In the absence of a Withdrawal Agreement, there is a risk that the UK may cease to be a member of the European Union on 29 March 2019 (may also apply to new exit date on 31 December 2020) without a transition period. This is a so-called hard Brexit. The United Kingdom has indicated that even in the event of a hard Brexit, it would avoid a hard border on the island of Ireland. This does not necessarily refer to the absence of customs control, merely the absence of checks at or near the border.
EU law and international law World Trading Organisation requirements are very specific in respect of customs control. There are detailed customs controls and rules that apply to all trade from inside the European Union to and with outside the European Union. After Brexit in the absence of a transitional arrangement, the United Kingdom will be a so-called ‘third country’.
The default position is that all movements of goods will be subject to customs control. Each movement must be declared to the customs authority through the Irish automated entry procedure in advance. Every export to the United Kingdom is subject to EU export control as an export and UK import control as an import. Every import from the United Kingdom is subject to EU import control as an import and UK export control as an export.
Customs Controls Apply Both Ways
In most cases, Irish-based traders would be importers or exporters only and their counterparts in the United Kingdom will have the opposite role. In some cases, there may be movements between associated companies including as part of a supply chain.
The new UK customs law will be a mirror image of the EU law at least initially. There are standardised forms used in international customs practice. They are quite detailed and it will be necessary for traders to come to terms with particular parts and information which they must complete. Many traders use customs agents.
Singe Administrative Document
The standard form of customs declaration is the Single Administrative Document. It has 56 boxes in the paper form, most of which are required to be completed in most cases. In practice, the paper form is rarely used and traders or their agents complete their returns through the Revenue’s Automated Entry Processing in Ireland or the U.K.’s equivalent system.
The single administrative document uses codes for most of the relevant entries. The European Union (and UK authorities) publish cross-references for the codes required for particular customs procedures, particular goods et cetera. Traders will need to familiarise themselves with the relevant codes required.
The Customs Tariff
One of the most significant codes is the commodity code for the particular goods concerned. The codes are categorised in accordance with an international harmonised system. The TARIC is the European Union catalogue of codes which is available as an online database.
The database gives information about the customs treatment applicable to the import and export goods. It also shows such things as restrictions, quota as prohibitions et cetera as well as the rates applicable generally and preferential rates. In the event of a hard Brexit, each of the UK and the EU will apply their standard third country customs duty rates to the other.
Declaration and Controls on Goods Movements
Upon importation, the single administrative document return is made electronically to Revenue’s Automated Entry Processing system. Most traders use customs brokers to complete returns. The trader will still need to furnish the requisite information to the customs broker. The single administrative document must be completed with contains codes which identify the movement.
Revenue applies risk management techniques and considers whether goods should be checked. Green routing applies when goods are cleared without further documentary or physical checking. Orange routing applies where goods have been selected for documentary examination. Red routing applies where goods are subject to both documentary and physical inspection.
Goods sent across the United Kingdom land bridge must be under customs control under a transit arrangement. All goods must be accompanied by a transit accompanying document raised in the European Union.
In addition to customs, a hard Brexit would mean an immediate change in the VAT treatment of imports and exports of goods and services to and from the United Kingdom.
In the absence of mitigation agreed, businesses and private persons will be obliged to pay VAT on UK imports at the point of entry in conjunction with any import customs procedure. In contrast at present, there is usually deemed to be a self-supply so that no VAT payment obligation arises at the point of import.
Traders who are undertaking a business which charges VAT on its sales should be able to reclaim their VAT in the normal way for purchases undertaken for the purpose of a “vatable” business. However, there will be a cash flow implication.
In strict terms, private individuals may be obliged to pay VAT at the border on imports of goods with a right to reclaim VAT in the United Kingdom in respect of the same. There are some exceptions for low-value purchases. Once again it may be that mitigating steps are taken even in the event of a hard Brexit by the UK and EU authorities.
Hard Brexit Considerations
Irish traders should consider their supply chain in relation to their acquisition of goods from the United Kingdom. They should consider the distribution of their sales to the United Kingdom. They should classify each product they use and each product they sell. Is necessary to consult the TARIC database. This can be complex in some cases and is the subject of other articles.
The correct classification of the goods is important. As is the case with a Revenue audit generally, mistaken treatment may be the subject of later charges with interest and even penalties in the event of underpayment.
The TARIC will show the duties and other conditions applicable to imports and exports of the particular goods. In some cases, there will be tariffs which will affect the fundamental terms of trade and the cost of doing business. It may be necessary to consider alternative markets for purchases of inputs and the sale of products to mitigate the effect of the tariffs.
In order to import and/or export goods, traders require an economic operator registration and identification (EORI) authority from a European customs authority. This is valid throughout the European Union. It commences with “IE” in Ireland and will resemble the VAT number. It can be applied for online through the ROS system. The revenue.ie webpage shows how to make the application.
EU tariffs are generally low for non-agricultural products. Typically, they are less than 10%. They are higher for clothing and footwear; 10 to 16% and highest for food products sometimes 40 to 60% or more. There are no tariffs or similar taxes in respect of the supply of services. VAT applies to the sale of goods and the supply of services.
Soft Brexit Considerations
Unless there is a hard Brexit it appears the most likely scenario is that a comprehensive trade agreement will be entered between the UK and the EU by the end of 2020 or possibly at a later date. The EU has offered the Canadian (the CETA Agreement) model to the UK which eliminates almost all tariffs. The Canadian model does provide for some tariffs in the area of food and agricultural products. It remains to be seen whether a future trade agreement will include all agricultural products.
In the event of a trade agreement, the may be no tariffs or almost no tariffs but customs paperwork, with declarations, returns and other requirements are very likely to apply. A significant issue, in particular, if the UK commences entering trade agreements with third countries as it wishes to do, will be that of proving the origin of goods from an EU and Irish perspective on exports and imports into the other territory.
The preferential zero or almost zero tariffs will be dependent on the goods concerned originating in the EU or UK. The issue of certificates of origin and proof of origin can be administratively burdensome.
In some cases, self-certification is permitted. In other cases, an application must be made to a Chamber of Commerce or governmental body which has a trusted status in the other country to certify the position. The actual rules depend on the terms of the treaty and define what exact content is required to meet the origin test
It is possible to register as an authorised economic operator, although the requirements are usually met only be larger scale businesses. The AEO may be an intermediary providing services. Most such operators at present are relatively large in scale. The application takes several months. The trader must be a trusted trader with significant assurance in terms of processes, physical control, storage and documentation. The status will not necessarily be available to all businesses.
There are two principal categories of authorisation. There is an AEOC (customs simplifications) and an AEOS (security simplifications). Traders may apply for both or either. At a minimum, the following is required
- full compliance with customs and tax requirements for the last three years
- financial solvency for the same period
- appropriate record-keeping standards
- controls procedures on goods movement
- competence in relation to customs for three years
- safety and security standards competence
- simpler admission to customs simplification
- less physical and document controls
- specific notification where controls
- priority treatment in some contexts
- customs controls at premises or other locations in some contexts
Generally status as an authorised economic operator leads to recognition as a secure and safe trader. This affords a greater level of confidence in relation to checks and inspection costs.
AEOS status is recognised in the European Union and certain other countries with whom EU has concluded agreements including the EFTA countries, the United States and China.
The are various customs facilities available which may mitigate controls an ease cash flow in relation to customs and VAT costs.
Bonded warehousing goods are to be stored in a customs warehouse with a suspension of duty and VAT. The trader’s warehouse may be approved for this purpose subject to security et cetera. Duty and VAT are suspended until products are removed from the warehouse. VAT may not arise if goods are exported or dispatched to another EU state.
The customs warehouse procedure requires approval by revenue. The necessary controls and systems must be in place. The premises must be physically and organisationally secure.
There are a number of other facilitations which are set out in separate sections
As mentioned above a hard Brexit without any mitigation would change the basis on which VAT is charged. There is a facility possible under VAT law whereby a trader who is importing large quantities of goods may be permitted by Revenue may permit a deferred payment account. This allows payment of charges by direct debit the following month. Businesses must generally furnish a comprehensive guarantee.
Once the guarantee authorisation is issued, an application can be made for a customs deferred payment authorisation. This requires registration with ROS for customs and excise and an existing EORI number. The application can be made to ROS.
Traders should consider the steps necessary to prepare for the possibility of having to deal with customs procedure is.