On the 31 January 2020, the UK ceased to be a member of the European Union (EU). From 1 February 2020 we entered a transitional period that is due to end on the 31 December 2020 during which time, for the purposes of EU trade, the UK will continue to be considered an EU country and benefit from the free movement of goods.
However after this period, the UK will leave the customs union, and with it, the frictionless movement of goods between the EU and the UK will likely end. Price Bailey’s advice to businesses who currently trade in the single market is to take action now to ensure they are prepared for all the potential changes.
To assist those businesses currently trading with the EU to understand what the changes may bring, we have set out five steps for getting Brexit ready:
Step 1: Identify and map out your EU sourced goods
Businesses should undertake a mapping process to understand which goods they trade in the course of business between the UK and the EU. As part of this, it will be useful for businesses to have a solid grasp of the International Commercial Terms (Inco Terms) of the goods sold/bought and any associated responsibilities the business is subjected to under these terms.
Step 2: Allocate commodity codes and understand the origin of sourced goods
Commodity codes are designed to classify the goods you import or export in order to ensure businesses are paying the correct duty and VAT and to complete the required declarations and other paperwork correctly. EU/UK trading businesses will need to allocate commodity codes to the goods being imported/export between the EU and UK.
If we reach a free trade agreement with the EU, we expect that the agreement will only apply to goods that actually originate in the EU, therefore UK businesses importing EU origin goods will not be liable to pay duty on those goods, and vice versa for UK origin goods imported to EU. Purchasing goods from the EU does not automatically confer EU origin; the EU sourced goods could have been originally imported from China or elsewhere. Therefore, whether we reach a free trade agreement or not, businesses will need to ensure they understand and can prove the origin of their sourced goods.
Step 3: Prepare an import/export instruction sheet to ensure goods are handled correctly
For imports and exports, businesses will need to give clearance instructions to a nominated clearance agent to ensure the goods are declared correctly at import and/or export. While the specifics are likely to differ depending on how the goods will be imported/exported – as a minimum, we expect instructions will need to include:
- EORI number
- Description of the goods
- Commodity code
- CIF value
- Method of import – standard import or use of any trade regimes
If a business does not already have a clearance agent, they will need to engage one before the end of the year. If a business transports their goods through a separate freight company, they may be able to enquire about using their agent.
Step 4: Develop a shipment log
Best practice suggests the use of a shipping log. This assists a business to log and identify all import and export shipments, aiding the provision of import/export records to HMRC during an audit. Use of a shipping log ensures for easy record keeping and monitoring the required compliance checks.
Step 5: Record keeping and compliance
On an ongoing basis, businesses should ensure that they maintain sufficient records that are easily accessible in either electronic or hard copy format for future HMRC audits. Examples of the records and measures businesses are advised to maintain are:
- Ensure that copies of all import/export entries are obtained from the customs clearance agent after import/export;
- Double-check all documentation is held covering the movements captured in the shipment log;
- Check the import/export entry against the instruction template to ensure the import/export has been completed correctly, and;
- Alert the customs clearance agent to any errors that require amending.
While the details of the changes to EU-UK trade are still to be finalised over the course of 2020, we can expect that an increase in processes akin to that outlined above will come into play. Therefore, for any business currently or expecting to trade between the EU and the UK that is not sure what steps to take, we advise you to seek timely advice.
This blog was written by Paula Reet a Customs Duty expert at Price Bailey. If you trade with the EU and are not sure how these changes may affect you, please contact Paula using the form below.
We always recommend that you seek advice from a suitably qualified adviser before taking any action. The information in this article only serves as a guide and no responsibility for loss occasioned by any person acting or refraining from action as a result of this material can be accepted by the authors or the firm.