Duty reliefs can be very rewarding in cash terms but, if implemented incorrectly, the savings can be reduced by increased administration. Tasks include identification of the correct relief depending on the circumstances, obtaining the right approvals from HMRC and the introduction of the most cost-effective processes.
Often referred to as IP, duty and VAT can be relieved on goods imported for processing and re-export outside the EU by claiming Inward Processing Relief. Inward Processing Relief is now also available for goods imported for processing and then used within the EU and is of particular interest when the processed goods carry a lower duty rate than the rate applicable to the imported parts (the relief previously known as Processing under Customs Control).
To claim Inward Processing Relief, an importer must be authorised by HMRC and this may either be through a full approval process or, for a one off transaction, may be approved at import under a Simplified Authorisation.
With a Simplified Authorisation, the duty and VAT relieved must be secured by means of a cash deposit or bank guarantee for the import charges. The goods must be re-exported within six months and, once the required evidence of export is obtained and the bill of discharge completed and sent to HMRC, the import duty and VAT are refunded.
For a full IP authorisation, an application will only be accepted by HMRC once the importer has also applied for and been accepted under the Customs Comprehensive Guarantee scheme. This is a scheme which provides security to HMRC that the duty will be paid if the goods are not re-exported outside the EU. The importer must provide a bank guarantee or cash deposit to cover the potential debt unless HMRC allows a waiver (in full or part) based on the trader’s financial standing and record keeping.
An IP authorisation can, under certain circumstances, be granted retrospectively. Once authorised, it is most important to ensure compliance with the conditions of the approval.
Many companies send goods abroad for manufacture or assembly and return to stock. Such goods may be returned partially manufactured or in the finished state. OPR allows re-importation after process with reduced payment of duty. It is of particular value where companies are able to take advantage of lower labour rates elsewhere in the world and is used particularly within the textiles industry.
OPR (and other relief schemes) may be used across different Member States of the EU, with goods being exported from one Member State to a third country and then re-imported to a different Member State. The authorisation process may take a little longer when more than one EU customs administration is involved.
Certain industries (car industry, fish importers, bicycle retailers and assemblers) may benefit from reduced duty rates on imported products that are used for a specific purpose. This requires prior approval from HMRC and regular reporting on the use of the goods.
Many companies hold stocks of imported inventory in the UK, for onward distribution in the home market, EU or third countries.
If imported goods are not required immediately, the customs duty and VAT can be postponed through the use of customs warehousing. If they are to be stored before further manufacture, or before resale, then placing the goods in a customs warehouse delays the payment of the charges until the goods are removed for manufacture or resale. If they are re-exported, use of the warehouse can relieve the charges entirely, producing real cash savings.
A customs warehouse does not necessarily mean a locked building with bars on the windows. The goods are controlled through accurate accounting and reporting systems which record where the goods are and enables traders to keep goods in more than one location, provided they have been identified on the customs warehouse authorisation.
A customs warehouse generally needs to be operated with simplified procedures and new traders, plus those seeking re-approval, also need to apply for a Customs Comprehensive Guarantee (as per Inward Processing Relief above). A customs warehouse keeper will also need to have a deferment account from which HMRC can take the import duties and taxes each month.
Simplified procedures enable authorised businesses to declare goods electronically direct to Customs. Customs Freight Simplified Procedures (CFSP) is a system whereby a brief declaration is made at the time the goods are imported and the full declaration is supplied subsequently. Similarly, exporters can make their own electronic export declarations using the National Export System (NES). Both these systems significantly reduce the costs of using clearance agents.
When goods enter the UK or other EU country, they are subject to import duty and VAT, whether the movement of the goods is permanent or temporary. In most cases no distinction is made as to the use to which the goods will be put. However, when goods are imported for a short time, duty and VAT relief should be available but the importer needs to apply for relief at or before the time of import. The importer may be required to provide security for the import charges, in case the goods are not re-exported and the duty and VAT becomes due.