Brace for Brexit 4: Defer import duty

Jason Croke implores businesses to start reviewing their options regarding customs duty and deferment accounts, as new VAT and customs duty rules will apply from 1 January 2021.

4th Nov 2020
VAT Director Rayner Essex
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Brace for Brexit

Mindful of the disruption that the end of the transition period may involve, the government has introduced a number of PF measures to limit the initial impact of Brexit - the 'cliff edge' often referred to in the media. But such measures are temporary, and business owners may need to consider the short and long term plans for the business in terms of import duty and cashflow.

EORI (Economic Operator Registration and Identification) Number

This is a number used by freight handlers and customs when goods move between countries. It is important to ensure businesses have an EORI number. 

Check this website to see if your business already have an EORI number. If you don’t have an EORI number then it's a good idea to apply for one - it's free and only takes a few minutes.

Postponed Accounting

There are two measures introduced from 1 January 2021 relating to VAT and import duty.

VAT:

Ordinarily, from 1 January 2021, goods arriving into the UK from anywhere in the world will be subject to import VAT and the goods will not be released until HMRC are paid. A later article in this series will cover who is responsible for paying that VAT.

Assuming the buyer is the importer, the buyer would usually rely upon the freight agent to make payment of VAT, and the agent will charge a fee.

From 1 January 2021, import VAT can be accounted for on the buyer’s VAT return; similar to reverse charge, it sees the import VAT declared in Box 1 and reclaimed (if a fully taxable business) in Box 4, with the net purchase value in Box 7.

This measure means goods are not held at port/customs for the majority of business purchases, and crucially the buyer does not suffer a cashflow impact of having to pay VAT before it receives the goods it has purchased.

Duty:

Like VAT, import duty is declared at arrival into the UK and paid before the goods are released; again, the freight agent usually does this and charges a fee. 

For the first six months, import duty is still due but HMRC will release the goods without payment so as not to cause backlogs or delays. The taxpayer must then settle this deferred import duty within six months. The taxpayer will also have to file the import documentation at that time too.

This deferred payment of duty only applies to non-controlled goods. Controlled goods include alcohol, tobacco and other excise goods.

This gives taxpayers some time to either appoint an agent/freight handler (for a fee) or to train employees on the import system (CHIEF/CDS) and acquire the appropriate software to file such declarations. We will cover the import and customs declarations in a later article.

Duty Deferment Accounts

These already exist for business which import from outside the EU, but will become more popular following the end of the transition.

A duty deferment account allows HMRC to release goods without payment of duty, with HMRC taking the import VAT and duty the following month via direct debit. The deferment is supported by a bank guarantee, so there may be a fee from your bank for this facility. However, this does mean that a regular importer of goods does not suffer delay in receiving those goods.

An enhanced deferment account, called SIVA (Simplified Import VAT Account) can also be sought from HMRC. Whereas the deferment account requires a bank guarantee for both import duty and VAT (based on the estimated values of imports), a SIVA requires a guarantee only for the duty element , therefore a reduced bank guarantee, meaning a lower fee from the bank.

Summary

All of the above considerations will depend on the business and its level of imports.

An occasional import of stock from the EU may be easier to deal with via a freight handler or agent. A business with high volumes of imports may consider training employees to file the declarations and manage the deferment account with HMRC. Ultimately cost, time and resources come into play.

If nothing else, try to ensure the business applies for an EORI number, and reviews its supply chain, volumes and values. That work will form a picture of what best works for the business.

The message remains the same - these concepts will happen regardless of a deal or no deal outcome, so businesses must start reviewing their risks now.

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By tom123
04th Nov 2020 14:55

Is the deferral of VAT and duty automatic, or do we have to apply for it?

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Replying to tom123:
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By Jason Croke
05th Nov 2020 12:03

Both are automatic.

The import VAT you just process via your VAT return (ie, declare the import VAT in Box 1 and reclaim same in Box 4, assuming you are not partially exempt)). So this will be driven by the shipping paperwork, so your VAT number/UK EORI number will be key.

The import duty you enter the transaction into your own records, but eventually need to submit the full import declaration to HMRC via CHIEF/CDS (so you either do this yourself by upskilling/getting to understand the import paperwork and how to file it or you get your freight/shipping agent to do this).

It does raise a question that if you are using an agent to handle the importation paperwork, will the agent be happy to effectively sit on a load of paperwork relating to importations and file them 6 months later so that you enjoy the benefit of the 6 month deferment. I will look into this and get back to you.

https://www.gov.uk/guidance/declaring-goods-brought-into-great-britain-f...

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