The UK's relationship with the EU will change fundamentally once the formal Transition Period ends on 31st December 2020. Politically it seems unlikely that the Transition Period will be extended and it remains to be seen if last-minute talks can result in a Free Trade Deal, which is the stated aim of both parties, by that date.
Even if a Free Trade Deal is achieved, the UK is leaving the EU VAT area on 31st December 2020. It remains to be seen if it will leave the EU Customs Union/common tariff area. It is therefore vital that all businesses trading with the EU (particularly in goods) are prepared for the major changes to import and export procedures for VAT and Customs Duties ("tariffs").
This article aims to give an overview of the main changes but the proposals are complicated in nature and we would recommend specific advice is taken in all cases.
1. SUPPLY OF GOODS
1.1 Purchasing goods from the EU
What is the current VAT/Customs Duties treatment for goods brought into the UK from EU VAT registered suppliers?
Currently, goods brought into the UK ("acquired") from EU VAT registered suppliers, by UK VAT registered businesses, are treated as Zero Rated EC Acquisitions. VAT is both chargeable and reclaimable by the recipient in the same VAT return period, with a NIL VAT affect. If the value of goods acquired exceeds £1,500,000 per annum, then details of these supplies must be included in monthly Intrastat Dispatches Declarations. There are no Customs Duties ("tariffs") on intra-EU supplies.
What will be the VAT/Customs Duties treatment be for goods brought into the UK from EU suppliers from 1 January 2021?
From January 2021, all supplies of goods arriving in the UK, from EU and Non-EU businesses and individuals, will be treated as imports for VAT purposes, meaning that import VAT (and Customs Duties, where applicable) will be chargeable on any goods consignments exceeding £135.
In terms of Customs Duties, the UK Global Tariff will replace the EU's Common External Tariff, which may mean that UK duties apply to the import of goods from the EU, depending on the nature of the goods. The proposed new UK tariff can be checked here: https://www.gov.uk/check-tariffs-1-january-2021. As mentioned above, last-minute talks are underway in an attempt to maintain a tariff-free trading zone between the UK and the EU but businesses should plan for the worst case scenario of a "no deal".
How will imports from the EU be dealt with?
From 1st January 2021, new import procedures will be introduced in 3 stages, for the importation of "controlled" and "non-controlled" goods, which will include the requirement to submit Customs Declarations.
GB EORI Numbers will also be required, in order to facilitate imports and exports.
What is a GB EORI Number and how do I obtain one?
We have ensured that all of our clients requiring a GB EORI number have now had one issued by HMRC. Otherwise, we would be happy to assist new clients in obtaining such a number.
What are the 3 stages of the new EU import procedures?
Stage 1 (from 1st Jan 2021):
- The importer will have 6 months (for "non-controlled" goods) in which to submit their Customs Declaration and pay any import VAT and Customs Duties due on the import.
- For "controlled" goods, a Customs Declaration must be submitted upon arrival of the goods, unless placed in temporary storage, in which case a Custom Declaration must be submitted within 90 days.
Stage 2 (from 1st April 2021):
Importers of products of animal origin* (POAO) and regulated plants, will be required to:
- Pre-notify authorities using IPAFFS (Import of products, animals, food and feed system).
- Provide Health documentation.
- Provide phytosanitary certificates for all regulated plants and plant products.
*Products of Animal Origin includes Honey, Milk, Eggs, Meat and Pet food etc.
Stage 3 (from 1st July 2021):
- Extended deferment arrangements will end and Customs Declarations will be required at point of entry, when importing ANY goods into the UK.
- Goods subject to sanitary and phytosanitary requirements will be subject to a greater volume of physical checks. Sampling of plant and animal products will now take place at a series of UK border inspection posts.
What are "Controlled goods"?
"Controlled goods" refers to anything which requires stricter customs control, such as alcohol, tobacco, firearms, explosives, rough diamonds, controlled drugs, chemical pre-cursors, endangered species of flora and fauna, but also fish and fish produces.
What are "Non-controlled" goods?
"Non-controlled goods" encompass most goods that would be readily available in high street retail outlets, such as clothing, electrical goods, toys etc. If an item does not appear in the controlled goods list, then it is most likely a "Non-controlled" goods item.
What is a Customs Declaration?
Custom Declarations are completed upon import of goods into the UK and inform HM Revenue & Customs of all necessary information, in order for the goods to be cleared into the UK.
How are Customs Declarations submitted?
Customs Declarations are usually submitted electronically via the CHIEF system (Customs Handling of Import and Export Freight). Traders can appoint a person or business to help deal with their customs Declarations. This could be a Freight Forwarder, Customs Agents, or Parcel Operator etc. From 1st January 2021, anyone appointed to deal with your Customs Declarations must be established in Great Britain or Northern Ireland.
Can a trader submit their own Customs Declarations?
Traders can submit their own Customs Declarations, but in order to do so, they must do the following:
- Apply for access to use the CHIEF system
- Obtain 3rd Party software, in order to submit declarations via the CHIEF system.
Some traders may be eligible to submit a Simplified Declaration at point of entry into the UK.
What are Simplified Declarations?
At their initial stage, Simplified Declarations do not require as much information as a full Customs Declaration and instead, allows the trader to provide the additional information at a later date, using a Supplementary Declaration.
There are 2 types of Simplified Declaration, which are as follows:
- "Simplified Declaration Procedure" entails:
- Check if the goods can be entered onto a simplified frontier declaration.
- Submit a simplified frontier declaration to Customs Handling of Import and Export Freight (CHIEF) system.
- Submit a supplementary declaration.
- Submit a final supplementary declaration
- "Entry in the declarant's records" entails:
- Check if the goods can be entered into your own records.
- Clear your goods into free circulation by entering their details in your own records.
- Submit a supplementary declaration.
- Submit a final supplementary declaration.
Who can use Simplified Declarations?
Again, these can be completed by the trader, or authorised 3rd parties, such as Freight Forwarders, Customs Agents etc, however persons wishing to submit Simplified Declarations are subject to the following conditions:
Those wishing to submit "Simplified declaration procedures" must:
- be established in the UK or EU
- have a good customs compliance record, including VAT returns and duty deferments
- show how you'll keep within your deferment account limit
- show how you'll identify and report any errors found after you've submitted your final supplementary declaration to the simplified customs procedures National Assurance Team, where applicable
- carry out declaration procedures to a professional standard
- make sure the applicant, directors and senior employees are free of any criminal records that would prevent HMRC from giving authorisation
- have procedures in place to ensure you do not import prohibited goods
- have licences for any restricted goods
- have procedures in place to manage declarations
Those wishing to submit "Entry in the declarant's records" must adhere to the conditions above, but also show that:
- you'll record all declarations for no less than 4 years after their submission date
- you can meet licensing and other control requirements
- you manage your business in a way that allows customs to make effective compliance checks for example, how:
- you keep the audit trail
- your business records are backed up and kept secure
- you identify and handle errors related to the flow of goods
Traders wishing to apply for authorisation to use Simplified Declarations, must complete form C&E48.
What is a Duty Deferment Account?
A Duty Deferment account allows traders to make monthly payments of import charges, such as import VAT, Customs Duty and Excise Duty, instead of paying lump sums by consignment.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.