Discovering that you are being investigated by HMRC can be very stressful, even if you are...
Getting a Brexit deal through was an enormous logistical headache for politicians on both sides of the Channel, but eventually an agreement was put in place even if not one that satisfied both parties or either.
This agreement prevented the problematic No-Deal Brexit that many feared, and in theory should have allowed trade to continue without many difficulties.
It is worth noting that there is a different process in place for Northern Ireland, due to the shared border with EU nation, Ireland.
The reality has not been quite as expected, with businesses facing hurdles for both import and export. But what exactly are the current issues? We take a closer look at Brexit and how it impacts imports and exports.
Not Just Teething Problems
Despite all the work that went into setting up the Withdrawal Agreement, Brexit was always going to represent a significant change for businesses that rely on importing and exporting. The difficulties that initially occurred were therefore not a surprise, as many anticipated some initial challenges during the transitional period.
However, as the months have ticked past it has become clear that the Brexit issues over import and export are not simply a matter of getting used to a new way of working. Unless changes are introduced, importers and exporters will continue to face real barriers for the foreseeable future.
According to the British Chambers of Commerce (BCC), almost half of exporters are having difficulties, with importers facing similar problems. Rising costs, contradictory application of the rules, additional paperwork and shipment delays are all causing Brexit export issues.
The latest survey by the BCC showed that three-quarters of exports had no sales growth while a record number (28%) were reporting a drop in sales for the second quarter. SMEs are disproportionately affected with Brexit VAT issues and rules of origin checks being some of the biggest challenges.
The Process of Importing
Since Brexit and the formal withdrawal from the European Union, there is a whole new process to follow for importing goods. These are the steps every importer will need to ensure they have followed:
Agree the Importer of Record
If you are bringing goods into the UK from a European base, this will not apply to you. However, if the import involves your business bringing goods in from another party, you will need to agree who will have responsibility for clearance requirements. This includes import VAT, duties, tariffs and Customs import declarations.
Obtain a EORI number
Before the goods are moved into the EU, an Economic Operator Registration Identification (EORI) number is needed. This will be needed for all Customs paperwork. If you do not already have one from HMRC, you can apply for one.
If you are VAT registered then HMRC will link your VAT number to your EORI, but if you are not VAT registered then you will get a new, full EORI number.
Check for Import License Requirements
Some types of goods require a special license to be imported. Examples include chemicals, agricultural items, animals, medicines and weapons.
Calculate the Import Value
The value of the goods you import must be calculated in a specific way so that the correct amount of VAT and Customs duty is paid.
Determine VAT Obligations
If VAT is not handled correctly, goods may be blocked on entry until the Import VAT is paid or you could lose VAT as an unrecoverable cost. You could opt to have it paid by the customer under Delivered at Place Incoterms but this is a bad customer journey and some may not be willing to accept this and return the items. The alternatives are to pay the VAT at Customs or use a Postponed VAT Accounting process.
Complete Import Declarations
If you are the Importer of Record, you will need to complete all of the Customs declarations. You can either do this yourself if you have applied to be authorised to do so or you can appoint an intermediary to do this on your behalf.
Determine Rules of Origin and Tariffs
With a declaration from the business exporting the goods, and using the Rules of Origin framework set out in the Withdrawal Agreement the items may qualify for zero Customs duties.
Ensure the Exporter is Ready and Compliant
Before the items are sent, you will need to ensure your exporter has everything they need at their end. This includes:
- A statement of origin
- Their EORI number
- Any relevant export licences
- An invoice
- A packing list
- Proof of submission of export declarations in their country, providing them with an Export Accompanying Document. Goods cannot leave without this.
Preparation of UK Intrastat Declarations
All VAT-registered businesses must complete monthly returns itemising the arrival of goods into the UK from the EU. HMRC have confirmed that despite the UK no longer belonging to the EU VAT scheme, a return is still mandatory.
The Process of Exporting
If you are moving goods in the opposite direction and exporting to the EU, the process is almost identical. You will still need an EORI number and you will need to check for licences and any particular rules that apply to the type of goods you are exporting.
You will also need to check that the importing country is able to accept the type of goods you are shipping because some places may refuse certain categories of goods from outside the EU. The business or person you are exporting to will also have to be authorised to receive goods from the UK. They may need a certain certification or licence to be able to do so legally.
The final step is the Customs declarations for export; an intermediary may be necessary for this step.
Time-Consuming Red Tape
As can be seen from the above processes, moving goods around is an onerous process requiring multiple authorisations and paperwork at each stage. It is this requirement which is delaying shipments, causing delays and slowing down the transit of goods.
Companies such as the British Chamber of Commerce are lobbying the government to resolve the Brexit import issues, as well as those relating to export and VAT. They believe that without swift action, there will be severe consequences for the UK with shortages of essential items becoming a very real problem.
The government has acknowledged “teething problems” with the process but as yet has not pledged to shorten the border checks, nor reduce the paperwork. With the full transitional period due to end on 31 December 2021, there are concerns that the current problems are only set to get worse.