Importing goods into the UK from the EU, the US, China, or other areas of the world can be complicated. Ten months after the UK left the Single European market, customs rules and processes are still in flux as the UK Government implements a phased approach to aligning customs procedures outside the EU.
New and existing importers must know what steps to take and which to avoid to get their goods across the UK border effectively and efficiently. Mistakes in the import process can mean you miss out on reduced rates of duty, and/or your goods are delayed or seized by customs. Clearly, this costs you time, money and damages your reputation.
In this article, we explore five common errors to avoid when importing goods into the UK.
The commodity code given to you by your overseas supplier may not be the right one for the goods you are buying. You should always check it before you use it in your import declaration. As the importer, you are responsible for using the correct commodity code.
Commodity codes are used to classify goods being imported (or exported). You will sometimes see them called HS (Harmonised System) codes. They’re the same. Getting the right code is important to ensure compliance with customs declarations and that the correct import VAT and duties are applied. Using the correct commodity code is also important to ensure any relevant legal or safety regulations are adhered to when importing products that might be dangerous or restricted.
By using an incorrect commodity code, you run the risk that your goods are seized or delayed by customs. If they are, you will face storage charges and possibly fines. You might pay incorrect VAT or duty and if you pay too little you could be liable for extra fees and charges. Furthermore, if HMRC finds incorrect commodity codes in a post-import audit, they could seek penalties on top of claiming any duties that were incorrectly assessed.
Not having proof of origin can lead to complications at the border, missed opportunities to reduce duty liability or delays and penalties for non-compliance.
Rules of origin (ROO) are used to determine if products are eligible for duty-free or reduced duties under a free trade agreement such as the Trade and Cooperation Agreement (TCA) between the UK and EU. The rules allow goods that may contain non-originating (non-FTA) components to claim originating (FTA) status. The rules determining country of origin can be very simple if a product is wholly grown or manufactured and assembled primarily in one country. However, when a finished product includes components that originate in many countries, determining origin can be much more difficult. Rules of origin are detailed and specific. They vary from agreement to agreement and from product to product.
How does this relate to the EU-UK Trade and Cooperation Agreement? There is still a misconception among some businesses that they can automatically claim preference on any goods imported from the EU and that, as result, they do not have to pay duty on them. That’s a dangerous mistake! In order to be considered ‘originating’ under the TCA, and to qualify for a reduced rate of Customs Duty, products must be sufficiently worked or processed within the countries listed in the TCA agreement. Simply put, origin is based not on where the goods are shipped from, but where their value originates: usually, this is the last place of ‘significant transformation’.
Proof of origin is used by the importer to show that the goods qualify as ‘originating’ and are therefore eligible to claim preferential tariffs (e.g. 0%). In the EU-UK TCA this proof can be either:
– a statement of origin completed by the exporter on an invoice, or any other document including a commercial document
– knowledge obtained and held by the importer that the goods are originating in the EU (if importing to the UK, or UK if importing to the EU)
Some products are subject to preferential and non-preferential tariff quotas that allow a certain quantity of goods to be imported into a country at a reduced or zero rate of duty. Importers can miss this opportunity to reduce their costs by not doing the necessary checks.
To benefit from the lower rate of duty an importer must claim a tariff quota when the goods are imported. When a preferential or non-preferential quota is exhausted, imports will be subject to the full rate of duty. To benefit from preferential tariffs when importing into the UK, you will need to:
– claim preference on your customs declaration
– declare you hold proof that the goods meet the rules of origin
A customs valuation determines the amount of Customs Duty and Import VAT to be paid by the importer. There is one primary method of valuation and five secondary methods which must be used in descending order, they are:
(i) The transaction value (the primary valuation method and used on 90% of all imports) – The transaction value is the “price actually paid or payable”by the buyer to the seller for the goods when sold for export to the EU, adjusted in accordance with specific rules.
(ii) The transaction value of identical goods (secondary) – for goods which are the same in all respects including physical characteristics, produced in the same country as the goods being valued, or produced by the producer of the goods being valued.
(iii) Similar goods – closely resembling the goods being valued based on similar materials and components and have the same functionality, and are produced in the same country as and by the producer of the goods being valued.
(iii) Deductive value method (secondary) – calculated on the basis of the unit price at which the imported goods, or identical or similar goods, are sold in the EU to an unrelated buyer in the greatest aggregate quantity.
(iv) Computed value method (secondary) – the most complex method. Value is based on:
– Production and material costs and,
– Costs of transport, loading, handling and insurance, up to entry into the EU and,
– Profit and general expenses equal to those usually reflected in the sale of goods of the same class or kind.
(v) Fall-back method (secondary) – used when none of the above methods apply. It reverts back to previous methods but uses more flexibility when utilising the other methods.
A number of situations where a customs valuation is not straightforward include:
– When a business is transferring stock from one international site to another, there is no sale and, as a result, transaction value cannot be used
– Samples, replacement goods, free of charge items
– When a sales agent is used
An incorrect valuation can lead to Customs imposing or estimating a real value for goods which results in a higher valuation and an increased duty and VAT payment. In addition, the shipment could be stopped and/or confiscated.
When making an import declaration, the importer may be able to make a simplified frontier declaration – this allows them to enter goods into a customs procedure without the need to provide a full customs declaration at the point of release. By requiring less information it has been designed to reduce time and administration at the border. Importers must meet certain conditions. Once met, HMRC authorises the importer to use simplified procedures.
The importer must submit the supplementary declaration after the simplified declaration to make up the ‘gap’ in HMRC’s information. This allows the importer to delay sending some information about the goods (for non-controlled goods only) for up to 175 days after import, reducing the burden at the point of import. The supplementary declaration provides Customs with more information about the goods, VAT liability and Customs Duty payable.
Failure to complete the supplementary declaration on time, whether a genuine mistake by the importer, a mis-understanding of what is required and when, or not knowing how to file a Supplementary Customs Declaration can lead to fines for non-compliance.
If you have been importing goods from the EU during 2021 it is quite possible you have been using this system – you may not know that you have been. If so, you will be required to submit Supplementary Declarations or risk penalties. You should check with your agent, or whoever is responsible for your declarations, to ensure your business has this covered.
Incoterms are a set of 11 internationally recognised rules which define the responsibilities of sellers, buyers and shippers. Incoterms specify who is responsible for paying and who carries risks at different stages of the shipment process. They cover shipment, insurance, documentation, customs clearance, and other logistical activities.
As a result, you must know your Incoterms and agree with your supplier the specific term to be used. This will ensure both parties are clear about who exactly is responsible for a shipment throughout the whole shipping and handling process.
Unfortunately, suppliers and importers (particularly new importers) sometimes agree on a particular Incoterm without fully understanding who is responsible for what during the shipping process. This can lead to misunderstandings between parties leading to delays, extra cost, mispriced contracts and double charges.
The rules for importing goods into the UK have changed and continue to change.
By carrying out good due diligence to ensure correct preparation for import of your goods, maintaining close commercial relationships with the appropriate partners such as an import agent, freight provider, customer and supplier, clearing customs for imported goods will be more straightforward, efficient and cost effective.
clearBorder’s Border Ready training gives you the knowledge to manage the process with confidence. And for everything else clearBorder Support is your trusted, independent source of advice to take the stress out of international trade.