Following a 12-month transition period, the UK will formally leave EU rules behind on 31 December 2020. For businesses which export or import goods to or from Europe, you are probably wondering what best to do to protect your business. Here, David Gorton, International Liaison Partner at PM+M, discusses the implications of European trade in a post Brexit world…
From 1 January 2021, new controls will be placed on the movement of goods between the UK and the European Union. The single biggest point to note in these new arrangements is that whatever new controls are enforced following Brexit negotiations, there will need to be a requirement for a ‘customs declaration’ with every shipment to an EU customer.
These are documents with many pieces of data in them, the three key points to note are:
1. The customs classification of the items being shipped. This is a 10-digit classification code that is precisely defined so that customs duty authorities can be sure what goods are being imported. Of course, when international teams of tax authorities write excruciatingly precise definitions, these are very difficult for normal people to interpret for real products that have been designed to be innovative and useful in a fast-moving marketplace. This can therefore be quite a challenge and needs to be done accurately for every product being shipped, however small.
2. The value. This is normally the sales value, plus carriage and insurance. This should not be too hard, but if you are moving products from a factory in the UK to a warehouse in Europe, definitions start getting slightly more complex. Again, this should be done carefully!
3. The origin. This is the certificate which tries to make sure that goods are not just posted around the world to get a beneficial customs duty treatment. The terms of the required declaration are not yet known, and this is a big area of disagreement between the UK and the EU. Many businesses will have products where a large proportion of the value has been imported from the EU and then processed in the UK. Without a deal this might make the products strictly not of UK origin and therefore not eligible for the treatment of UK goods. It sounds like a joke but some form of agreement needs to be reached to sort this out and at the moment it is not clear when that will be finalised.
Declarations will be needed for every shipment to the EU; businesses therefore need to focus on managing the data and having a robust system to process it. This may be recruiting and training your own employees to do this (there are grants from HMRC to help with this) or choosing a freight or customs agent to do it for you, in any case you need to understand:
– Where the data is going to come from for every product you need to export
– How you are going to combine that data into a customs declaration
– How you are going to transmit that customs declaration to HMRC
– How you are going to store those details to be available for future analysis and inspection
The situation is even more confusing as the UK has committed to a phased implementation for customs compliance for imports so different regimes run for various products from January, April and July, but the EU is currently insisting on fully compliant processes for their imports from 1 January.
How do I make sure my company is ready for exporting post Brexit?
In practical terms, each business needs to work out how to keep the compliance costs of the new systems under control and match these against the various logistic options:
– Bulk shipping products with consolidated customs compliance to a single distribution centre in the EU and then shipping smaller quantities – this is an option many businesses have headed towards
– Setting up a streamlined compliance process for individual exports from the UK is an option – a very sensible solution if you already have a system to do this for exports outside the EU and individual orders are relatively high value but, if you are not in that lucky situation it might be tricky
– Changing your business model to use a distributor for the EU or for territories within the EU is another route that we are seeing increasingly being used
In any of these options, businesses will have to watch the VAT implications (and unlike customs duties and rules, VAT rates do vary across Europe). It is imperative that you make sure that the products that are shipped are still in conformity with the safety, security and health requirements of their market. How those requirements are met is another challenge for the negotiators.
Exporting to the EU looks set to become a complex process, there are already a mass of varying rules and the government guidance produced to date is quite complicated. If you export to the EU and are concerned about the impact this will have on your business, contact David Gorton on the below details: