New Customs Rules: High Impact!

October 2016

1 May 2016 saw the introduction of new Customs Regulations known as the Union Customs Code (UCC). The new rules will have significant impact to businesses:

  • Operating any customs duty relief (e.g. Inward Processing Relief, Outward Processing Relief, Processing under Customs Control, End-Use etc.),
  • Operating Customs Freight Simplified Procedures (CFSP),
  • Operating Customs Warehousing,
  • Holding Binding Tariff Information (BTI) classification rulings,
  • Providing origin declarations to overseas customers (new origin rules),
  • Paying royalties or licence fees relating to imported goods or materials.

If you are not aware of the new customs rules then you could lose the benefit of any of the above customs planning and expose yourselves to retrospective duty demands, penalties and delays.

Outside of the UCC there are also a number of other significant customs developments that will soon to come in to effect, including:

  • BREXIT from the EU (new agreements likely to come in to effect 1 January 2019)
  • New preferential trade agreements with Canada (from 1 January 2017)
  • New reductions in duty rates on hi-tech equipment under the Word Trade Organisations (WTO) Information Technology Agreement (ITA)
  • The OECD’s Base Erosion & Profit Shifting (BEPS) project providing more sensitive business information to HMRC’s customs officers which could raise issues with your customs valuation

Please e-mail me if you would like to arrange a meeting to discuss how these developments impact on your business.

UCC Developments

The UCC will see the following developments:

Duty Reliefs: Availability, conditions and costs:

  • IPR Drawback will no longer exist- goods currently under IPR Drawback on 1 May 2016 can continue to benefit from this relief
  • Processing under Customs Control (PCC) will be merged with Inward Processing Relief Suspension
  • The requirement of an intention to export will be removed from IPR
  • Compensatory Interest under IPR will disappear
  • The IPR aviation simplifications will be extended to include military items
  • End use will require the submission of periodic (monthly) returns showing what was entered to end-use and how the end-use was discharged
  • End use will see changes to how obligations and liabilities are transferred to other businesses
  • There will be changes to Customs Procedure Codes (CPC) that need to be entered on to customs declarations to enter goods to and release goods from duty relief
  • Guarantees will need to be put in place to cover potential customs duties and sometimes import VAT of the goods held under relief. HMRC states that businesses should allow 120 days for any application to be processed. These guarantees may be reduced or waived if your business becomes AEO authorised
  • Businesses will need to demonstrate proper control and management of your customs matters, including documentation (known as AEO standards)
  • New application forms will need to be used

Transitional measures have been introduced that enable most authorisations to be used until their end date as stated on the authorisation. However, any significant changes will trigger re-application under the new rules. However, the duty relief arrangements must comply with the new rules from 1 May 2016.

CFSP & Customs Warehousing: Availability, operation and costs:

  • Businesses will now be able to make some retail sales within customs warehousing
  • Local Clearance Procedure (LCP) will be replaced by a new regime known as Entry in to Declarant Records (EIDR). Businesses will need to provide HMRC with prior notification to release goods using EIDR unless you become AEO approved
  • The removal of Onward Supply Relief (OSR) using EIDR- any businesses wanting to benefit from OSR will need to seek approval for removals by making an alternative type of customs declaration
  • Guarantees will need to be put in place to cover potential customs duties and sometimes import VAT of the goods held under relief. These guarantees may be reduced or waived if your business becomes AEO authorised
  • Businesses will need to demonstrate proper control and management of your customs matters, including documentation (known as AEO standards)

Transitional measures have been introduced that enable most authorisations to be used to the end date of 31 December 2019. However, any significant changes will trigger re-application under the new rules. However, the CFSP and Customs Warehousing arrangements must comply with the new rules from 1 May 2016.

Classification- Changes to BTI

  • New BTI will be valid for only 3 years
  • BTI are now binding on both the customs authorisations and your business. The practical impact of this change requires you to enter the BTI reference number on any customs declarations covering those goods

Origin- New rules- Greater certainty but less flexibility

  • The UCC has resulted in the adoption of specific origin rules similar to those required to be met under Free Trade Agreements
  • The new rules provide for greater certainty but lack flexibility that was available under the old rules which required a more specific examination of the manufacturing processes and supply chain

Customs Valuation- Royalties and Sales

  • Royalties- the customs valuation provisions on royalties have been amended and are likely increase to scope of when such payments must be added to the value of goods and therefore subject to duty
  • Last Sale- no new applications can be made under the First Sale for Export provisions. The customs value will now be based on the last sale taking place before import in to the EU and there are special rules for goods sold within and special regimes such as customs warehousing, IPR etc.

The above is a summary of the key changes under the new rules and is not intended to be comprehensive.

AEO – Now a Necessity?

AEO is an authorisation given to businesses that can show that their customs controls and procedures are efficient and compliant. The process involves establishing appropriate processes and controls which must be documented and maintained.

The application process and ongoing management of AEO represents a considerable investment by the business. AEO has existed for a number of years but take up until now has been limited in the UK, probably because the benefits could not be readily quantified to justify a business case. This position has changed under the UCC.

AEO will still be voluntary unless:

  • Your business wants to continue EIDR (previously LCP) without the need to make a prior notification to HMRC
  • The use of self-assessment (negating the need to submit customs declarations)- this facility is not currently available but is expected to be in place by 2020
  • The use of centralised customs clearance (allowing the submission of customs declarations and management of customs compliance in one member state for imports made throughout the EU)- this facility is not currently available but is expected to be in place by 2020.

However, the business case for AEO is now considerably stronger as:

  • AEO standards must be demonstrated if your business is to continue enjoying the benefit of any duty relief, CFSP or Customs Warehousing
  • AEO waives the need to put in place financial guarantees for any customs duty and, where required, import VAT suspended under duty relief, CFSP or Customs Warehousing
  • AEO will be needed if you business is to benefit from Simplified Import VAT Authorisation (SIVA) that negates the need to guarantee the VAT element under your Deferment Account
  • AEO will enable your business to reduce the guarantee on the customs element of your deferment guarantee by 70%

It typically takes a business 3-6 months to prepare an AEO application. HMRC then has up to 180 days to process the application. As such, it is prudent for businesses to allow 12 months for any AEO application.

We can assist you businesses in making an AEO application. If you would like to discuss this in more detail then please e-mail me to arrange a meeting.

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