David Lowe
Partner
Head of Commercial Contracts
Co-Chair of ThinkHouse
Article
11
As we edge closer to the UK's planned exit date from the EU, 31 October 2019, it's crucial for importers and exporters to understand the potential customs implications for their businesses - whatever the outcome from this date. Here, we explore the key considerations for managing customs compliance risks and the practical steps to take as part of your Brexit planning.
Setting aside the vexed question as to how the UK is to meet its obligations under the Belfast/Good Friday Agreement, current Government policy is that the UK will not form part of a customs union with the EU and will maintain its own independent customs territory. Likewise, if the UK Parliament opts for a "no deal" arrangement, the UK will be distinct from the EU Customs Union.
In such circumstances, UK businesses that trade with the EU will be required to comply with customs formalities to move goods between the UK and the EU.
Customs formalities include the completion of customs declarations, as well as the payment of any applicable customs duties, antidumping duties, import VAT and excise duties. Further, certain goods may be subject to a range of non-tariff requirements which typically include import and export licenses, sanitary and phytosanitary measures, adding to the compliance obligations at the border.
As such, the creation of a customs border between the UK and the EU will represent a significant change in process for UK-EU traders.
Even if a comprehensive EU-UK Free Trade Agreement (FTA) is agreed, a process that may take a number of years to negotiate, customs formalities will still be required. While an FTA may reduce the tariff (or duty) applicable to certain products, an FTA itself would not create a single customs territory between the UK and the EU. Businesses will need to file customs declarations to benefit from any preferential (or zero) tariff treatment agreed under a future EU-UK FTA.
What should your Brexit planning cover?
Within the EU, businesses require an EORI (or Economic Operator Registration and Identification) number to import and export goods into or out of the EU. At present, the UK is in the EU, and so, obviously, does not need an EORI number for intra-EU trade. Also, at present, businesses obtain an EORI number from the relevant customs authority in a given EU Member State - so, in the UK, from HMRC. A UK EORI number begins with 'GB'. It is not possible to hold more than one EU EORI number. A business must be assigned an EORI number to complete customs declarations.
After Brexit, a UK EORI number will be required in order to import and export goods into the UK from the EU, as well as (as at present) to import and export goods into the UK from third countries. Businesses that currently hold a UK EORI number only and move goods between their businesses in the UK and the EU will also require, for its EU-based businesses, an EU EORI number (issued by an EU customs authority) to import goods into the EU after Brexit - in other words, for intra-group trade, both the UK parent will require a UK EORI and the EU subsidiary will require an EU EORI. That is a lot more 'process' and paperwork than at present. In addition, businesses that currently hold a UK EORI number will not be able to apply for a new EU EORI number until the UK leaves the EU.
Businesses that currently only move goods from the UK and EU (and vice versa) and so do not import/export from outside of the EU are unlikely to hold an EORI number. VAT-registered businesses who trade with the EU have been automatically issued with UK EORI numbers by HMRC. Non-VAT registered businesses will need to apply to HMRC for an EORI number.
All of this will apply equally to Northern Ireland/Republic of Ireland trade, as well as any other UK to EU trading. Again, this may raise issues with the compatibility of the UK's obligations under the Belfast/Good Friday Agreement.
Ensuring that all the parties in the UK-EU supply chain have an EORI number will be critical to maintaining cross-border trade. It is important to remember that the EORI number is typically linked to the VAT registration number and that the VAT reporting requirements have been well thought through to avoid any negative impact on cash flow.
HMRC has established TSP to make it easier to import goods into the UK from the EU after Brexit. TSP enables businesses importing goods from the EU (including rest of the world goods that have cleared EU customs formalities) into the UK to postpone making full customs declarations (and paying import duties) for up to 12 months. TSP does not cover goods imported into the UK from outside of the EU.
Businesses must register with HMRC in order to use TSP. Only businesses that hold a UK EORI number and are established in the UK are eligible to apply for TSP.
As noted above, in order to import/export goods between the UK and EU after Brexit, you will need a GB EORI number. The EU importer will also need an EU EORI number.
You should also consider who will be responsible for filing import declarations (if you are an importer) and export declarations (if you are an exporter). For example, a customs agent, freight forwarder or fast parcel operator may be able to submit customs declarations on your behalf. If you do intend to appoint a third party to submit customs declarations, you should ensure that you have an appropriate agreement in place with that third party. This agreement should clearly set out the third party's responsibilities, their liability to you (and your liability to them) for any deficiencies in customs declarations, and who is liable for paying any applicable customs duties (e.g. would the agent pay initially, and later be reimbursed?).
You should ensure that you have mapped out your existing supply chains, so that you can identify any 'pinch points' that may occur on Brexit day. In addition, this mapping exercise can be used to provide you with information on: the customs procedure codes (CPCs) that you currently rely on, the classification and origin of the goods you import/export, and the amount of duty and import VAT you currently pay (if any) on non-EU products.
The specific data sets required to make customs declarations will depend on whether you are importing or exporting, and whether the goods are subject to any regulatory control (e.g. export licences).
There are currently 54 data fields that require completion to file a customs declaration. HMRC has issued guidance on the datasets required to complete import/export declarations in the new Customs Declaration Service (CDS). (CDS will replace the existing CHIEF system.)
The most important data you will require are:
Engagement with suppliers will be critical to obtaining this information in the first instance. However, you should ensure that you do not unduly rely on information provided to you by third parties.
In October 2019, the UK Government amended and reissued a draft "temporary tariff regime" for a "no deal" Brexit. Under the temporary tariff regime, c.88% of total imports into the UK by value would be eligible for tariff free treatment; tariffs would continue to apply to products including certain agricultural products, finished vehicles and textiles. The current draft temporary tariff regime can be found here.
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