From 30 September 2022, the Customs Handling of Import Export Freight (CHIEF) system will close for imports and CDS will become the UK’s sole customs declaration platform. CHIEF is scheduled to close for exports on 31 March 2023.
In order to avoid risk of not being able to import goods into the UK from 1 October 2022, unregistered businesses must register for the new Customs Declaration Service (CDS) as soon as possible.
Beyond just registering, many of our clients have struggled to understand exactly what they need to do to prepare, so we have broken down the key requirements and noted which steps are required depending on your business’s circumstance.
1. Register for a Government Gateway Account
If you are a VAT-registered business in the UK and already importing goods, there is a good chance that you already have a Government Gateway account. If you do, you can skip this step.
2. Register for an EORI number
An EORI is required to import into the UK and if you have been importing goods, you will already have one, in which case you can skip this step.
3. Register for CDS!
You can register for CDS by following this link.
If you already use Postponed Import VAT Accounting (PIVA) and download your monthly statements, this means you are already registered for CDS. You do not need to re-register.
Please note that if PIVA is not applied, your C79 certificates will now be available digitally through the CDS online portal. This means you will not receive a paper copy of the C79 certificate for import VAT paid on or after 30 September 2022.
4. Decide how you will pay customs duties
If you currently use your agent’s Duty Deferment Account (DDA) and intend to continue doing so, you can skip this step and jump to step five – no further action on this step is required.
If however you have your own DDA, you will need to set up a new Direct Debit Instruction, which can be done by following this link. You should not cancel your existing Direct Debit Instruction for CHIEF declarations.
CDS now also has an easy-to-use functionality for a “Cash Account”; this in effect works as a pre-paid Duty Deferment Account, where you can add funds to your account to be used to pay customs duty.
If you intend to use either of these mechanisms, you must authorise your customs agent(s) to use them through the CDS Financial Dashboard.
You should select 'Manage Account', 'Add an authority', enter the EORI number of your agent, and select which services you wish to authorise them for. You must select when you want these instructions to apply from, decide whether you would like your agent to be able to view the balance of your accounts, and then confirm your details to complete the process. You will need to complete this step for every clearance agent that you use.
5. Provide your agent with clearance instructions
It is always essential to provide comprehensive clearance instructions to your customs agents, but entries to CDS require some new data elements to be submitted. We have covered these in the section below.
CDS declarations use 'Data Elements' (up to 91), rather than the 68 'Boxes' for declarations to CHIEF. CDS also often requires data in a different order, a different format and subject to different conditional rules in comparison to CHIEF.
We have set out some of the key changes below to ensure that you can instruct your customs agent accordingly and reduce the likelihood of any delays to your imports.
When method 1 is selected, a 4-digit code must now be entered to define certain ‘valuation indicators’ – this is a new requirement which did not exist in CHIEF.
As this is information being declared in your name, and may be subject to review during any future customs audit, it is important to ensure that all the information is submitted accurately.
Your agent may request this from you, but we strongly recommend you proactively supply them with this information regardless.
Any additions or deductions to the customs value should be clearly advised to your agent to be included in the determination of the customs value.
Should you wish to discuss this further and check whether your business is ready for CDS, please contact Ian Worth or your usual contact.
As of 5 July 2022, the Customs Handling Import and Export Freight (CHIEF) system is no longer accepting registrations for new importers.
Businesses looking to import into the UK for the first time must instead register for the Customs Declaration Service (CDS), which will become the UK’s sole customs declaration platform for imports from 1 October 2022. From 30 March 2023, CDS will also take over from CHIEF for export declarations.
In order to register for CDS, a business must first have a government gateway account and a GB EORI number. Registering for CDS also allows businesses to download statements for Postponed Import VAT, select how they will pay for duty, set up a new direct debit instruction for their Duty Deferment Account, and authorise customs agents to act on their behalf.
HMRC have also announced this week that businesses can subscribe to receive data reports to cover customs declarations submitted to CDS. The reports act as an equivalent to the MSS data reports currently available for declarations to CHIEF, with a few additional data elements and full information can be found here.
Regularly auditing your customs data is essential for businesses importing and exporting goods, and information on our Customs Data Analytics offering can be found here.
If you are unsure if your business is ready for CDS or to discuss the steps you need to take to avoid disruptions or delays, please contact Ian Worth.
The Secretary of State for International Trade announced last week that safeguard duties will be maintained on all of the fifteen categories of steel products to which they had applied, for a minimum of a further two years.
In March this year, the Secretary of State “called in” the Trade Remedies Authority’s (TRA) reconsideration of the measures, and has delivered her verdict before measures against five of the categories were due to expire at the end of June, having been extended for twelve months in June of last year. The Secretary of State at that time, Liz Truss, had to implement emergency legislation in order to extend the measures on those five categories, having disagreed with the findings of the TRA, who had recommended that they should be revoked.
In calling in the reconsideration, the government adjusted the terms of the TRA’s review, instead grouping the individual product categories into three broader groups, rather than reviewing them independently. Undertaking its review in this way led the TRA to arrive at a different conclusion this time round, instead determining that maintaining the safeguard measures on the five categories was in fact justified.
UK Steel had strongly lobbied the government on the subject, stating that maintaining the measures was “essential” to prevent harm to the UK steel industry. The Confederation of British Metalforming (CBM) in contrast had lobbied the government to revoke measures against some categories, with many of its members adversely impacted by the additional 25% tariffs incurred once the available quarterly quota had been exhausted.
The government did acknowledge an issue with the domestic availability of products in category 12, and whilst it did not elect to revoke the measure on this category, it has significantly increased the quota available to importers in category 12(a), which accounts for alloy merchant bars and light sections. The increased quota to 126,136 tonnes for year one is almost double the previously available quota. The CBM however have stated that whilst this increase is welcomed, it is only likely to delay the exhaustion of the quota from one month to two months in a quarterly period.
Now that importers have certainty and know that the measures will remain in place for at least two more years, those impacted are advised to seek methods of mitigating their impact.
In related news, the Secretary of State has accepted the TRA’s recommendation to reallocate the quotas allocated to Russia and Belarus in categories 1 and 13 of the steel safeguard measures. Their quotas will instead be reallocated to other countries and regions, including Ukraine, the EU, Turkey and Taiwan.
To discuss how you may be able to mitigate the impact of the steel safeguard measures or any other customs duties, please contact Ian Worth or your usual Crowe contact.
Those familiar with the subject will know that what can and cannot be described as a Christmas decoration, or an “article for Christmas festivities”, is one of the more contentious areas of customs classification.
For many UK importers, being able to classify a product under sub-heading 950510 as a Christmas article is advantageous from a duty perspective. Glass Christmas products do not attract customs duty, whereas the primary alternative classification as an article of glass attracts a duty rate of 10%!
Similarly, plastic Christmas products attract 2% duty, whereas the alternative classification as an article of plastic attracts a duty rate of 6%. Such discrepancies tend to make this a particular area of interest for customs authorities, who often target and scrutinise classifications of Christmas articles during customs audits, often imposing a flawed interpretation.
When determining whether a product can be classified as a Christmas article, help is at hand through the explanatory notes of the Harmonised System (HS) and Combined Nomenclature (CN). When it comes to Christmas articles, however, the “explanatory” notes can be said to raise more questions than they answer, containing areas of ambiguity which unfortunately only act to muddy the waters of classifying what is indeed a Christmas decoration.
During its April 2022 meeting, the EU Customs Code Committee met to try and address this issue, reviewing a sentence within its explanatory notes which states that Christmas tree decorations “must have a connection with Christmas” – a sentence which is ambiguous enough to lead to many a subjective debate.
Would a trinket of a pizza slice, for example, manufactured and designed to be hung on a Christmas tree, qualify under this criterion? What if the pizza had a turkey topping!? Are the basic characteristics and intended use of the product enough to denote a “connection with Christmas”, or is a more concrete connection needed?
While the Committee didn’t consider this exact example, they instead reviewed miniature bananas, beer bottles, and bubble-gum vending machines. The products are described as small, lightweight, equipped with a loop to be hung, and with bright colours and a “mirror effect”.
Upon voting, an overwhelming majority of EU member states voted in favour of the products being classified as Christmas articles, and also voted to delete the reference in the explanatory notes to Christmas tree decorations requiring a “connection with Christmas”. This decision is a welcome one, and should help to give importers of Christmas products more certainty in classifying such items. A revised draft regulation to give effect to this change is expected, and we would then also expect that the UK will follow suit in adopting the revised text.
The Committee had a Christmas-heavy session in April, also considering two types of plastic decorative items, equipped with LED lighting and playing Christmas songs. One of the products is described as a replica of an old radio, with a small window through which a Christmas tree can be seen. The second product depicts a village on a snowed mountain, with houses decorated for Christmas. Whilst a small majority of member states voted to classify both products as Christmas articles, opinion was very much divided and the Committee did not come to a definitive decision on this occasion, instead electing to reflect further on how to proceed.
Our experience shows that such “borderline” cases are not uncommon, and customs authorities can often be as bamboozled as traders by the nuances of certain areas of the customs tariff. When faced with such problematic classifications, traders are advised to seek expert support to ensure they do not fall foul of their compliance obligations. A review of customs classifications used by importers can often lead to a substantial duty reclaim, as well as generating savings for future imports.
To discuss reviewing the classification of your products, please contact Ian Worth or your usual Crowe contact.
Retaliatory tariffs on certain US goods will be suspended from 1 June, 2022, when the deal agreed in March between the UK and US on steel and aluminium tariffs comes into effect.
The tariffs, which came into force in June 2018, added additional duty at a rate of 25% on a wide range of US-made goods. Many of the impacted products, including cosmetics, previously did not incur duty upon import.
Importers of cosmetic products, including eye make-up, manicure and pedicure items, and makeup powders will welcome the news, and will no longer incur any duty on importing these goods into the UK.
EU companies have had a six-month head start on enjoying tariff-free imports of these products, after the EU reached a similar agreement with the US in October last year, which came into effect at the beginning of this year.
Measures such as this highlight the need to ensure your customs data and declarations are accurate, and that customs duties of all kinds are not incurred unnecessarily. To discuss reviewing your customs data and duty exposure, please contact Ian Worth.
On 28 April 2022, the UK Government announced a further delay to the introduction of new checks and requirements for imports from the European Union (EU). These checks had been scheduled to be implemented on 1 July 2022, but have been delayed 'in order that UK businesses are not burdened with additional cost at the current time'. The UK has instead stated an intent to implement the delayed checks at the end of 2023, in line with its plans for a new digitized border control strategy.
For some UK importers, this may be welcome news and could offer some relief from the spiralling cost of living increases impacting them. Other businesses, however, have spent considerable time and money in preparing for these changes, which had already been pushed back three times.
There is definitely some truth to the line that these changes are not happening because businesses are struggling to cope with the demands of post-Brexit trading. It is also true that the UK’s Government infrastructure has not been ready to handle the smooth flow of goods at the same time as ensuring that adequate controls are exercised.
Border Control Points have been constructed at UK ports and staff have been recruited to undertake the scheduled checks – some reports indicate a cost to the UK taxpayer of £200 million. Yet it now seems likely that this infrastructure will be mothballed before it sees any practical use, and there is some talk of the ports trying to recoup costs from the Government as a result of this.
If the UK border control infrastructure had been fully operational, it is difficult to believe that controls would have been scaled back in order to reduce cost and burden for businesses. It also does not compare favourably when noted that the EU implemented full controls as soon as the Brexit transition period ended.
Presenting the delayed implementation of these important food health checks as a cash saving gesture to the nation is not a helpful gesture for British exporters, who face no such relaxation of checks on moving their goods to the EU. This puts them at a disadvantage against their EU counterparts who will continue to enjoy unfettered access to UK customers.
In addition to the lack of controls creating unequal trading conditions for UK and EU business, failing to impose adequate health controls on imports of food products opens the door to the potential of substandard products entering the UK, some which could possibly be dangerous to human and animal health. Where such products are used as ingredients by a UK manufacturer, they can be sure that their exports to the EU will likely face greater scrutiny than before.
Ironically, a reliance on the EU to control the quality of produce sent to the UK goes against two of the strongest of the UK’s Brexit red lines. Not only will the UK now continue to be subject to EU rules (by default rather than legislatively), the much-desired control of its borders is conspicuous by its absence.
The next target 'deadline' for these checks to be imposed is now the end of 2023, with a promise that the measures implemented then will underpin the UK’s 'world best border on our shore' as part of its 2025 Borders Strategy. However, the repeated failure to implement controls delivers nothing more than an erosion of confidence from businesses who have been led down a very costly garden path too many times already.
Away from these bigger changes, the next deadline faced by UK importers is the need to migrate their import declaration systems from Customs Handling of Import and Export Freight (CHIEF) to Customs Declarations Service (CDS) by 30 September 2022, when HMRC insist that CHIEF will be switched off. This is another very costly and time-consuming exercise which has already been running for several years, and for which many businesses have invested heavily in preparation.
The customs landscape in the UK still has many bumps in the road ahead. Some of these will be gone by the time we reach them, but there seems to be plenty of potential for bumps to turn into craters, despite the best efforts of UK businesses at preparation.
If you would like a review of the customs exposures of your supply chains, please contact Ian Worth for a no obligation initial discussion.
We have obtained new data which has shed a light on duty demand notices issued by HMRC in the three-year period between January 2019 and December 2021.
The data shows that HMRC issued 57,000 duty demands to traders in that period, amounting to £272 million in duty.
When such demands are issued, traders have a period of 30 days in which to challenge the decision, typically through a request for the decision to be reviewed.
The data we obtained shows that there were only 192 reviews relating to duty demands from 2019 to 2021, representing just 0.3% of the demands issued.
However, of the demands which were reviewed, a staggering 49% were either varied or overturned in full, with only 46% of the demands being upheld.
This data again stresses the need to seek expert guidance if you receive a duty demand from HMRC. HMRC are not immune to making mistakes, and it may well be that your demand can be fully or partially contested.
Please contact Ian Worth or your usual Crowe contact if you would like to discuss this further.
The United States and United Kingdom have reached an agreement to suspend the additional tariffs imposed on British steel and aluminium. In return, the UK will remove its rebalancing tariffs which covered various US goods including whiskey, blue jeans and motorcycles, covering $500m of US exports to the UK.
The International Trade Secretary said that the deal had removed a "very frustrating irritant" and commented that the agreement was "good news for the steel and aluminium sectors, which support the jobs of over 80,000 people across the UK".
Steel from any UK steel production facility will be admitted into the US at the in-quota rate under the applicable tariff rate quota (TRQ) for UK steel, unless that quota has been exhausted. The steel must be “melted and poured” in the UK and imported into the United States from the UK or the EU.
The US and the European Union came to a similar agreement in October 2021, with the tariffs on EU steel and aluminium products removed as of 1 January 2022. As part of the same deal, the EU also agreed to withdraw their rebalancing measures against the US that were initially introduced in 2018.
Unlike the EU agreement with the US, the UK deal includes a provision that any Chinese-owned British steel producers will require an audit of their financial records to ensure the company is not benefitting from any Chinese subsidies. The US will also be able to assess the outcome of these audits and disqualify access to the available quota.
When the UK left the EU officially on 31 January 2020, it maintained its retaliatory tariffs against the US, and recently consulted on a proposed new list of products to be targeted. The deal reached by the EU however had put pressure on the UK to come to a similar agreement, with UK steel manufacturers hampered by the competitive edge gained by their EU counterparts.
With the changes coming into effect on 1 June 2022, the deal is welcome news for impacted businesses in both countries.
The Trade Remedies Authority’s (TRA) reconsideration of its steel safeguard review has been ‘called in’ by the UK’s Secretary of State for International Trade on 22 March 2022. The Secretary of State will now to decide whether to vary, maintain or revoke the measure, taking into account the TRA’s Report of Findings.
The European Union first initiated safeguard measures for steel imports in 2019, and the UK maintained the measures upon leaving the EU. In June 2021, the TRA’s initial review recommended changes to 19 product categories. The recommendation was accepted, with 12-month extensions being granted for five of the nine categories originally suggested to have measures revoked completely. In September 2021, the TRA initiated a reconsideration of its decision on fourteen of the categories, which the Secretary of State will now rule on.
Safeguarding measures are “emergency" actions taken by a government with respect to increased imports of particular products, where the imports have caused or threaten to cause serious injury to domestic industry. In this case, they act to temporarily restrict imports of certain steel products through the application of “Tariff Rate Quotas” which allows a certain tonnage of goods to be imported tariff-free until the quota is exhausted for a defined period; steel products imported after the quota is exhausted is subject to additional duty of 25%.
The government’s decision will be of keen interest to UK steel exporters and importers alike. Importers impacted by the measure should ensure they are claiming the available quota wherever possible, and may also want to consider the use of customs special procedures to mitigate the impact of the tariffs.
As of 15 March 2022, the UK government has imposed multiple sanctions on Russia and Belarus, affecting goods that both countries import and export. A list was published by the government outlining goods worth around £900 million which will now be subject to an additional 35% tariff, on top of existing tariffs.
Within this list are some of Russia’s biggest exports to the UK, including metals, wood, fertilisers and vodka. Products also covered are fish and fish products, cereals, oil seeds, beverages, food waste, paper, glass, machinery, ships and boats, art and antiques, cement, tyres, and railway containers, which all now incur the additional 35% duty.
As Russia and Belarus have had their access to Most Favoured Nation tariffs removed for many of their exports, they have effectively been stripped of crucial benefits enjoyed through membership of the World Trade Organisation.
On top of these export sanctions, the UK and the rest of the G7 countries have completely banned the sale of luxury goods to Russia, depriving Russian citizens access to these specific products. The House of Lords Library published that as of 2021, cars were the UK’s largest export to Russia. Many of the UK’s major car brands are deemed to be high-end, and it’s expected that these new sanctions are likely to impact oligarchs primarily. The European Union has also agreed to ban the export of luxury goods to Russia.
Numerous measures have been implemented by the EU to isolate the Russian economy, and they announced (as of 15 March 2022) a ban on imports of steel products originating from Russia. Steel (combined with iron) accounted for €7.4 billion (7.4%) worth of EU imports in 2021, according to the European Commission. To help compensate for this, import quotas on steel have been increased for numerous other third countries. For exporters of Russian steel, this will inevitably be a severe blow to their industry, as the EU is one of the main buyers of their steel products.
A ban on new European investment into the Russian energy sector (not including civil nuclear energy) was another sanction in the EU’s latest package of measures, which includes halting the opening of the Nord Stream 2 pipeline.
While the EU are progressively damaging the Russian economy, there appears to be a general reluctance to ban Russia’s largest import, fossil fuels. Making up 62% of Russian exports to the EU in 2021, it’s clear an outright ban would have devastating effects to both Russia and the EU alike. German Chancellor Olaf Scholz warned during a speech on 23 March that an immediate ban would result in “plunging our country and all of Europe into a recession”.
The UK government also recently announced that goods being exported to Ukraine, with the intention of being used for humanitarian aid, are able to do so under a simplified customs process. This allows certain goods (excluding controlled goods) to travel to Ukraine without delay, so they can reach those in need quickly.
As long as the goods are not travelling through Russia or Belarus, drivers can either make an oral customs declaration, or simply drive through the port if there are no customs control points. This only applies to goods travelling via a small vehicle or within baggage. Goods classed as freight (travelling via HGV or other large vehicle) will still require traders to hold a GB EORI number and be registered for GVMS.
Additionally, the UK government has responded to the request of the Ukrainian government by liberalising all tariffs on imports from Ukraine, extending the benefits currently enjoyed through the UK-Ukraine partnership agreement.
HMRC has responded to recent speculation that the Customs Handling of Import and Export Freight (CHIEF) system for customs declarations may remain operational beyond the stated closure date of March 2023.
In a statement issued on 8 February, HMRC stated that:
“We have been clear that the Customs Declarations Service (CDS) will replace CHIEF by March 2023 and that all users will need to be ready to submit customs declarations on CDS by this point. Additionally, our plans to close CHIEF for import declarations on 30 September 2022 have not changed.”
Speculation that the deadline could once again be pushed out further arose from an article published by The Loadstar, which noted industry frustration with what is seen by some as a lack of HMRC support in transitioning traders from CHIEF to the new CDS system.
One unnamed software supplier source is quoted as predicting that, as it stands, “the switch-off of CHIEF would be an unmitigated disaster”.
An uncovered agreement between HMRC and Fujitsu, which appeared to show that the IT company will keep CHIEF running until 2025, added to the conjecture.
An HMRC spokesperson explained that this was a result of the renewal being part of a broader agreement covering many applications, and consolidating the renewal provided the best value-for-money for the taxpayer. An extensive period of time is also said to be needed to decommission CHIEF, even once all users are migrated and the system has closed.
Traders are advised to continue with their migration plans in earnest, with the expectation still firmly that CHIEF will close for imports in September 2022, and for exports in March 2023.
CDS brings new data elements, in a new order, and along with new business rules, its full introduction will have a significant impact on how UK customs declarations are submitted and managed.
HMRC havs also provided an update on the future of MSS data reports, which can currently be requested by traders on a subscription basis, and give a detailed report of imports and exports declared in their name.
In the long-term, HMRC is still aiming to develop a ‘self-service’ system for traders to obtain their customs data via a Government Gateway portal, but this service does not seem to be on the imminent horizon.
For now, HMRC will ‘translate’ customs data from CDS into a format more akin to the current MSS data reports generated from CHIEF, and the system for requesting and obtaining the reports is likely to remain as it is for a while yet.
If you need help in preparing for the transition to CDS, or in analysing your customs data, please contact [email protected] or your usual Crowe contact.
Much was made from those in the customs world when HMRC
announced that the new Customs Declaration Service (CDS) system would have no
equivalent of the LIC99 code that is facilitated in CHIEF.
With effect from 7 February 2022, document waiver code 999L
may be entered in Data Element (DE) 2/3 to satisfy certain Tariff measures for
goods imported or exported from GB.
This facilitation allows a CDS waiver code to be declared
for prohibited and restricted commodity codes, allowing declarants to confirm
that the goods are not subject to specific licencing measures i.e. a specific
licence is not required to import or export the declared goods.
This eliminates the need to add multiple different document
codes for a single goods item, as would ordinarily be needed where those goods
are subject to more than one licence measure, but are exempt from the controls;
entering document code 999L once will satisfy all measures the goods are exempt
Where a mandatory licence document code is required it must
be entered, and use of 999L for these goods will cause the declaration to fail
validation. This waiver cannot be used for goods that are imported/exported or
moved to/from Northern Ireland.
This code is available for use until 30 September 2023, and
time will tell whether use will be permitted beyond this date.
From the 8 February 2022, the use of EU country code when
declaring goods is changing.
The use of EU country code will be removed for:
Users of CHIEF will see the EU country code functionality
removed from the 8 February 2022 and CDS users have been advised to use the
specific country code with removal coming in the near future. Users submitting
supplementary declarations will need to use the specific country code even if
the tax point date is prior to 8 February.
It should be noted that this change does not impact ‘statements
on origin’ for EU exports, where the text of the statement should still note
that products are of ‘EU’ preferential origin, with specific ‘country of
origin’ information specified elsewhere.
HMRC has called for evidence and is welcoming views on how they can simplify customs systems in the UK. The call for input comes as part of the government’s much-publicised “2025 Border Strategy”, which sets out the government’s vision for the UK border to be “the most effective in the world”.
This call is specifically for those with opinions on:
The evidence is designed to support future changes in how traders and agents navigate UK customs regimes and procedures to make customs simpler, easier and more responsive to all stakeholders’ needs.
More detail on how to submit your views can be found here.
The Department for International Trade has launched a consultation on a new UK-Israel trade deal, seeking the views of business and the public ahead of negotiations starting later this year. The UK is Israel’s third largest trading partner, with £2.7 billion worth of British exports going there in 2020 and an overall trade relationship worth £4.8 billion.
This move follows the UKs trade strategy to improve trading relationships and agreements with non-EU trading partners following Brexit, targeting fast-growing economies with established middle classes, hedging opportunities for improved export markets for high-end exports and professional services.
The consultation aims to establish views on the UK’s current trading relationship with Israel, identifying challenges, constraints and which aspects of the relationship could be changed or improved.
More details on contributing to the consultation, which closes on 30 March 2022, can be found here.
Long lorry queues have built-up in both Dover and Calais as freight attempts to use the UK’s busiest shipping lane in the wake of a string of changes to both imports and exports which came in to effect from 1 January 2022.
The appearance of queues at Dover are particularly surprising as the majority of full customs controls for export to the EU had already been introduced on 1 January 2021. There have, however, been a few more subtle changes to exports that could help to explain the images in the media over the last two weeks.
Arguably the key contributing factor for the queues spilling out of the port of Dover and the Eurotunnel are the new exporting requirements for using the UK government’s new GVMS system. This is a new system implemented on 1 January 2022 and it’s safe to say there have been more than a few teething problems. Reports state that each lorry is taking approximately 15 minutes to be ‘booked in’ at the entrance to the port of exit, which is naturally causing a backlog. Just-in-time supply chains are simply not designed for regular points of friction.
GVMS has also brought in the requirement when moving goods through Dover or the Eurotunnel (in particular) to gain P2P by submitting an ‘arrived export declaration’ with Additional Information (AI) statement ‘RRS01’. This has seemingly caught out a lot of customs agents and freight providers at the beginning of January, and all it takes is a couple of vehicles to have their declaration filled in incorrectly to block up a ‘booking in’ lane at the port entrance.
A large number of operators in the road freight industry are reporting that one potential reason for the build-up of freight traffic is a shift in the operational hours of some key players required in order to import goods into the EU.
Owing to the need for every shipment to be both exported from the UK and then imported into the EU, many are finding that in order to export their goods to the EU, they are reliant on their agents on both sides of the channel to be able to process their declarations (and any subsequent checks) at the point of loading. Many are finding that agents offer a limited service at weekends, thus traffic that prior to Brexit may have crossed during the weekend is now adding to the Monday to Friday workload.
While Dover is experiencing queues, the same can be seen in Calais, with many reporting that the queues were as long as 30km in early January. This can be directly correlated to the UK implementing full import declaration requirements as of 1 January 2022 along with new requirements on timings for pre-lodging declarations and notifying DEFRA of Products of animal origin goods.
It’s also worth noting that these delays have the potential to get worse when the biometric requirements are implemented in September this year. The Port of Dover has estimated that this will add a potential two minutes per passenger and, if additional times for freight check-ins are there, this could compound the delays further.
Finally, it is also worth noting that over 17% of the UK’s global trade crosses the Straits of Dover, accounting for an estimated £117 billion 1, and any increase in volume plus additional friction is always going to create a backlog, particularly on time sensitive roll-on, roll-off movements
1 International Road Freight Statistics, United Kingdom 2020 (publishing.service.gov.uk)
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 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.
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.
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.
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.
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.
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.
The Chancellor has, therefore, offered a range of other incentives for businesses operating in a freeport, including:
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.
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.
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.
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.
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 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 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.
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:
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.
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.
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.
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.
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.
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:
“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.
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.
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, 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.
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.
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.
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):
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.
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:
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:
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.
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.
Anti-dumping duty demand - UK manufacturer
Customs valuation error
£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.
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.
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.
£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.
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.
Brexit one year on
VAT for corporates:
Importing and exporting after Brexit
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