customs declaration can lead to HMRC issuing a penalty of between £250 and £2,500, even if no customs duty is due. Penalties can also be issued for non-compliance where there are errors in customs declarations.

As these penalties can be issued for each failure, the cost of penalties can quickly add up. Businesses should therefore ensure every declaration is timely and accurate. We are already seeing an increase in the number of post-clearance customs enquiries.

10. If in doubt, shout!

Importing and exporting remains a complex area. Businesses should ensure they take appropriate advice when needed.

Furthermore, it should be noted that moving goods into and out of Northern Ireland is currently subject to different rules than the rest of Great Britain. Businesses trading with or in Northern Ireland should ensure that timely advice is taken.

About the author

Ruth Corkin, Principal Indirect Tax, Hillier Hopkins LLP and member of the Tax Faculty’s VAT and Duties Committee

Ed Saltmarsh, Technical Manager, VAT and Customs, ICAEW