Helpful Information

Incoterms are not a customs issue but they have a bearing on how customs processes take place, what is applied and who is responsible for what.

Getting your Incoterms right is an essential step in your Brexit preparations and is, in fact, one of the most important initial steps. Conversations need to take place between buyers and sellers so that commercial agreements can be updated.

There are many different Incoterms and you should choose those most relevant to what you want to achieve (and what you want to agree). Most are still more suited to ocean freight but this does not mean that they cannot be applied successfully to road freight or even to short sea container traffic.

Here is a link for more information on Incoterms from the ICC:
https://iccwbo.org/resources-for-business/incoterms-rules/incoterms-2020/

DDP will make you both the UK exporter and EU importer and require you to obtain fiscal representation and pay EU VAT in the country of delivery. This is both expensive and complicated. We suggest DAP terms as an alternative. The EU importer becomes responsible for the EU VAT, duty and customs clearance.

Ex-Works takes the responsibility of making the UK export declaration away from the exporter. This is dangerous. If the EU importer does not get the UK export declaration done, no MRN will be generated and the goods should not be collected from the loading point. Also and more importantly, the export declaration is needed to prove the goods were exported, allowing you to zero-rate the UK VAT on your export commercial invoice. If the export declaration is not done and the goods are exported, you will be liable for the UK VAT element.

You will need an 8 digit commodity code to make your customs declaration when you bring goods in or send goods out of the UK or EU. This includes goods sent to you from abroad.

If you classify your goods correctly, you’ll know what rate of duty and import VAT you should pay, and if;

• The duty is suspended
• You need a licence to move your goods
• Your goods are covered by:

- The Common Agricultural Policy
- Anti-dumping duties
- Tariff quotas

It’s therefore very important to make sure you and/or your EU supplier are using the correct commodity code for the goods being shipped.

Classifications can be found online at: https://www.gov.uk/trade-tariff

However, some goods are difficult to classify. HMRC has classified the below goods as problematic for classification purposes:

Aircraft parts, audio and video equipment, ceramics, computers and software, edible fruits, nuts and peel, edible vegetables, roots and tubers, electric lamps, footwear, herbal medicines, supplements and tonics, iron and steel, leather, monitors, organic chemicals, pharmaceutical products, placebos and comparators, plastics, rice, textile apparel, tobacco, toys, games and sports equipment, vehicles, parts and accessories, wood.

You should first search the “EU Binding Tariff Information (EBTI) rulings” on the Europa.eu website to see if a decision has already been made on a similar product.

If you still cannot find the right commodity code for your goods, you can contact HMRC for advice or for a decision on your goods. You can do this in two ways.

You can use HMRC’s Tariff Classification Service to get non-legally binding classification advice. HMRC will respond to your email within 5 working days. Use this method for a quick and informal decision.

You can apply for a Binding Tariff Information decision. This is a legally binding decision on the commodity code to use for your goods and can take between 30 and 60 days to be processed.

The presentation of an import entry will require the payment of VAT and duty (if applicable).

A duty deferment account lets you make one payment a month through Direct Debit instead of having to pay the duty on individual consignments as they arrive in the UK.

You can apply for a duty deferment account if you are an importer and have an authorised guarantee in place.

HMRC have intonated that a guarantee may not be needed from 1st January 2021. At the date of this publication no further guidance on this point has been made available by HMRC.

No, but you will have to pay a fee to the customs agent to use theirs. The agent would typically ask for immediate payment or even payment in advance in some cases. They are likely to charge an admin fee (c.£20) and an advancement fee (c.2-3%). So additional costs, immediate payment and potential for delays. Having your own
deferment account can avoid most of these.

Having your own deferment account means that you will have up to 45 days extended payment terms and the only costs you will incur are those from your bank.

You apply to Customs. You will need to calculate your maximum duty liability in a given month, double it and organise a bank guarantee to cover that figure.

When an import entry is made and the goods eventually arrive in the UK, the system will immediately look for the default payment method (deferment account most commonly). If there is insufficient credit balance in the account at that time the import entry will fail. The entry will not clear unless and until you have increased your deferment limit or substituted for alternate means of payment e.g. cash or agent’s deferment account. It is therefore important to request a deferment large enough to cover your seasonal monthly peaks.

A CPC is a required field on a customs entry. Your customs agent cannot simply guess it if you fail to provide it. If they do, your shipment might be entered into the incorrect customs procedure, attracting a fine and unnecessary duty payments.

The CPC is completed at export as well as import. It is based on a 2-digit community code which identifies a customs procedure, e.g. removal from warehouse, entry to free zone or export under Outward Processing Relief (OPR). The CPC is built up into a 7-digit code from this.

For example, if your shipment is a permanent export to the EU, the CPC will be 10. If however your export is a temporary one for return to the UK in an unaltered state, the CPC would be 23.

There are almost 30 CPCs. If your shipment is a permanent export or import your CPC code will remain the same each time. Any non-permanent export or import will require a specific code to place the shipment in the correct customs regime.

Here is a link to view the current CPC codes:
https://www.gov.uk/government/publications/uk-trade-tariff-customs-procedure-codes

There are also customs reliefs that companies can apply for now. These reliefs are designed to allow companies to pay less or no duty on imports and exports from and to non-EU countries. Two that might be of particular interest are inward / outward processing and customs warehousing.

Inward and outward processing allows companies to get relief from customs duty and import VAT on goods that are imported from outside the EU but then processed in the UK before being exported again and vice versa. The relief is available for everything from repacking or sorting goods to complex manufacturing processes.

Customs warehousing could also prove useful if companies need to start storing more parts and components during the manufacturing process. The relief allows traders to store goods with duty or import VAT delayed. Goods can be placed in a customs warehouse even if the final destination of the goods is not known at the time they are imported. Each of these reliefs can be applied for now, so that the benefits can be applied to non-EU trade, with a view to extending the relief to EU consignments once the final trade deal outcome becomes clearer.

Put simply, rules of origin are how customs authorities classify where an export has come from in international trade. The country of origin is a required field for the customs declaration and should be stated on the commercial invoice.

HOW WILL RULES OF ORIGIN AFFECT UK-EU TRADE POST-BREXIT?

There are two main ways:

Preferential rules of origin: If the UK and the EU agree under a free trade agreement (FTA) to remove tariffs for each other’s goods, this grants a preference not provided to others. UK goods seeking to enter the EU under this preference will have to prove that they are from the UK under particular rules agreed in an FTA. This prevents a country without a trade deal from accessing the EU market through the UK and vice versa.

Non-preferential rules of origin: Outside a customs union, all UK exporters will still have to declare the origin of their goods when trading with the EU. This is used by importing countries to protect their producers and for other monitoring purposes. For instance, if the UK or EU felt that imports are unfairly damaging its own producers, it could apply a temporary tariff to the import. In this case, the EU or the UK would need to differentiate the origin of the import it wished to apply duty to so it did not apply tariffs to another country.

The 2013 Trade and Investment Balance of Competence Review stated that “British firms would be exposed to a combination of administrative and compliance costs linked to rules of origin, ranging (based on existing estimates) from 4 percent to perhaps 15 percent of the cost of goods sold.”The complexity of supply chains can mean that proof of origin can be difficult for traders to supply and hard for authorities to assess.

The first need is to determine what good is being traded. The World Customs Organization has a list classifying every product traded under tariff headings. Each product has a unique code which is grouped into broader categories. Once the good is classified, the next step is to establish its “economic nationality as opposed to simply the country it came from. This involves determining the good’s value and where the contributions were made in adding value to the final product (see “sufficient value-added” below).

If all materials were obtained and processed in one state, it would be “wholly obtained in that country. That would apply, for example, to agricultural produce and natural resources.

A car has multiple components: bumpers, brakes, clutches, computer software, leather seats and rubber tyres, etc. These can be made in different countries and shipped as needed to be assembled into the final product. With multiple components adding value, it can be very difficult to determine origin for some products. In this case, the final product is determined by the location of the “last substantial transformation.”

The precise rules are detailed and can change for each product depending on what is agreed in an FTA.

Typically, for preferential origin, around 50%+ of value has to be added to claim origin. Post-Brexit, what was once European value-added will have to be separated into UK and EU value-added. That will make it harder to reach the threshold to export to the EU without tariffs.

Do you have a UK EORI number?
Do all of your European customers/suppliers have an EU EORI number?
Do all of your European customers/suppliers have a preferred customs agent to make the EU import entry for them?
Do all your European customers have a deferment account?
Are you able to provide a copy of the export commercial invoice 24 hours prior to the collection date?
Have you authorised VanGo in writing to act on your behalf with HMRC as a Direct Representative?
Have you agreed Incoterms with your EU customers/suppliers?
Do you know the implications of incoterms DDP and Ex-Works from 1st January 2021?
Have you identified the correct commodity codes for all your products?
Have you made the necessary changes to your export commercial invoices to allow an export declaration to be made?
Are your export pallets ISPM15 compliant?
Do you know what CPC (Customs Procedure Code) will be applied to your export shipment?
Are you sure that your goods can be classed as being of UK origin?
Are you 100% sure that your goods will be classed as standard goods?

Are you aware that TSP (Transitional Simplified Procedure) was a No Deal easement and is currently not available?
Have you got a UK EORI number?
Do all your European suppliers have an EU EORI number?
Do all your European suppliers have a preferred customs agent to make the EU export entry for them?
Are they aware of the changes required to their commercial invoice to allow the EU export and UK import declaration to take place?
Do you know if the goods you import from the EU are classed as standard or controlled?
Have you authorised VanGo as your Direct Representative?
Have you agreed incoterms with your EU suppliers?
Do you know the implications of incoterms DDP and Ex-Works from 1st January 2021?
Have you checked the commodity codes on your EU supplier’s invoices?
Do you know if their goods will attract duty when they arrive in the UK?
Do you have a means to pay this duty?
Do you know how to apply for a DAN (Deferment Account Number)?                                                                                                                                                                        Do you know how the UK import VAT needs to be accounted for?
Do you know what CPC (Customs Procedure Code) will be applied to your import shipment?
Are you aware of the different customs regimes to suspend or eliminate duty on your imports?
Do you know what import duty reliefs are?

In the absence of a Free Trade Agreement between the UK and EU, UK exporters will have to trade with their EU customer on WTO terms. Some of our exports will be subject to duty.

The WTO is the place where countries negotiate the rules of international trade - there are 164 members and, if they do not have free trade agreements with each other, they trade under 'WTO rules'

Every WTO member has a list of tariffs (taxes on imports of goods) and quotas (limits on the number of goods) that they apply to other countries with which they do not have a deal. These are known as their WTO schedules. The average EU tariff is pretty low (about 2.8% for non-agricultural products) - but, in some sectors, tariffs can be quite high. Under WTO rules, cars would be taxed at 10% when they crossed the UK-EU border after the end of the transition period. And agricultural tariffs would be even higher, rising to an average of more than 35% for dairy products.

46% of all UK exports in 2018 went to the rest of the EU as part of the single market and the customs union. That is down from 55% in 2006, but the EU is still by far the largest UK export market.

So, going to WTO rules for trade with the EU - without any other deals in place - would be a huge change. And UK companies would be having to deal with that change at the same time as trying to recover from the impact of coronavirus.

It is not a catastrophe having to trade with the EU under WTO rules but it will impose a number of adjustments and those adjustments can be painful.

Also under the WTO's Trade Facilitation Agreement (TFA), which came into force in 2017, the EU is obliged to treat the UK fairly.

But the TFA is aimed primarily at less developed countries and it seeks to encourage transparency and streamline bureaucratic procedures.

It does mean the EU cannot discriminate against the UK, but it does not mean the UK can expect to be treated in the same way that it is now. The UK would be treated like any other third country - and in the absence of any agreement, that means tariffs, border checks and other barriers to trade.

On Tuesday 19th May 2020 the UK’s ‘Global Tariff’ was published. These are the tariffs that will apply to any products that the UK imports on a Most Favoured Nation (MFN) basis from 1st January 2021 when the UK is no longer bound by the EU’s Common External Tariff.

Tariffs on around 2000 products have been fully eliminated, almost doubling the number of tariff-free products compared to the existing EU MFN schedule. A further 40% of tariff lines have been ‘simplified’ meaning that they have either been rounded down to the nearest standardised band or have been converted from specific duties into simple percentages. And just under 10% of tariff lines have been converted from being expressed in € to being expressed in £ using an average exchange rate over the last 5 years. This conversion also entails some degree of simplification, as specific duties have been rounded down to the nearest £, and for two-part duties, which include both a percentage tariff and a fixed charge, the percentage component has been rounded down to standardised bands.

It's also important to remember that, under the WTO's 'most favoured nation' rules, the UK couldnt lower tariffs just for the EU (or any specific country) without doing so for the rest of the world, unless it had agreed a trade deal, or as part of a transition to that deal.

To check ii your EU imports will be levied with a duty, enter the commodity code into the below website;
https://www.gov.uk/check-tariffs-1-january-2021

The UK has announced that - with or without a deal - checks on EU goods coming into the UK will be phased in next year to give firms "time to adjust".

Traders will have an option till 1st July 2021 to make import declarations and pay any duties.

The EU has not announced anything similar on goods going in the other direction.

The possibility to postpone the lodging of import declarations and related duty payments for UK imports of standard goods in the first half of 2021 may be a good option for companies less prepared for the Brexit. You should also consider the benefits of lodging a full import declaration, as it requires no follow-up or declaration filing after the arrival of the goods in the UK.

The UK government will re-instigate PVA, Postponed VAT Accounting from 1st January 2021. Instead of paying import VAT at the point of clearance/UK entry, businesses can declare their import VAT in their next return with a “reverse charge “offset.

This means that no cash payment has to be made to HMRC for UK VAT registered businesses. This scheme will also allow the postponement of import VAT for global freight movements. You do not need to be authorised to account for import VAT on your VAT Return and can start doing so from 1 January 2021.

YOU CAN ACCOUNT FOR IMPORT VAT IF:
• The goods you import are for use in your business
You include your EORI number, which starts ‘GB’ on your customs declaration
You include your VAT registration number on your customs declaration, where needed
• Where import VAT is included on your VAT returns, it should be done so as follows: -
- Box 1 - Include the VAT due in this period on imports accounted for through postponed VAT accounting.
- Box 4 - Include the VAT reclaimed in this period on imports accounted for through postponed VAT accounting.
- Box 7 - Include the total value of all imports of goods included on your online monthly statement, excluding any VAT.

There are several situations where new customs charges due after 1st January 2021 may be reduced or have their payment delayed. You should check the procedures you are currently processing goods under as they may qualify for reliefs with some simple planning. The scenarios and related procedures include:

• HMRC-approved customs warehouse, where your goods may be held without clearing into free circulation in the UK and incurring import and VAT liabilities.
• Inward processing of goods, when goods are brought into the UK for local processing or finishing and then exported to another country.
• Duty suspensions and tariff quotas which give temporary duty suspension on raw materials, components and semi-finished products which cannot be located elsewhere in the UK.
• Temporary Admission procedure which covers samples, professional equipment or materials for exhibition and auction.

A freight forwarder is an entity that takes care of the complexities of international transportation. including, but not limited to, negotiating borders and customs processes.

A haulier is a company that transports goods by road, often on behalf of freight forwarders.

Free flowing EU trade has made it easy for hauliers to work directly with traders because freight forwarding expertise has not been needed. This is about to change.

• A to F is the current “free-flow” movement of goods between UK and EU. 1-6 are the additional requirements brought about by Brexit. 
• A good way to look at this is a haulier would look after D and E, whereas a freight forwarder would manage steps 1-6. They may be one in the same but you should not assume that your haulier is also a freight forwarder. 
• The customs paperwork is the easy part of the process. The real art is the management, sequencing and administrative controls that make steps 1-6 work. The ability to handle this 24 hours a day needs to be considered. 
• Working directly with hauliers may help traders to reduce their transport costs. A freight forwarder will always have to apply a small margin for the value they add. The value they add from 2021 and beyond will be immense. 
• Make sure if you are working directly with a haulier that they have knowledgeable staff in place to manage steps 1-6. If they do not, the collection and delivery of your goods will be delayed.

The following details must be shown on any invoice/pro-forma/commercial invoice.

These are non-negotiable and different regulations apply to each country. These are the current requirements/legislation for the UK and must be adhered to with no exceptions;

• Name, address, EORI and VAT number of the exporter (both numbers clearly stated)
• Name, address, EORI and VAT number of the importer (both numbers clearly stated)
• Number of pieces
• Description of goods
• HS/Customs commodity code
• Gross AND net weight (may also be mentioned on packing list but MUST show either gross or net weight on invoice and clearly stated which, this is in addition to remaining other weight shown on packing list and clearly stated which)
• Type of packaging (box, pallet, package, IBC, colli etc)
• Currencies of the invoice clearly stated
• Price per item AND total price of the invoice
• Incoterm and place
• Invoice number and date
• Country of origin of the goods (must be specific i.e. not just EU)

Polite Request: Please do not submit any invoices that do not have ALL of the items contained therein as listed above. We are experiencing an overwhelming throughput of documentation and the onus for commercial documents to be compliant and correct lies with the two main parties involved (exporter & importer or seller and buyer). We will of course help if there is any ambiguity over certain items and happy to help. But if you can assist with easing the burden it would be greatly appreciated. We are receiving an influx of documents that are clearly nowhere near compliant and this can be easily checked against the above checklist before submitting to us. If the information is missing, please address this with your supplier to amend and re-issue the document(s) before submission. This will save us all (you and us) from many hours of unnecessary admin and allowing us to concentrate on getting things moving.

Once we receive the invoice(s) and packing list(s) we will then check for compliance.

Whilst we check each document for inaccuracies to the best of our ability, we cannot be held accountable, liable or responsible for any errors or omissions contained therein. As previously mentioned the legal responsibility rests with the exporter and importer (buyer and seller), but in relation to the trading between our two companies, you are, as the bill payer/principal accountable for any additional costs arising from non-compliant commercial documentation causing transport and/or customs related delays.