Basic Registrations
The most basic step is customs registration with Irish Revenue. Any counterpart UK company should register with HMRC. Registration involves the issue of an EORI number. The number is based on the underlying VAT and tax number but is not automatically allocated. Any other company which is buying or selling directly from or to GB should also register.
If a trader is doing customs declarations inhouse, it would be necessary to register for direct trader input in Ireland (and the United Kingdom where appropriate). Although ROS is used in Ireland for some purposes in relation to customs, additional customs linking software is required. This must be licensed. There are approximately have a dozen providers in Ireland and over 100 providers in the United Kingdom. Some providers offer modules connecting both to Irish Revenue and UK HMRC.
Duty Deferment Account
A deferred payment account is highly desirable / necessary if customs duty or VAT are / may be payable. This depends on whether there will be tariffs applicable to the particular trader. This will usually depend on whether there will be a trade agreement or not. In some cases, there may be zero duties already under the default EU third country tariff.
In the case of some very small consignments, the carrier/ courier / agent may allow use of its deferred payment account. This may be available from some parcel couriers. It should not be assumed to be available.
If there is no customs duty and the below mentioned postponed VAT is available, then a deferred payment account may not be necessary. It may not be known if there will be a zero duty agreement until very late. There is some chance of an implementation period, if this occurs, to allow traders to adapt, if this occurs. If there is no deal, there may be some mitigations, but that cannot be assumed.
Any Customs duty applicable and VAT is payable at the point of entry. In normal courses, A deferred payment account generally postpones liability to the middle of the following month only and requires a guarantee. A guarantee is usually required.
Any company undertaking imports from outside the EU may register with Revenue for a customs deferred payment authorisation for a customs. The application can be made https://www.revenue.ie/en/customs-traders-and-agents/customs-electronic-systems/aep/payment-methods/how-to-apply-for-a-customs-deferred-payment-authorisation.aspx
Generally, a guarantee is required backed up by cash, a financial institution facility or insurance bond. This entails costs, financial capacity, and an application process to a finance or insurance company in the latter cases. The maximum liability will effectively be treated as drawn from a credit assessment perspective.
VAT Deferment Account and Postponed Accounting
Both the UK and Ireland seem likely to allow temporary postponement of VAT until the next VAT date at least initially. This would allow VAT registered traders to offset import VAT against input VAT in most cases. However, this facility may be withdrawn may be withdrawn at a later date or may become subject to a guarantee requirement.
If there is a risk of a no deal Brexit, a trader may need to establish a duty deferral account. If the postponed VAT accounting is not renewed, a trader may need to register for VAT deferral purposes. The position is potentially onerous and should be followed with Revenue (and HMRC if applicable). It is to be hoped there will be some certainty, sufficiently in advance.
An Import and Exporter of Record for Every Movement
There must be an importer and exporter of record in each case. In some low-value low-risk parcel courier cases, the carrier may be prepared to act as a tax agent. Generally, for pallet size consignments some entity in each of Ireland and the United Kingdom respectively must make the export and import declaration or be named as such.
Trader’s GB counterpart may or may not be willing to act. Smaller-scale buyers might be less willing to do so in some cases. In some cases, the establishment of a company or a relationship with a new intermediary may be required in the United Kingdom, if the trader’s counterpart seller or buyer was not willing to do so. A trader should not form a new company without thinking it through. It might be necessary in some scenarios as a last resort to save the trade in the goods concerned.
Any new UK entity would require to be registered for UK VAT corporation tax and comply with UK Companies’ obligations. The UK company would have equivalent tax and corporate requirements in the United Kingdom to those applicable in Ireland.
Supplier / Logistics Doing Declarations
If a trader can satisfactorily ensure that declarations are undertaken by a logistics providers on its behalf, the trader will still need to have customs awareness inhouse both in terms of organising the trader’s data and procedures to ensure customs compliance. This will be essential, both in the event of an audit and also the event of customs queries that will be raised from time to time by Revenue and others.
A trader should ask the suppliers or industry sources to identify the classification of their goods under the tariff commodity code is. It should ask them to identify the origin of the goods having regard to the standard test of origin which requires 50 to 60% processing of value-added in the country of origin.
A trader must establish the correct commodity code, origin and valuation for each product which a trader purchase acquire sell or dispose of. In the case of supplies that code and origin should be known to the supplier. The issue of valuation should not be problematic provided a trader acquire goods at arm’s length.
Customs valuation includes full transport to the border. Therefore, transport and insurance to the border are added. The duty applies to that sum if any. VAT applies to the whole price+ transport to the border+ any duties. The VAT on purchases should not matter if a trader have full recovery. In fact, it will increase the trader’s input VAT credit.
Establishing Tariff Obligations and Risks
If there is a UK exit without an agreement there is the possibility of customs duties being payable on imports from Great Britain to the Republic of Ireland. It is possible to see what the rates are by reference to the EU tariff. If the relevant commodity code is put in TARIC the third country so-called “erga omnes” rate appears. If there is a no deal exit, this EU tariff rate would apply. The EU tariff is here
https://ec.europa.eu/taxation_customs/dds2/taric/
Equally, there is the possibility in a no deal agreement that the would-be customs tariffs on goods moving from the Republic of Ireland into Great Britain on the Great Britain side. The default position would be that they would be the same as the tariffs that would apply to imports from the EU. However, the UK has published a new Global Tariff which is available on this site and on HMRC. It is also at the below link at the time of writing.
https://www.gov.uk/guidance/uk-tariffs-from-1-january-2021
The issue of establishing and introducing into the trader’s IT systems details of the commodity code origin and any valuation issues as well as other regulatory issues should be considered. For both purchases and sales, the origin and commodity code needs to be associated with the product in the trader’s internal IT systems if this is not already the case.
Find Commodity Codes
By way of scenario planning, a trader should look at the trader’s commodity codes for the relevant products. In principle, the trader’s Intrastat returns should have the correct commodity codes for input into the Taric and the UK temporary tariff (see above). However, as mentioned separately we have often found, and it is notorious that Intrastat returns are wrong because they simply are not as critical as customs returns.
In most cases, a trader should be able to get certainty on commodity codes from industry sources. The manufacturer will usually know if they are not already available in the trade from another reliable source. The first six digits of the commodity codes are used worldwide under the UN Harmonised System. They would be used in relation to other controls such as dangerous goods as well as for statistical VAT and customs purposes.
As an exercise in relation to the risk of a no deal exit, a trader should look at any available Intrastat returns and consider the customs duty applicable both on imports into Ireland and imports into Great Britain in the event of a no deal exit. Obviously, this cannot be done separately from the broader issues which are likely to arise such as currency appreciation in this scenario and the massive logistical and general hit to trade and the economy that a no deal Brexit would imply. However, it is useful at least as a starting point that the tariff costs involved are quantified.
A critical point is that regardless of whether there is an exit with a trade agreement or with no trade agreement the customs compliance and process costs and logistical implications are inevitable and unavoidable. This is because the UK has left the EU and the terms of the Withdrawal Agreement under negotiation positions are aiming for a trade agreement only. They are not aiming for a customs union between the EU and the UK. This might have been the case, but it has been conclusively ruled out for political reasons by the UK.
The critical point is that a trade agreement will at best reduce duties to 0%. Another critical point is that this is dependent on the particular products being of EU or UK origin. In order to claim zero rate customs duty under a free-trade agreement, proof of origin is required. Sometimes the cost of proof of origin means that traders do not undertake it and simply pay the customs duty instead.
Non-Duty Obligations in Code
In in the TARIC (and UK equivalent) sometimes there are conditions applicable to particular products. These are EU wide regulations that might apply to importation. Those listed are not necessarily a complete list of all the controls. They are however controls that are required to be dealt with to undertake an import or export. The inward arrow on the note (left to right) refers to import requirements. The outward arrow (right to left) applies to exports out of the European Union.
The same treatment is likely to apply in the UK from its perspective, but with the possibility of a grace period in some cases. A trader should look at the UK side for the trader’s sales. Therefore, references to the TARIC below refer to the UK tariff as well for sales.
A trader will see in respect of certain products that requirements are set out in the TARIC footnotes in relation to their import or export. Controls most commonly apply to import. They very rarely apply to exports unless there is something sensitive or dangerous about the goods concerned.
Where there is a condition in the TARIC for the commodity code, this means that each time a customs declaration is done either compliance will have to be certified and, in some cases, some document must be held. This might be licence permission or a certificate of origin. Effectively the return requires certification that document is held. This would involve inserting a code in the declaration. It is critical that the relevant document (where TARIC says it is required) is held.
A trader would expect in about 1% of cases in the long run after a light touch period, that documents would be checked where required. In these cases, a trader would have to have those documents available for scanning to Revenue for the trader’s customs agents would need them as and when required. The trader’s agents might or should have them in advance.
In other cases, a trader might be certifying, for example, that certain conditions in the regulations or code apply so that the licence is not required. This is more common in practice. This is very much dependent on the nature of the goods. The point is that there can be particular extra document certifications and confirmations which a trader have to give in every case the goods go across the border. The trader’s customs agents will need to know this where applicable have the relevant documents or have them available.
Proving Origin
It is expected that the EU UK proof of origin procedures will be simplified and will allow a large measure of certification by producers. However, a trader should bear in mind for example that even if there was a trade agreement, the costs of proving origin are sometimes greater than the customs duties which are often at a low but not insignificant rate. This has been found as a particular feature in the US Mexico trade under NAFTA. The duty rates are zero, but the cost of the proofs often means that traders often find it easier to pay duty than produced the compliance paperwork to qualify for a zero duty.
Another critical point is that goods that are not of UK or EU origin will not qualify for the zero rate under any trade agreement. As we mention below, a critical issue in relation to all products is to ascertain their origin, value, and commodity code classification. If any of the goods a trader use are not manufactured or effectively had their largest and most significant value added happen in the EU, then they would not be of the required origin and may not qualify for the zero rate duties.
A trader should, therefore, the calculation and consider whether any of the trader’s goods might be of non-UK EU origin n. If this is the case then in the trader’s scenario planning a trader should factor in tariffs at the third country rate on these goods, regardless of whether or not there is a trade agreement i.e. in all scenarios. This is the TARIC “erga omnes” rate for that good.
Certification of Origin Requirements
The most important certification that will be required will be that of origin which would be required to ensure that a trader get the 0% duty likely under a UK EU trade agreement where the third country default rate is not 0%. Where particular “third country” “erga omnes” rate is 0% at the moment, this is a very good thing as it would imply that a trader do not need to certify origin in order to get a more favourable rate under an EU UK agreement.
Certification of origin can be expensive. Sometimes traders find it easier to pay the duty than to certify origin in order to qualify for a 0% duty. Traditionally and under older agreements, a certificate of origin might require certification by an official body based on application by the supplier. The more modern approaches to take a risk assessment allows traders to self-certify origin. We would expect that large established UK traders will eventually be set up to do this under the REX system i.e. the registered exporter system. Basically, what is required is that the REX authorisation is inserted on the declaration so that their certification of the position as to origin is acceptable.
We have dealt with the issue of origin elsewhere. It refers to the place where the goods are substantially manufactured or most value-added, rather than the place with the goods immediately travel from. We do not know if this is an issue in respect of any goods which a trader use. The basic point is that unless goods are of EU UK (and sometimes other) origin they will not qualify for the zero rate so that a trader are back to the possibility that the third-party rate under the tariff might apply even in the event of a trade agreement.
In the case of goods which would be subject to a tariff in the event of a no deal, a trader will need to provide certification of origin in order to get the lower EU UK trade agreement rate (probably zero). Given the nature of what a trader buy the manufacturers should be in the best position to give a trader this information.
It is only the terms of the actual trade agreement between the EU and UK which will say exactly what will satisfy the requirement for origin. It is expected that the most modern REX type systems will be extensively available.
Customs Valuation
The following content regarding valuation would only be relevant in the event that the trader’s goods are subject to customs duty for GB to NI sales due to the risk of their being moved on to the Republic of Ireland (or elsewhere in the EU).
Customs valuation is generally based on the sale price where there is a sale between an unconnected importer and exporter. HMRC may apply a different value if it believes that the valuation is incorrect. Where there are group purchases and sales, issues or valuation may be looked at more closely by HMRC, than in the case of an arms’ length sale.
The primary method of valuation is with reference to the invoice price. Some deductions may be permissible if they are clearly distinguished, such as cash, trade and quantity discounts. Transport, insurance and other importation charges to the point at which the goods reach the border, are included in the customs valuation for customs duty purposes. Value added tax applies to the customs value plus the customs duty so that there is double taxation to this extent.
The issue of valuation may arise when goods are imported by a related party, such as movements between group companies or branches. Where there is an immediate sale after import, such as where the import is for the purpose of completing that sale, an intergroup or company to branch value that is in accordance with the invoice price to the external customer (say with an appropriate margin built is) is unlikely to be successfully challenged.
The transaction value may be accepted where the importer demonstrates the value approximates to a transaction occurring at the time of importation between unrelated buyers in respect of identical or similar goods which has been determined under an appropriate method.
HMRC may request a value declaration on UK imports. UK HMRC practice and valuation are here. https://www.gov.uk/government/publications/notice-252-valuation-of-imported-goods-for-customs-purposes-vat-and-trade-statistics/notice-252-valuation-of-imported-goods-for-customs-purposes-vat-and-trade-statistics
Customs Data
The customs data is in a single internationally recognised format using common codes and the single administrative document. This same document can deal with export, transit, and import which was part of the logic of the set when it was originally in paper form. The information mentioned below in the various boxes is completed by predefined codes for each case. There is detailed guidance on the codes available online and on my site brexitlegal.ie.
The custom dataset set out in this chapter is used in almost all customs documents and not just import and export declarations. The so-called entry summary declaration and exit summary declaration are effectively subsets of the full set of customs declarations. The E manifest which carriers usually have to furnish include part of the dataset. The dataset for imports is a more extensive version of the dataset for exports.
Some of the data is mandatory, and some are required only in some circumstances. It can be mandatory in these latter circumstances which might apply to a trader in some cases.Most of the actual boxes on the return are completed by insertion of a range of coded numerical or alphanumeric entries which are published on the UK HMRC website. There is a particular code associated with the various possibilities for entries such as country name, product type (the tariff), particular customs process et cetera et cetera
In practice, software systems populate the various coded entry requirements in more sensible terms that can be readily used (open the menu and insert it) so that a trader do not have to engage with the codes. Moreover, a trader can complete draft declarations and finish them later. A trader can reuse previous declarations with template data so that the declarations can become simple if the transactions are routine.
Although the return was formerly like returning a coded document of numbers in shorthand modern customs declaration software makes it much more intuitive in that the particular options can be available in the menu for insertion in the particular boxes automatically without having to get into the coded numbering. The customs software populates the form.
Just like with other online and software form filling, the software remembers the trader’s standard information and makes it easy to full the forms.In practice, whether completed by a trader or by the trader’s logistics provider, the information is processed and inputted using a series of screens and by making a final “send” return to HMRC. In effect, the data is assessed from a risk management point of view by an automatic online customs algorithm which either requires intervention or gives a free movement signal on each side.
Enforcement
There are both administrative penalties, i.e. on the spot fines and criminal offences for breach of customs obligations. Directors and persons involved in the company at a level of instrumentality who cause the company to make the relevant breach can be prosecuted individually, fined or even imprisoned.There is the possibility of enforcement at the Irish Sea border, at premises and/or in an audit. This is in addition to routine border checks. All customs issues, including origin, classification and valuation, are open to challenge in an audit.
Officers of the customs have greater policing powers in relation to customs than in the case of other taxes. They have stop and search powers. They may search computer and electronic records. They may search commercial premises without a court warrant. Goods can be forfeited for breach of customs law. There are provisions for appeal.
As in other tax areas, customs audits can be exacting, stressful and burdensome. If the trader has made an error in customs returns, it may incur the costs of an under deflation, interest, and even penalties in the event that the issue later emerges and is challenged in an audit.
One might reasonably expect, that HMRC would be each “light touch”, at least at first, in their dealings with traders, who undertake customs declaration for the first time. They might be expected not to apply the full rigour of the rules in the event of genuine mistakes as opposed to deliberate reckless or careless actions.
Penalties Compliance and Audit
Revenue and HMRC undertake audits and in the usual way can go back four years (Ireland) to check the conformity of paperwork and documents were tax paid.
Although it might be treated less seriously in terms of sanction, there is liability for breach of obligations, even for innocent breaches and even where there is no net loss to Revenue / HMRC. There is no time limit in the case of recklessness or fraud, which may also be subject to serious criminal sanctions.
The customs declarations themselves must include information on the commercial invoice and transport document as well as the relevant licences. The cross-references allow Revenue / HMRC to look at the underlying records, transport, and financial transactions to verify conformity.
There are provisions for administrative penalties and court prosecuted fines even where misdeclarations are innocent. There is provision for interest and tax penalties. Customs law is unusual in that the goods themselves can be subject to forfeiture by way of penalties for breaches of obligations. The forfeiture can be in addition to fines and penalties.
Serious breaches of customs obligation involving dishonest or reckless behaviour have criminal consequences including the possibility of prosecution and imprisonment. Directors of the companies concerned who are knowingly or recklessly party to the misdeclarations may be subject to fines and imprisonment.
Documents Retention
At a minimum to will almost always be a commercial invoice that will set out much of the information required to make the import and export declarations. This is not a legal requirement as such, but its form and content are largely fixed by international trade practice. There may also be a packing list for larger consignments.
The relevant transport documents such as a CMR road transport note, an air waybill, a bill of lading for shipping a forwarder certificate or receipt will be required to show particulars of the movement. The documents will generally be cross-referenced in the declaration.
Certification of origin is likely to be the critical issue in much post-Brexit trade. The exact requirements for proof of origin will be specified in the EU UK trade agreement. Traditionally paper certification from a governmental body or Chamber of Commerce was required in many cases. This itself required an application on foot of application with documents to the body or governmental department involved. In order to obtain preferential treatment in some cases, further particular certificates and approvals may be required.
Modern trade agreements are taking a more risk assessment approach to certification of origin. The REX scheme (registered exporter) allows for producers and other intermediaries to certify the origin of goods in many cases. The relevant information by way of a code must be included in the customs declaration.
There are approximately 32 EU directives and regulations in relation to standards for a broad range of commercial and industrial goods. They generally require CE marking of the goods. The directives and the legislation specify the requirements for certifying conformity with the requirements of the legislation. In some cases, a declaration of conformity is required. This may have to travel with the goods.
In the case of chemicals, dangerous and hazardous goods there are already significant controls that will increase after Brexit. Specific documentation is required to travel with the goods or be available to show conformity with the relevant legislation and requirements.
Many goods are subject to export and import licensing for special reasons. Some of these are on an EU wide basis and some are specific under the United Kingdom or Irish legislation. When legislation applies, the specified licences, certificates or other document.
TARIC (the EU customs tariff online) specifies the EU wide licences certificates and restrictions that apply to particular categories of goods. This may be due to such matters are sanctions anti-dumping duties and trade policy measures. Sometimes it is necessary to certify that a particular condition applies so that a licence or certificate is not required. In other cases, it is required to be certified that it is held. It may be requested in a documentary (orange routing) check.
