By Martin Meacock, Descartes, Director Product Management, Customs Europe
Brexit Knots Untangling

Six months on since Brexit formally came into effect, and current indications are that the UK’s exit from the European Union will cause many a headache for import compliance managers for years to come.

For example, customs declarations deferred for EU shipments right now under transition arrangements will become mandatory soon. And British customs authorities are beginning to remind shippers that they need to start filing earlier than later to avoid a documentation backlog, penalties and worse. Meanwhile, claiming preferential rates is deemed to be too complex and many companies are preferring to pay their duty bills now in favor of reclaiming the money later.

And in a non-Brexit move, but which nonetheless complicates the situation even further, the EU on July 1st is abolishing its Low Value Consignment VAT Relief, affecting ecommerce operations the most.

Customs declarations for EU shipments into the United Kingdom

Shipments from the EU into the UK movements are still subject to staged controls meaning many goods can move without a customs declaration at the time of import, effectively deferring the declaration until a later post-import point. This will continue until 1st January and so the full effect of Brexit may not be felt until a customs declaration has to be filed either before the goods leave the EU or on arrival unless the importer or their broker has availed themselves of an authorization to operate simplified procedures.

Also delayed until 1st January is the need to lodge safety and security declarations for goods coming from the EU, which may be another shock to hauliers who until then have only had to concern themselves that the goods they carry were cleared for export. Unlike the import declarations though, there is no need to subsequently lodge a security filing.

What is lurking just out of view, however, is the number of imports made during the first six months of 2021 that now need to be declared starting 25th June with a rolling 175-day deadline from the time of import to submission of the declarations. UK Customs has started to issue reminders and have plans on how to identify what imports need to be declared. And with the threat of penalties for not complying with the deferred declaration procedure, this is an area that could come to bite those who, on the face of it, did not experience any friction following Brexit.

Shipments from the UK to the European Union

Going the other way from the United Kingdom into the EU, these movements have already been subject to both export and import declarations from 1st January 2021 as well as the need to lodge Safety and Security filings before the goods leave the UK. While many traders have established the mechanisms to ensure this goes as smoothly as possible, it is not without its challenges.

The EU-UK Trade and Co-operation Act (TCA), which aims to reduce duties between the two parties, relies on companies meeting the necessary origin rules and has not changed the regulatory requirements especially around sanitary and phytosanitary (SPS) controls as UK authorities are still trying to implement systems to streamline the process of obtaining export certificates necessary to ship food and animal products into the EU.

Claiming Zero Tariffs Too Complex

A study by the University of Sussex found up to £3.5bn of British exports (about US$5bn) – approximately 10% of the total – had customs duties applied. As the preferential rates must be claimed on import and based on evidence of knowledge that the goods meet the origin rules, some companies admitted they paid duty due to the complexity of claiming zero tariffs, adding that they planned to reclaim the fees later.

The TCA also does not cover goods of EU origin returning from the UK to the EU if not sufficiently processed in the UK; instead, companies will have to claim returned goods relief or otherwise pay EU duty on import. The same also applies to UK origin goods returning to the UK.

To claim returned goods relief, it is usual to not only hold proof of export but also that the goods were in free circulation or duty paid at the time of export, something when dealing with goods that have been sold via one or more intermediaries can be difficult to evidence.

With the current staged controls, this potential ticking debt has probably not been realized and may not become apparent until checks are made on claims to preference under the TCA in years to come.

Great Britain and Northern Ireland

Trade between the Great Britain and Northern Ireland continues to be a sensitive political issue. Although mandatory to use the UK’s Goods Vehicle Movement Service for shipments travelling by ferry and lodge safety and security filings as well as declarations unless authorized for simplified procedures, there are still a range of easements that have been given to supermarket, express carriers, and importers of goods subject to SPS checks that are yet to be removed. If and when they finally are lifted, then we may see an even greater negative reaction by businesses in Northern Ireland.

So far, many have benefited from simplifications in using the Trader Support Service which allowed many goods to move without a customs declaration by benefiting from use of simplified procedures but which did not remove the need for supplementary customs declarations; these will still need to be submitted and traders may be shocked to find that they may be required to pay duties under the Northern Ireland protocol unless the goods are not at risk of entering the EU (something that can eased by signing up to trusted trader scheme).

Where duties are payable, traders may decide to claim a waiver to cover the duty amounts, but this involves monitoring how much has been claimed over a period (to comply with state aid rules) and sending regular returns to HMRC (Her Majesty’s Revenue and Customs) to ensure they do not claim more than is allowed.

In addition, there are potential issues with regards to the easements given to supermarkets and their suppliers allowing them to move meat, dairy, and plant products into Northern Ireland from Britain without the full SPS certification as long as they were for consumption solely in Northern Ireland (an easement extended by the UK until at least 1 October 2021). The main issue is that these easements may mean that many companies have yet to fully classify their products.

For importers from outside the UK or EU into Northern Ireland then they are still faced with the challenge of paying UK to EU rates depending on whether the goods are at risk or not, something that companies selling into Northern Ireland need to consider in their landed cost estimates.

Whilst there is a lighter than light touch on UK-Northern Ireland movements (and indeed movements from Northern Ireland into Britain of EU goods from the Republic of Ireland) at any point this can change, and some may be for a surprise debt.

Are eCommerce sellers ready for changes in EU VAT rules from 1st July?

From the 1st of July there will no longer be a Low Value Consignment VAT Relief (LVCR) on goods entering the EU. This relief applied to any goods under €22 (about US$27) and generally meant that goods under €22 and so not subject to VAT or Customs Duties benefited from very simple customs processes.

From 1st July, VAT must be paid on all goods imported into the EU (unless covered by another relief) and whilst the customs duty relief still applies up to €150 (about US$183) this means the previous approach to customs declarations must change.

The VAT can either be collected and paid by the seller (or selling platform) or their representative/intermediary using the Internet One Stop Shop (IOSS) or collected at the time of import. To manage this a customs declaration will now be required per parcel and although the EU has introduced a reduced data requirement (including only requiring a HS Tariff code to 6 digits) this requires in many countries new processes or even completely new Customs systems such as H7 in Belgium and Deco in the Netherlands.

Not only does this mean higher shipping costs to cover the new declaration it also means shippers will be expected to provide more data to their supply chain partners including the HS code and their IOSS registration arrangements.

How Descartes can Help

Brexit trade issues – from assessing and reassessing tariff classifications, duty rates and landed costs for the purpose of creating an accurate customs declaration – are time-consuming and resource-intensive work to correctly resolve.

Online solutions, such as Descartes CustomsInfo, can help deliver quality classification determinations faster and more accurately, and in a format that can be used for options analysis and presentation to executives.

Related: Please visit our Brexit Resource Center for additional information on how UK businesses can make a successful transition.