From 1 January 2021, Northern Ireland left the EU along with the rest the UK. However, due to the requirements of the ‘Northern Ireland Protocol’, Northern Ireland remains aligned to the EU rules on goods (but not services) and remains part of the EU VAT system also.
Even though a Free Trade Agreement (FTA) has been settled between the UK and the EU, there will be new administrative requirements to fulfil.
The UK Government has published the latest version of its Border Operating Model which sets out information on importing goods into the UK from the EU and exporting goods from the UK to the EU as from 1 Jan 2021. The Border Operating Model also sets out information on businesses moving goods to and through Northern Ireland.
Below we answer the frequently asked questions on customs post-Brexit and key considerations of the operating model.
Q: What about moving goods to and through Northern Ireland?
Although Northern Ireland has left the EU, due to the requirements of the Northern Ireland Protocol, Northern Ireland remains part of the EU VAT system too. There will be new paperwork requirements when moving goods from the rest of the UK into or out of Northern Ireland from 1 January 2021 and for movements of goods between Northern Ireland and the EU.
Businesses will need to notify HMRC that they are trading goods covered by the Protocol and such businesses need to apply EU rules and use a special ‘XI’ VAT number prefix instead of GB for these goods.
The Protocol requires there to be customs entries when moving goods between the rest of the UK and Northern Ireland and the Government has set up a free Trader Support Service to help with this. Businesses will need to apply for a special ‘XI’ EORI code with HMRC to complete entries and as a condition of entering such goods onto ferries etc.
The EU simplifications on VAT will still apply to some movements involving Northern Ireland.
Q: Will customs duties still apply?
The FTA with the EU envisages zero tariffs on most goods moving between the UK and the EU and this removes many of the customs duties. However, the FTA only applies to goods that originate in the UK or the EU.
Where goods themselves originate outside, or are largely comprised of products that originate outside of the EU, then duties can still apply (depending on the UK’s arrangements with the country they originate in).
For Northern Ireland businesses, this should mean that UK origin goods can travel from Great Britain into Northern Ireland largely without any tariff. Similarly, EU origin goods can be moved into Northern Ireland without any customs tariff.
Therefore, businesses will need to put processes in place to demonstrate the origin of the products. Specifically, for Northern Ireland manufacturing businesses, their goods should be able to access markets in both Great Britain and the European Union without tariff.
Q: As we are going to have to do customs declarations from 1 January 2021, what will everyone exporting to the EU have to do?
Customs procedures, such as export and import declarations, will now be required regardless of whether a customs duty will apply under the Free Trade Deal.
Typically, a GB business will be the exporter of the goods from the UK (although it is possible for the EU customer to take that role in some circumstances). As the exporter, the seller must ensure that export declarations are lodged with Customs and that any necessary export licences are obtained for controlled goods.
But the seller’s responsibilities may not stop there: depending on what Incoterms are being used, the seller may also have responsibilities in the EU member state the goods are sent to.
Similarly, a GB business moving goods into Northern Ireland will have customs paperwork to complete. Northern Ireland businesses can be responsible for the paperwork, dependent upon the Incoterms used.
For Northern Ireland based businesses, their goods can move into GB and EU markets without customs declarations. The exception being, where a NI business has a warehouse/facility in GB and their goods move from GB to EU, in which case the ‘general’ UK/EU customs procedures will apply.
Q: What are Incoterms?
Incoterms are a set of globally-applied standard trading terms which help facilitate global trade between contracting parties – the seller and buyer.
Typically, they assign responsibilities to either party. They will therefore define who is to complete the export and import declaration respectively and who is responsible for paying import VAT and any Customs duty.
Q: How do Incoterms affect what your VAT or customs duty responsibilities are?
Different Incoterms in the sales contract create different customs duty responsibilities. For example, if the sale contract uses the incoterm ‘Delivered Duty Paid’ (DDP), where the seller is based in GB and the buyer is in EU, the seller will need to complete both the UK export customs declaration and the EU import declaration. They will also need to pay the import VAT and any duty. This arrangement is also likely to lead to a requirement to register for VAT in that country. But where the sale is on a Delivered At Place (DAP) basis the customer is the importer. And for sales on an ‘Ex Works (EXW)’ basis the buyer has to complete the UK export declaration as well as the EU import declaration.
Q: What happens if our customer does not want to do the EU import declarations?
It is not uncommon for an EU based customer not to want to go to the trouble and expense of being the ‘importer of record’. If they won’t, you have two options: engage a freight forwarder or other customs agent in the EU country, or your own business can become the EU importer of record in that country. Make sure to update your agreed Incoterms if required, so there is no mismatch between contractual terms and reality.
For Northern Ireland based businesses, this will not be a requirement where their goods move from Northern Ireland; except where a NI business is moving their goods from GB into the EU.
Q: What are the pros and cons of using a freight forwarder or local agent?
Using an ’indirect representative’ means that they will lodge the declaration for you in their own name and just send you the customs duty bill to pay.
But, whoever takes on the role of ‘importer of record’ in the EU country will become jointly and severally liable for any VAT or customs duty that is not paid on time. So if you do not already have a good working relationship with a freight company, it may prove difficult and possibly expensive to appoint one as ‘indirect representative’. It should not be difficult, however, to find an agent willing to act as your ‘direct representative’ where the liability for the customs debt rests entirely with you as the principal.
Q: Could we lodge the declaration ourselves for the EU country?
Yes, but you need to have a European Economic Operator Registration and Identification (EORI) number. In addition, if you don’t have an EU established ‘indirect representative’, you need to have a permanent business establishment somewhere in the EU, for example, a subsidiary or in some cases a branch of your UK business.
Northern Ireland based businesses should not need a ‘GB’ EORI number to trade with other EU countries.
Although the definition of ‘permanent business establishment’ for customs duty is different to the corporation tax definition of ‘permanent establishment’, clearly, having a local branch or company will bring many practical, administrative and tax issues (VAT, business taxes, payroll taxes etc.) to the fore. Therefore, using a freight forwarded or local agent will be a more practical solution in the short term.
Q: What happens if we act as the importer into the UK?
The EU exporter would complete the EU export declarations and you or your agent would need to complete the import declarations. If you have not completed import declarations before (i.e. have never imported from non-EU countries), the most important issue is to get the origin, value and identification of the goods right so that you pay the correct customs duty.
If you are going to do your own customs declarations in house, it is vital that you have the necessary interfaces with HMRC’s declaration system and that your team are properly trained – errors on the declaration will cause delays and additional costs. The Government is providing grants for customs duty training.
Q: Can we use an agent to do our import duty paperwork?
Of course, your agent can act as either a Direct Representative (lodging the declaration in your name and GB EORI number), or an Indirect Representative (lodging the declaration in their own name and their own GB EORI number). Again, an Indirect Representative will have joint and several liability for the customs debt.
Q: When does the import duty have to be paid?
Whilst the FTA means that most imports of goods from the EU will not have Customs duty on them, duty could still be payable if the goods originate outside of the EU (or even if they comprise of components from outside the EU). Any Customs duty that is payable is due when the goods enter the UK customs territory unless a duty deferment account is in place and/or a duty relief is claimed.
Conversely, EU tariffs can apply when GB businesses sell goods into Northern which if the goods originate outside of the UK (or even if they comprise of components from outside the UK).
Q: How do the import duty reliefs work?
The main principle is that reliefs suspend the date at which customs duty is payable. For example, for Customs Warehousing relief, duty is not paid until goods are removed from the warehouse and go into circulation in the UK: if goods are re-exported directly from the warehouse, no UK duty is payable. Temporary admission relief works in a similar way. Inward processing relief can apply where goods are brought into the UK, worked, adapted or used as components in other goods and then re-exported (to the EU or the rest of the world): again no customs duty is payable until the processed goods enter the UK market.
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