Customs Scenarios

The risk of customs and related would lie both in the event of a no-deal exit with a  kicking in of customs duty and customs compliance costs and in a trade agreement Brexit, with customs controls only, but few if any tariffs. In the latter event, there would be GB – RoI customs controls, with significant compliance costs.  References below to the UK refer to GB, on the basis that the NI Protocol is to apply to goods movements between Ireland and Northern Ireland.

There are customs obligations on purchases of goods from GB for the purpose of Irish and other EU sales. There are customs obligations on the sale or movement of goods to the UK. There are transit obligations on both purchases from continental Europe and sales to continental Europe which use the GB land bridge.

There are no customs controls in respect of direct exports from Ireland to continental Europe. There are no customs controls in respect of direct imports to Ireland from continental Europe. Where the goods cross the UK land bridge in either direction, a customs- like procedure applies known as transit.

Transit does not involve customs duties, but it requires procedures and guarantees. For practical and logistical reasons, it is hard for most traders to undertake transit declarations and transit obligations themselves “inhouse” on imports from continental Europe. Equally, there are several practical obstacles to undertaking transit obligations on traders’ EU exports through the land bridge.

Irish Account and Guarantee

Traders who import and export from or to the UK must register with Revenue for an EORI number for their Republic of Ireland company or business.

The below guarantee accounts  are likely to be necessary to cover customs duty and VAT in the event of Brexit, although some period of grace is likely to be allowed before  a guarantee is required for VAT.  The guarantee usually requires a facility from a financial institution.   Certain banks, building societies and insurance companies may give the guarantee. It can be backed by cash instead.

Below is an extract from Revenue’s website which sets out how to apply for a standard deferred account with Irish Revenue for customs. This is a deferral until the 15th day of the next month, It requires a comprehensive guarantee which also arises in the context of transit declarations.

 How to apply for a custom deferred payment authorisation

If traders wish to apply for a custom deferred payment authorisation, traders should already be approved for a comprehensive guarantee.

Traders will need traders’ comprehensive guarantee authorisation number before traders can apply for a deferred payment authorisation. Traders should apply for a custom deferred payment authorisation using the Customs Decisions System (CDS).

Traders should also complete a Direct Debit Instruction and upload it on traders’ application on the Customs Decisions System (CDS).

Traders may allow traders’ customs clearance agent to use traders’ deferred payment authorisation on traders’ behalf. If traders wish to do this, traders should also complete the customs clearance agent authorisation.

Sent the completed form to the eCustoms Accounting Unit.

The precise VAT rules for Brexit have not been made. The Brexit Omnibus legislation made in March 2019 allows for postponed accounting. This postpones the liability for VAT registered traders until the next VAT accounting date usually (15th (in fact 23rd for electronic filing which is universal) of the third month for the two month period),

This would allow VAT registered businesses to achieve much the same position as before Brexit, in that they may be able to offset import VAT against input VAT on purchases.  The legislation refers to the possibility of conditions and it might be expected that a guarantee equivalent to that required for the existing deferred VAT might be required at some point. There may be a grace period for getting the guarantee. The requirement for a VAT guarantee may be postponed for a longer period.

UK Account and Standard Guarantee

The traders’ UK counterparty would need to register with HMRC for a UK EORI number.  It would also be desirable that the  UK counterparty registers for the temporary simplified importation procedure announced by the UK government earlier this year for a hard Brexit scenario.

A UK deferred account allows deferment of tax to the end of the following month next following. It accordingly allows up to 30 days of credit. Payment is by way of direct debit. Payment must be in sterling. The UK may allow a period of grace in the event of a hard Brexit for getting a guarantee. See other parts of this website.

Below is an extract from the HMRC website in respect of the guarantee for the current version of the deferred account. Ultimately the Simplified Temporary Procedure guarantee is likely to be similar.

All customs debts incurred when goods are cleared must be secured if they are not being paid at that time. As such, the granting of duty deferment facilities depends on the provision of adequate security. HMRC can, under the same legal provisions, also select the appropriate form of security for its Duty Deferment Scheme.

 HMRC requires security in the form of a guarantee from a bank, insurance company or building society only. Guarantees provide the most effective, practical and flexible way of securing duty deferment charges. Additionally, traders’ bank, insurance company or building society must have our approval to act as a guarantor. Most banks, insurance companies, and building societies have this approval, but please ask our Central Deferment Office (CDO) (see paragraph 6.2) if traders want to check on a particular one. No other form of security, or guarantor, is acceptable.

 The guarantee must be either on a CCG2 if it is relating to customs procedures including import VAT or form C1201 if relating purely to Excise. The forms have been specifically worded, in agreement with the relevant financial authorities, to cover the Duty Deferment Scheme. By applying for deferment, traders and traders’ guarantor agree to its conditions and clauses within

 The guarantor agrees to cover each and every sum traders defer up to an overall maximum amount in any calendar month. This amount is traders’ deferment limit for the month. It must be enough to cover all traders’ deferrable liabilities (see paragraph 2.1) for any calendar month period.

Security must be provided to cover all customs and excise duties that traders defer.

 Import VAT and Excise, however, may not need to be fully secured if traders apply for Simplified Import VAT Accounting (SIVA) approval or Excise Payment Security System (EPSS). For more information on SIVA please look at Notice SIVA1 and for more information on EPSS please look at Excise Payment Security System (EPSS): authorisation criteria.

 Customs security can be reduced if traders have AEOC status. For more information please look at Import and export: customs guarantee.

 5.2 How much will the guarantee cost me?

HMRC does not charge for setting up the guarantee. It is for traders and traders’ guarantor to settle. However, please note that traders’ guarantor can be liable for up to twice the monthly amount shown on the guarantee. This is because traders can defer up to traders’ guarantee limit in a month, and then again in the next month before traders have paid for the first month.

The UK also announced a special enhanced form of deferred VAT accounting in the event of a hard Brexit in 2019. This would allow a  more generous deferral with a period of grace for a guarantee. See other sections.

The Core Issues in Customs

There are two significant aspects of customs. The first is the actual customs duties themselves. They are paid by the importer.

We have set out separately the rules as to what is added to the value for customs purposes. This generally includes the cost-plus transport to the country. VAT then applies in the country of import on the customs value plus the customs duty itself.

The other significant aspect of customs duties is the cost of compliance. There is an administrative cost in making customs returns by way of export in Ireland and by way of import in the United Kingdom and vice versa. This can either be directly incurred by traders or passed back to traders expressly or rolled into the costs of logistics.

Basically, customs is  about risk assessment. The essence of the process is that both revenue authorities undertake a computer-based risk assessment of the data and give traders either green routing, orange routing involving a document check or red routing involving a goods check on the outward (export) or (more commonly / likely) the inward (import) side.

The customs process is now fully computerised and involves one or a number of linked communications of a full set of data with the required information to both HMRC in the UK on the entry side and Revenue in Ireland on the exit side (and vice versa). In practice, all returns are made electronically. The electronic return is almost instant although the final results for full clearance may not be given until slightly before the ferry arrives in Dublin (or vice versa).

In theory, goods are presented to customs on each occasion. The presentation is by way of notice and declaration and is physical, only where Revenue gives a red or orange routing. The  VAT and duty are paid or accounted for and the goods are then clear to free circulation and can move anywhere in the EU as EU goods (or the UK as UK goods post-Brexit).

The goods can be, alternatively, may be cleared to go into customs warehousing either in the port or at an authorised warehouse inland. A further process of declaring them to free circulation would take place at a later stage when duty is paid, they are released and removed from the controls of a customs warehouse.

In practice, where traders may be able to get to is that they are in effect a trusted trader to the Revenue and to HMRC, which each accepts that they are low risk. In this case, the vast majority of traders’ movements will be green routed so that traders’ goods effectively move freely over land and/or through the port without (usually) being stopped for physical inspection. If there are duties and VAT, they will be covered by an account with Revenue or HMRC, which will usually require to be backed by a guarantee.

Even in this scenario there is still going to be some possibility of random stopping and checking as part of the Irish and HMRC customs obligation to police customs compliance. This is much more likely to be on the import side than the export side. Irish Revenue in the existing customs environment, give prior clearance in 92% + of cases with approximately 4% to 5% further being subject to documentary checks and 2% to 4% being subject to physical checks

Being a trusted trader in this sense is not a formal status. There are special customs statuses which can be obtained but which are subject to significant qualification barriers and are mentioned elsewhere in this website. In practical terms, they’re more likely to be a status which their logistics provider may have and for which they would more likely qualify.

Need for Importer and Exporter of Record on UK Sales and Purchases

On every export from the UK and import into Ireland (and vice versa) there needs to be an exporter of record and an importer of record. In order to undertake customs declarations, traders must have a company or an establishment within the relevant jurisdiction.

An alternative is that traders appoint a customs representative who has liability for traders’ customs duties and obligations as either importer or exporter as the case may be in Great Britain. Normally commercial customs agents and freight forwarders orders would not want to be traders’ indirect representative as they would have liability for customs duties in the declarations made. They generally want to be a direct representative is where the liability remains with traders.

Customs Administration Obligations

Traders would have basic compliance obligations to the Irish Revenue and UK HMRC in the event of customs controls applying, regardless of whether there are customs duties or not. They are in addition to traders’ existing VAT and other obligations. However, the broad Revenue and HMRC enforcement and administration are similar, which traders will be used to.

A further issue which traders need to address arises from requirements and obligations in retaining customs data. Regardless of who makes the declarations on the trader’s behalf, where they are the importer or exporter of record, they retain responsibility even though the logistics provider or customs broker may have completed the return as their agent. They need assurance that they will preserve the customs declarations in electronic form and make them available on an ongoing basis.

If there are other associated documents in the process such as invoices and licences (not generally applicable) they need to be associated with the relevant returns. The supporting documents may include the commercial invoice, packing list and in the case of any controlled goods any licences and associated data. They are usually referenced in the customs declaration.

There is an obligation to have and maintain the requisite documents and information for establishing customs liability.  They can be required in a customs audit by Revenue or HMRC.

The data must be kept and retained and be available irrespective of whether traders no longer use the logistics provider or another supplier or any of them have gone out of business.  They would have no duty to retain documents unless they are required to do so under the contract with them.

Traders need to retain the customs data for at least four years (and in some cases six years) after the relevant date under customs legislation and sometimes longer under other legislation. Traders need assurance that they will be held and retained even if the logistics provider goes out of business or there is a break down in a relationship with the logistics provider or supplier. Preferably traders need to have the data available to traders on traders’ system on an ongoing basis.

It is vital that traders obtain from traders’ logistics provider (if traders use them for customs declarations) a service commitment to both undertaking the declarations in a timely fashion and storing and transmitting to traders the electronic returns linked with invoices and other commercial documents relevant to the movement. These would be required in the event of a customs audit on either side

Audits and Enforcement

In each case (UK and RoI), there are both administrative penalties i.e. on the spot fines and criminal offences for breaches of customs obligations. Directors and persons involved in the company at a level of instrumentality who cause the company to do the relevant breach can be prosecuted individually, fined or even imprisoned. Traders may be aware of the notorious case where a business owner importing garlic which appears to have been deliberately mis-declared, received a substantial prison sentence (although this may have been later reduced on appeal).On both the Irish Revenue and UK HMRC side, there is the possibility of enforcement on the ground at the border, at premises and/or in an audit.

Officers of the customs have policing powers in relation to customs which are more like those of the UK Police/ PSNI and Gardai, than in the case of other taxes. They have stop and search powers. They may search for computer and electronic records They may search premises.

The goods can be forfeited for breach of customs law. There are procedures for appeal but ultimately this could be an extra cost of non-compliance.

As in other tax areas, customs audits are notorious and if traders have made an error in customs returns, traders can be hit with a charge for arrears and even penalties and interest in the event of the matter emerging in an audit.

Issues of classification and valuation are central to and are open to challenge on an audit. Issues around revenue/payment obligations in the UK and the Republic of Ireland will be the ones to which Revenue or HMRC will be most attentive if there are duties.

Of course, traders would expect the Revenue and HMRC on both sides to be “light touch” at least at first, and not to be harsh in the event of genuine mistakes as opposed to deliberate reckless or careless actions.

There are obligations to retain evidence of transactions and supporting documents for a period of up to 6 years. Unless traders retain paper files traders need some mechanism of scanning basic documentation having access to it through the providers and retaining supporting documents such as commercial invoices and any compliance requirements in the case of goods subject to authorisation licensing. The data would need to be associated with the customer, case, and order electronically.

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