Technical and legal

Customs representation and establishment

The place of establishment of a business determines its eligibility to make customs declarations – a legal requirement for the import of goods. An importer can only make a customs declaration if they are ‘established’ in the country of import, or if they are represented by somebody else – an agent – who in turn is established in the importing country.

The assessment of whether an establishment exists is not always straightforward though.

Customs Duty concept of establishment

For customs purposes the rules of establishment apply consistently throughout the EU, which included the UK up until 31 December 2020. Under the EU’s Union Customs Code, “person established in the customs territory of the Union” means:

  1. In the case of a natural person, any person who has his or her habitual residence in the customs territory of the Union.
  2. In the case of a legal person or an association of persons, any person having its registered office, central headquarters or a permanent business establishment in the customs territory of the Union.

“Permanent business establishment” means a fixed place of business, where both the necessary human and technical resources are permanently present and through which a person’s customs-related operations are wholly or partly carried out.

This means that a permanent business establishment could exist in a location where there is no substantial business activity, which has been particularly helpful for overseas entities not registered or incorporated in the UK.

UK requirements post Brexit

Returning to the customs requirement that an import declaration can only be made by a person established in the country of import, there are many non-UK entities who qualified as being established under these rules. This has enabled them to be declared as the importer of record by a direct representative – a UK customs agent who makes the import declaration of behalf of the importer, but where the importer remains fully liable.

However, the UK is no longer part of the EU, and has introduced its own new rules of establishment. The Customs (Import Duty) (EU Exit) Regulations 2018 state that a person is established in the United Kingdom where:

“in the case of an individual, where the individual is resident in the United Kingdom, or

in any other case, where the person –
has a registered office in the United Kingdom, or
has a permanent place in the United Kingdom from which the person carries out activities for which the person is constituted to perform”

This still allows overseas companies incorporated at Companies House to qualify as “established”, however, for companies not incorporated in the UK, the criteria for establishment now requires a “permanent place” from which the entity/person carries out activities for which the person is constituted to perform.

This means that there could be many overseas entities who qualified as established in the UK under EU rules, ie before Brexit, but now no longer qualify under the UK rules. This in turn means that they must rely on a UK customs agent to submit import declarations on their behalf, but because they are not established in the UK, they cannot appoint an agent as a direct representative. Similarly, UK companies making declarations in the EU may need to consider the EU rules of establishment.

A UK customs agent can only act for a non-established business as an indirect representative, meaning that he completes a customs declaration on behalf of the importer, but is jointly liable for any debts or penalties arising. In reality, the agent becomes solely liable as HMRC has no jurisdiction to pursue a non-established entity in other territories. Consequently, indirect representation is avoided by most agents, and can be very costly where a willing agent can be found. An agent who makes a declaration as a direct representative, is deemed by HMRC to be acting on indirect representation terms where the importer is not established in the UK.

Actions to take

Non-established businesses should consider whether their agents are acting correctly (indirect representation), or may wish to consider the need to establish in the UK, or to restructure their UK-bound supply chains. Customs agents should ensure their customers are established under the new UK rules, or take steps to cover their risk as indirect representatives. UK exporters may also wish to consider whether or not they should be established in the EU, particularly if shipping on DDP terms.

Crowe’s Customs and VAT specialists can help to keep importers, exporters and their agents compliant. For practical advice, please contact Ian Worth, Rob Marchant or your usual Crowe contact.

HS 2022 is coming

HS 2022, the latest update to the Harmonized System Nomenclature, comes into force on 1 January 2022. The widely-used system, published by the World Customs Organisation (WCO), provides a common basis for the classification of traded goods for Customs purposes and is a key resource for importers and exporters to determine the commodity codes of their goods.

The commodity code determines the rate of customs duty applicable at import, so any errors can have significant financial implications, and often result in penalties.

HS 2022 comprises of 351 sets of amendments, bringing significant changes across many sectors, including agriculture, chemicals, textiles, metals and machinery. The full list of changes can be found here. In October, the EU published it’s updated Combined Nomenclature to reflect the changes. It is expected that the UK will publish its updated version of the UK Global Tariff in December, and that the UK’s version will align with the EU’s.

Among the headline changes, many amendments have been made to ensure HS 2022 accommodates technological advances. Unmanned aircraft, more commonly known as ‘drones’, now get their own Heading to simplify classification (8806), and Smartphones now have their own sub-heading (8517.13). A clarification note is also added to cover ‘electronic textiles' such as garments which incorporate LED lighting.

Significant changes are made for Lighting products under Heading 9405, with a particular focus on keeping apace with changes relating to LED light sources; LED changes are also present under Heading 8539.

New Headings are also created for 3D Printers (8485) and for ‘Electrical and electronic waste and scrap (8549), whilst a new sub-heading has been created for edible insects (0410.10).

With textiles, the most notable changes come with woven coats and similar garments (6201 and 6202), where the sub-headings have been reconfigured and specific coding for ‘Parkas’ has now been removed.

If you import or exports any goods impacted by these changes, it is important to ascertain the correct commodity code you will be required to use from January. In order to avoid unexpected delays and issues with Customs declarations, consideration should be given to any systemic or process changes and updates which may be required, from internal systems and databases, to agent instructions and Standard Operating Procedures documents.

Crowe’s Customs team can review the accuracy of commodity codes, and also provide suitable training where required. For further information, please contact Ian Worth or your usual Crowe contact. 

Inward Processing – a relief, or a burden?

In international trade, the basic principle of customs duty is that it is applied to goods on import to their destination country. It is based on the value of the goods, and charged at a rate which is determined by the commodity code of the goods – different rates apply to different goods.

Manufacturers often use imported materials in their operations, with their finished products often being exported. In these circumstances, customs duty on their imported materials adds cost to their manufacturing and hinders their ability to compete for export orders. For this reason, customs duty relief is available, thus removing UK customs duty on imported materials used in the manufacture of goods which are then re-exported.

Since Brexit, the use of Inward Processing Relief has been seen as a strategy to strip UK duty from the supply chain of goods ultimately destined for the EU, but routed via the UK. Even basic minor handling operations can be allowed, qualifying the goods for duty relief. Consequently, there has been an upsurge in the issue of authorisations by HMRC.

Import VAT

A major feature of Inward Processing Relief is that it also relieves import VAT, as well as customs duty. This is particularly important for companies who import goods belonging to their customers, in order to perform a process or repair before returning those goods. Without Inward Processing Relief, they would have to pay the customs duty and import VAT, but if they do not own the goods at the point of import, they are unable to reclaim the import VAT on their VAT return – it becomes a cost to the business and at 20% of the value of the goods is significantly more than any customs duty cost. For these businesses, Inward Processing Relief avoids significant costs.

Obligations

The benefits of Inward Processing Relief, however, are not without burden. Each authorisation issued by HMRC includes a set of detailed compliance obligations. These can include (but not limited to):

  • limitations on what can be imported under the regime
  • a time limit on processing
  • strict observance of the submission of import entry data
  • use of the correct customs procedure codes
  • adequate records to enable a full audit trail from import through to re-export
  • clear, documented instructions to clearance agents
  • submission of bills of discharge.

The scope for compliance failure is high, and the penalty for non-compliance is loss of relief. We have seen recent activity from HMRC resulting in significant demands for disallowed relief of duty and import VAT. These demands arise from customs audits, which can go back for 3 years, so repetitive ‘errors’ can quickly generate extremely costly liabilities.

Cause of compliance failure

In the haste to address the additional customs costs resulting from Brexit, many companies have obtained authorisation for Inward Processing Relief, without fully understanding their legal compliance obligations. Very few companies have the level of expertise needed to manage their obligations effectively, and pay little attention to the details of their conditions. We have seen HMRC penalising a range of failures, including:

  • use of unauthorised commodity codes at import
  • exceeding the authorised throughput period
  • failure to declare diversion to free circulation
  • incorrect export procedure codes
  • absence of traceability in records
  • incorrect, late or non-submission of bills of discharge.

How Crowe can help

All of these compliance failures are avoidable. At Crowe, we don’t walk away after helping a client to apply for inward processing relief, our help for clients includes:

  • help to set up the correct record-keeping processes
  • help to draft instructions to clearance agents and to check their declarations
  • help to ensure that a process for submitting bills of discharge is embedded in working practises
  • training for key staff
  • we also remain on hand to support if something goes wrong.

Inward Processing Relief is hugely beneficial for many businesses, but failure to observe its conditions can come at a high price.

For more details about Inward Processing, please get in touch with Ian Worth or your usual Crowe Customs team contact.

Is there a duty reclaim opportunity on Returned Goods Relief?

Since the UK left the EU on 31 December last year, the subject of Returned Goods Relief (RGR) has been considered by many as a potential strategy to avoid customs duty on goods arriving in the UK from the EU, then returning to the EU - most notably Ireland. Problems arose, however, as one of the key criteria for RGR could not be fulfilled; there was no evidence of export from the EU to the UK. This is because while the UK was part of the EU, there was no export, just a movement of goods between EU members. As a result, EU customs duty had to be paid on these goods on arrival in Ireland.

Read our full article on what the impact of these changes will mean for your organisation.

News and updates

New report sheds light on UK-EU TCA utilisation

The National Board of Trade Sweden have published a report analysing business and consumer use of the UK-EU Trade and Cooperation Agreement (TCA).

The report found that in the first six months of the TCA being in force, Swedish importers made use of 84% of the potential value of available duty savings. The figure also steadily increased when analysed month-by-month, starting at 77% in January and reaching a high of 89% in June. In comparison with other free trade agreements, these rates are high, highlighting the need for Swedish importers and British exporters to minimise post-Brexit costs in trading wherever possible.

The report considers differences in utilisation as measured by firm size, mode of import, type of business, and exporter-importer relationship and reveals some interesting differences. For example, small and medium sized businesses are shown to be more effective at claiming preferential duty savings than larger firms.

This raises questions surrounding compliance which the report does not address in detail. The preferential trading arrangements within the TCA for exports from the UK to the EU are governed by a system of self-certification. Exporters can issue a Statement on Origin on their commercial documents or importers can instead claim preferential tariff treatment on the basis of “importer’s knowledge”.

Both methods require the ability to evidence preferential origin, and there is perhaps a question of whether some firms are falling foul of this requirement. For businesses who may be unfamiliar with the Rules of Origin or haven’t undertaken thorough due diligence on their operations and sourcing, utilising the TCA in this manner may provide short-term savings, but leave them open to a longer-term compliance risk which could both be costly and cause reputational damage with both the Customs authorities and trading partners.

Crowe’s Customs team can review compliance with the relevant rules of origin, and also provide suitable training where required. Please contact Ian Worth or your usual Crowe contact for further information.

Customs valuation news

Customs valuation is one of the most complex areas of cross-border trade. The declared customs value is the basis on which customs duty is charged, so errors can have significant financial implications. Arriving at the correct customs valuation requires consideration of complexities including royalties, assists, transfer pricing, Incoterms etc, which can all contribute to difficulties in determining the correct Customs value.

It is in this context that the EU Commission launched a public consultation in 2018 to consider the introduction of a legal basis for Binding Value Information (BVI) decisions to be issued at EU level, as already exists for classification (BTI) and origin (BOI), with the intention to create a harmonised approach where currently scope for inconsistency exists within the approach between member states.

Reports this week suggest that the EU is now drafting the implementing regulation, with the aim that it will be adopted in the second quarter of 2022. Whether the UK will look to employ a similar system is not currently known.

The Irish Revenue have also this month updated their Customs Manual on Valuation. The guidance is extensive, and among many areas, covers the use of ‘pro-forma’ invoices. The guidance confirms that a ‘pro-forma’ invoice is not sufficient evidence for a declared transaction value, and when used, should always subsequently be replaced by a definitive final invoice.

Crowe’s Customs team can review the customs valuation methods used and advise on compliant best practice. For further information please contact Ian Worth or your usual Crowe contact.

November 2021 anti-dumping duties updates

The EU Commission has this month imposed anti-dumping duties on three new product areas, on what it says covers “912 million euros in unfairly priced imports” and helps “to protect 19,000 European jobs”. The new measures concern Optical fibre cables from China, stainless steel cold-rolled flat products from India and Indonesia, and Mono ethylene glycol (MEG) from the USA and Saudi Arabia.

Prior to Brexit, these measures also would have applied to UK imports, but policy in this area is now determined by the UK Trade Remedies Authority (UKTRA), which considers the merits of any such measures from a singular UK perspective.

UKTRA was envisioned when set up as an arms’-length, independent body to impartially investigate claims of unfair import practices, and a key part of this remit is to undertake “transition reviews” of EU measures which the UK have rolled over since Brexit.

Earlier this year, when UKTRA made it’s first recommendation on steel safeguard measures, the government pushed through emergency legislation which allowed it to tweak UKTRA’s recommendations, and has now followed up with a measure to allow the Secretary of State for International Trade to “call in” transition reviews or reconsiderations of transition reviews, and take responsibility for “determining the outcome of the review or reconsideration”.

The recommendations made by UKTRA and final decisions which now may be made by the Secretary of State can have a significant impact on British importers and exporters. For importers impacted by anti-dumping or countervailing duties, Customs special procedures may be available to allow for duty relief in certain circumstances.

For further information about trade measures in the UK, please contact Ian Worth or your usual Crowe contact.

UK Freeports - will they benefit business?

This article was first published on Bloombergtax.com

As part of the government’s plan to establish several Freeports, the UK tax authority has recently issued guidance for businesses on operating in a freeport site. Ian Worth of Crowe UK looks at the background to this initiative, the potential benefits and the challenges going forward.

HMRC has recently issued guidance on some of the legal and practical aspects of operating a freeport site in the UK, and provided details of how to apply to do so. What have been less well publicised are the potential benefits to UK businesses of operating within a freeport and also consideration of whether these benefits can be achieved through other means.

Background to Freeports in the UK

Before exploring the potential benefits of Freeports to UK businesses, it is necessary to understand the role of a freeport area in the context of international trade.

Freeports, free trade zones and special economic zones have been in operation across the globe for many years and are intended to provide fiscal stimulus, principally for manufacturing and export businesses. Following the inclusion of Freeports in the Conservative Party election manifesto in 2019, Chancellor Rishi Sunak announced in his Spring Budget the introduction of Freeports in eight areas - East Midlands Airport, Felixstowe and Harwich, Humber, Liverpool, Plymouth, Solent, Thames, and Teesside.

These regions have been selected as they require investment to stimulate regeneration and are a part of the UK government’s “Leveling Up” strategy. It is intended that a further four areas will be identified in England, as well as in Scotland, Wales and Northern Ireland. The first of these areas is planned to become operational in late 2021, and applications are invited by HMRC from businesses interested in locating their operations to these areas.

While it is proposed that the freeport areas will be up to 45 km across, it appears that there will be no physical control point for access to and from the freeport area.

Individual businesses within the freeport area will need to operate adequate physical site security as part of the implementation of controls on the receipt of imported materials. They must also keep accurate records to prove that dispatches are either exported out of the UK, are transferred to another customs-approved operation, or are declared for release in the UK, with duty and import value-added tax (VAT) paid.

Applicants will need approval for AEO-S (Authorised Economic Operator - Security and Safety) authorisation, which will add additional time and invite scrutiny by HMRC as part of the approval process.

Potential benefits

To date, there has been little detail provided by HMRC about the specific benefits that business will obtain through the UK Freeports initiative.

Across the globe, Freeports have generally helped to stimulate manufacturing activity and exports by removing the customs burdens associated with the storage and use of imported materials. There is no requirement to declare imports into a freeport area or to pay customs charges - the customs requirements only arise when goods are moved out of the freeport area - whether for domestic consumption, or for export.

In countries where duty costs are particularly high, operating in a freeport area can remove significant costs from operations. Elsewhere, there can be savings in administrative costs; however, it must be remembered that customs declarations and related charges - duty and import VAT - will be required for all goods which leave the Freeport area for use in the UK

It is thought that operation in a freeport area may be particularly helpful for the automotive industry, where reliance on just-in-time supplies of materials has suffered following Brexit. Suppliers can store components and materials within the duty-free confines of a freeport area ready for fulfilment to carmakers, who themselves may see benefit in operating under a freeport regime.

Duty inversion is one of the benefits available in a freeport area. This allows for imported components and materials to be used in the manufacture of a product with a lower duty rate, so that when the finished product is released into the domestic market, charges are based on the lower rate of duty.

This can be especially beneficial in countries where materials and components are subject to higher duty rates than the product manufactured using those materials, but there are very few instances in the UK where finished goods have lower duty rates than their component parts.

However, the UK customs tariff generally applies higher rates of customs duty to products at a more developed stage of manufacture, for example, clothing, footwear, cars and consumer electronics, so it seems likely that the benefit of duty inversion in the UK will be limited.

Other means of achieving those benefits

It is worth noting that in the UK the likely customs-related benefits of a freeport area are mostly already available elsewhere, through existing duty suspension (customs warehousing) or relief approvals. A freeport area may offer some simplifications not available under conventional customs warehousing or inward processing, but these have not yet been defined.

The basic features of freeport customs benefits are still closely aligned to those available through existing regimes outside freeport areas. HMRC will be keen to ensure that a business has robust controls which prevent the entry of goods to the UK economy without the relevant charges being paid.

In the UK, customs duty rates are relatively low - in most cases less than 5% of the value of the imported goods, and even zero for many goods. The fact of operating in a freeport area does not, therefore, deliver game-changing duty savings beyond a handful of industry sectors.

Whilst it is widely understood and accepted that the selected UK areas require investment and regeneration, very few businesses are likely to be incentivized to relocate there by the potential savings in customs duty alone.

It is true that import VAT need not be paid in a freeport area, and at the UK’s current VAT rate of 20% the option of stripping import VAT from a business activity may seem an attractive benefit. However, since Brexit, the UK has allowed VAT-registered businesses to postpone their import VAT anyway, so it is not physically paid before it can be recovered on a VAT return.

Additional incentives on offer

The Chancellor has, therefore, offered a range of other incentives for businesses operating in a freeport, including:

  • stamp duty land tax relief until Sept. 30, 2026
  • business rates relief until Sept. 30, 2026, for new businesses and certain existing businesses where they expand
  • enhanced 10% rate of structures and buildings allowance, providing the building or structure is brought into use before Sept. 30, 2026
  • enhanced capital allowance of 100% for investment in plant and machinery, up to Sept. 30, 2026.

Although these tax-related incentives have a limited lifespan, they may be significant for businesses looking to start up or expand into one of the freeport areas. As they are tax-related incentives, however, they may be vulnerable to change in accordance with the tax policies of the government of the day.

Challenges

Following the UK’s withdrawal from the EU, the government has entered into many free trade agreements (FTAs), most significantly with the EU. The terms of these FTAs allow for tariff free, i.e. 0% customs duty, on goods traded between the FTA parties, but only where those goods 'originate' in the exporting country.

Complex rules of origin determine whether goods are eligible or not, including the extent to which “non-originating” materials may be used in a manufacturing process. Manufacturing activity in a freeport area may well be sufficient to confer UK origin status, but the FTAs have a further requirement, which presents a different challenge.

The UK’s comprehensive Trade Agreement with the EU includes a ‘level playing field’ requirement. This requires that preferential status can only apply where goods have been manufactured without the benefit of state aid or subsidy to the exporting party. This measure is intended to ensure that imported goods cannot compete unfairly against domestic production of similar goods.

At present, it is unclear whether the UK’s haste to conclude Brexit and sign multiple trade agreements may hamper the attractiveness of Freeports for businesses seeking to manufacture for export markets. There is certainly a possibility that goods manufactured in a freeport area, by a business gaining significant tax incentives, may in fact be ineligible for the tariff-free preference which drives their export strategies.

There are concerns voiced by the European Parliament and others that freeport areas attract criminal activity, in particular money laundering, smuggling and tax evasion, facilitated by the relaxation of controls. It is likely that goods manufactured in a freeport area could be subject to greater scrutiny when they are imported into other countries, which could hamper UK exports.

Final points

By incentivizing businesses to locate their activities in a freeport area, the UK Treasury may suffer loss of revenue, particularly where existing operations are relocated. The overall intention to regenerate deprived areas is a laudable sentiment, but the use of a customs simplification as the vehicle for levelling up the UK economy runs a high risk of introducing export barriers for businesses operating in a freeport area.

Questions for businesses to consider

For many businesses, there are attractive incentives on offer to relocate or establish a manufacturing operation in one of the UK’s new freeport areas. There will be ongoing customs compliance obligations to fulfil, and export markets might become more challenging, so any businesses hoping to prosper in a freeport area should consider all the opportunities and pitfalls, particularly including the following.

  • Is the business eligible for any or all of the tax incentives?
  • Is the business accredited for AEO-S?
  • Can the business comply with customs requirements?
  • Is there logistical/geographical advantage in locating in a freeport area?
  • Will exported goods be eligible for preference in other countries?
  • Will expertise need to be relocated?

There are, of course, many other relevant questions, as well as a developing landscape of information which can be navigated with specialist advice on customs, tax, property and employment professionals.

If you would like to discuss this topic further, please get in touch with Ian Worth or your usual Crowe contact.

The impact of Brexit on the food and beverage sector

The end of the Brexit transition period at the beginning of this year proved challenging for many industries and those who operate within them. None more so than the food and beverage sector.

The food and beverage industries contain the single largest manufacturing sector in the UK. The agrifood sector alone provided, 9.4% of the UK’s manufacturing total and UK agrifood exports being valued at £23.6 billion in 2019.

There are a number of very real problems that UK exporters have been facing when moving their goods to the EU.

Read our full article on how this could impact the Food and Beverage sector.

HMRC confirm chief closure date

HMRC has finally confirmed the date that its Customs Handling of Import and Export Freight (CHIEF) system will be put out to pasture, announcing that it will be closing the system for good on 31 March, 2023. As part of a two-step closure process, CHIEF will stop handling import declarations from 30 September, 2022 – just over a year from now.

This is the system which records all data declared on customs declarations and determines customs clearance of goods shipped into the UK.

Given plans to replace CHIEF with a new system began in 2013-2014, this announcement with what should be a definitive closure date has been a long time coming.

The Customs Declaration Service (CDS) will replace CHIEF and the systems have in fact been operating in parallel since 2018. However, until its mandatory use for imports into Northern Ireland since January this year, CDS has not been utilised on a significant scale.

Whilst the announcement gives some much-needed certainty, traders, customs agents and software houses now have work to do to ensure they are ready for permanent migration to CDS.

CDS requires a greater level of detail for declarations than CHIEF; for example, CHIEF requires up to 68 ‘boxes’ to be completed for imports, where CDS may require the submissions of up to 76 ‘data elements’.

Another significant change requires the incoterms of transactions to be declared – this will be a challenge for many businesses still struggling to understand their obligations relating to imports, following Brexit.

Importers and Exporters should take steps now to ensure they are ready for CDS; consider what additional data elements you may need to supply to your customs agents, how you will send this to them, whether any IT changes are required, as well as the impact on any automated processes.

Consultation launched on trading with developing nations

As part of a flurry of post-Brexit consultations, the Government is seeking views on its newly proposed Developing Countries Trading Scheme (DCTS), which it describes as a “major opportunity to grow free and fair trade with developing nations”.

Since January, the UK has operated its own Generalised Scheme of Preferences (GSP) which has largely replicated the EU’s own version, and the Government have now proposed some changes to the scheme under the DCTS re-branding.

These changes would include:

  • Further extending tariff reductions and removals
  • Simplifying Rules of Origin
  • Amended approach to suspension of preferential tariffs
  • Simplifying the conditions which apply to all GSP countries

The consultation period runs until 12 September 2021 and seeks views on the changes outlined. In order to take part, you can complete an online questionnaire which can be found here.

Taking advantage of preferential trading arrangements with developing nations can deliver significant duty savings for UK importers; to make sure you are benefiting from existing arrangements, please get in touch.

Trade remedies authority update

The newly-formed ‘Trade Remedies Authority’ (TRA) have now started their work in earnest, investigating whether new trade remedies are needed to prevent injury to UK industries, as well as conducting ‘transition reviews’ into existing EU trade remedy measures which were maintained in the UK at the end of the Brexit transition period.

The TRA recently initiated their first case in response to an application from UK industry, and will investigate whether aluminium extrusions are being dumped in the UK by Chinese exporters.

The TRA seek to determine whether measures which were appropriate when initiated from an EU-wide perspective, are of specific benefit to the UK, and as an ‘arms-length’ body, make recommendations to the UK Government accordingly.

Most recently, the Government has upheld the TRA recommendation to terminate the anti-dumping duty measure on certain PSC wire and strands imported from China, meaning importers of said products will no longer be hit with additional duties of up to 46%.

We can assist clients in reviewing your exposure to existing trade remedies, or in making representations to the TRA to either review an existing measure or consider introducing a new one.

Deadline approaches for deferred Customs declarations

If you have chosen to delay your Customs declarations for goods imported into the UK from the EU since 1 January 2021, the initial deadline for your supplementary declarations to HMRC is fast approaching.

Read our full article on what this means and how we can help.

Duty savings for UK manufacturers

UK manufacturers may be interested to know that on 1 June, a two month window opens for applications for the suspension of UK customs duty on imported materials.

Read our full article on what the impact of these changes will mean for your organisation.

Case studies

Anti-dumping duty demand - UK manufacturer

Anti-dumping duty demand - UK manufacturer

Anti-dumping duty demand of a UK manufacturer

£130,000 recovery and significant savings going forward

A typical Customs audit often results in a demand from HMRC for underpaid customs duties. The case study set out below highlights the value of professional support for importers subjected to audit of their customs declarations by HMRC.

The business

A UK manufacturer of specialist building materials that uses a range of imported materials in their manufacturing activity. The majority of their goods are exported to customers in the EU and also to other countries further afield.

Why they needed help from Crowe’s Customs team

A ‘routine’ audit by Customs identified that a number of imports of steel cable from China had been misclassified, and resulted in a demand for payment of anti-dumping duty of just over £25,000. The client asked Crowe’s customs team for advice.

For the imports subject to HMRC’s enquiries, the items in question were subject to anti-dumping duty at 60.4%. We confirmed this by an analysis of the classifications of a wider range of products imported by the client, and advised the client to accept the conclusion of HMRC’s audit and to pay the demand. At the same time, the client amended its import procedures to ensure the correct commodity was declared on current and future imports.

However, our analysis also identified an additional misclassification of zinc components, which had erroneously been declared as articles of steel. This meant customs duty had been paid as if the items were steel, when the duty rate for articles of zinc is 0%. We then obtained details of all imports made where duty had been overpaid on zinc components, and submitted a duty repayment claim, totalling almost £130,000, which was accepted and paid by HMRC.

Further potential

The story doesn’t end there. Since 1 January 2021, the UK is no longer part of the EU, so our client’s export activity now includes its sales to EU customers. This means that the majority of its imported components are subsequently exported outside the UK, following manufacturing activity here. Consequently, relief from customs duty (and anti-dumping duty) is available for imports of components and materials used in the manufacture of items subsequently exported. We are currently working with the client to apply for inward processing relief.

We have also engaged in discussion with the UK Trade Remedies Authority in connection with a review of the requirement for anti-dumping duty on products imported where they cannot be sourced from UK manufacturers. Since Brexit, the UK has “carried over” many EU anti-dumping measures, many of which have little or no relevance in the UK, as they concern goods which are not manufactured in the UK, and thus no protection of UK industry is necessary. A successful review could result in the removal of anti-dumping measures in the UK, possibly back-dated to the UK’s departure from the EU on 1 January 2021, giving rise to further duty reclaim opportunities.

What was achieved

In this particular case, Customs’ auditors were correct in their conclusion that anti-dumping duty had been underpaid by £25,000, however, by seeking professional support our client was able to recover £130,000 and is now going through the steps for inward processing relief authorisation, which will deliver significant savings going forward – around £150,000 a year.

Customs valuation error

Customs valuation error

Customs valuation error

£120,000 repayment approved

One of our audit team raised a question regarding a large customs duty demand which a client had paid following a customs audit two years previously. Crowe’s Customs team obtained the correspondence between the client and HMRC, and details of the duty demand issued.

Why was the customs duty demand raised?

The basis of the demand was that royalty payments had been made by the client to its parent company in relation to goods imported into the UK from its overseas parent. These royalty payments represented additional value to the goods, which had not been declared at the time of import. NB it is a common occurrence that royalty agreements result in a subsequent payment after goods have been imported – in effect the invoice value of the goods at the time of import is merely provisional, however, there is no straightforward mechanism to declare this and follow up with an appropriate adjustment. It is also the case that not all royalty payments are dutiable, but in this particular case the royalty payments met the conditions for liability to customs duty as they were directly related to the goods which had been imported.

How was the error made?

Analysis of the correspondence quickly revealed a huge error by the HMRC audit officer in their calculation of the additional duty due. They had established that royalty payments of £122,160 had been made, and had also established that no duty had been paid in relation to these payments. The goods in question were subject to a full customs duty rate of 4%, however, the HMRC officer then made a very basic error and instead of raising a demand for 4% of the royalty payments, they raised the demand for the full amount, ie £122,160.

We then reconstructed the duty demand calculation, which revealed further errors, in that some of the goods on which royalties had been paid were free of duty, as they fulfilled preferential origin rules – this meant that any additional royalty payment in relation to these goods would be dutiable at 0%.

Our recalculation determined that the correct additional liability was only £625.

Duty demands from HMRC can be challenged within 30 days of their issue. Clearly this route was no longer open, so we set out our case and presented an application for duty repayment to HMRC, with the expectation that a refusal to repay would then be an appealable decision in its own right, which we would then address using the reviews and appeals process.

A response from HMRC’s duty repayment team was slow in coming, however, we have now received confirmation that repayment has been approved for £121,535, which is welcome news for our client.

Conclusion

The take-away message from this case study is that HMRC Customs audits do not always deliver a correct outcome, and challenges can often be successful. Any business receiving a duty demand following a customs audit can discuss their options with their usual Crowe contact, or directly with the Crowe Customs Team.

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