Aug. 19, 2020

Brexit: Amid Change, Some Things Remain the Same

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The road to Brexit has been a series of twists and turns, with numerous proposed amendments to rules that govern the flow of goods into and out of the UK. Yet, while many of the expected changes have evolved in the past year, some aspects will hold steady. Read on for a summary of what to watch for.

Customs Representation

There are two main types of customs representation in the EU:

1) Direct, meaning a company remains liable for the information on the declaration with its broker filing on its behalf.

2) Indirect, meaning the broker is wholly liable for the accuracy of the import declaration for up to three years.

Two scenarios will require businesses to prepare and ensure broker representation by January 1.

  • UK-established business with no EU entity, directly importing or moving goods to the EU:

On the UK side, importers can continue being directly represented until January 1, when they will need INDIRECT representation. After that point, the representing broker will be wholly liable and will take on responsibility for any potential fines that may occur within three years after the customs declaration. This will likely increase customs costs. In addition, it may limit representation options as some brokers will not want to take this on.

  • EU-established business with no UK entity, directly importing or moving goods to the UK:

EU-established businesses that have not established themselves in the UK, but which import to the UK, will require their brokers to indirectly act on their behalf come January 1. To avoid disruption in the new year, importers should start the conversation now with their brokers, to ensure coverage.

Incoterms and Commercial Agreements

Whether importing or exporting, businesses should be aware of the Incoterms they are shipping under. More to the point, ensuring consignees are in agreement with expected changes in the new year will be critical. Consider updating sales agreements to reflect Incoterms that fit the new customs environment.

Shipping EXW, DDP, and DAP will need extra considerations:

  • Shippers selling under DDP terms will be required to fulfill local export requirements AND import requirements in the third country. This may end up requiring a broker to act as an indirect representative.
  • Businesses buying under EXW terms may need to fulfill import customs clearance andt export customs clearance in a third country. This can cause issues in some cases. For instance, if exporting from the Netherlands, that country has announced that a non-established EU company can no longer act as the exporter of record as of October 1, 2020.
  • If a company is selling under DAP terms, it may be required to issue local transit documents to a local warehouse—either from the port or to another EU member state.

Customs Declarations and Controls

While most importers and exporters will appoint a broker to file customs declarations, two considerations come into play before doing so: expertise and cost.

When it comes to expertise, customs brokerages have experience with clearing products, classification, valuation, and special procedures that can reinforce compliance within the supply chain. In addition, importers can take advantage of Customs Freight Simplified Procedures (CFSP) with declarations. This process, as the name suggests, simplifies importing with faster clearance for certain types of goods at the border. However, it also creates more administrative work for the broker and importer, which can increase the cost per clearance. Talk to a broker or trade advisor to determine the right option.

Customs control comes with the customs declaration but importers need to be aware of whether goods are controlled at the border or at a separate border control point. Although the UK government announced a new, three-step approach, it has no bearing on if goods are controlled. Rather, it simply phases in levels of control at the border over a period of time. The first and more basic level will span from January until July in the coming year. Be sure to engage a broker or trade advisor to understand the requirements.

If the UK negotiates a deal with the EU before January 1, some of these processes may change. But regardless, there will still be a need for customs declarations.

The New UK Tariff Schedule

A provisional UK global tariff was published in May and will replace the common external tariff (EU) on January 1—although Her Majesty’s Revenue and Customs (HMRC) has hinted some changes may still need to be applied. Importers should study the new tariff for two reasons:

  • To understand the changes to landed costs that will occur.
  • To find out if it will be necessary to reclassify goods and update ERP systems to reflect these changes.

Partnering with a broker that can manage SKU data and provide upstream visibility of landed costs—all in one place—will be a game-changer come January 1. Flexport, for instance, can manage large SKU databases and report on a landed-cost level in multiple tariff schedules/jurisdictions.

Free Trade Agreements

The UK is in the process of negotiating its own free trade agreements with many countries such as the US and Japan. If the UK fails to conclude these negotiations by January 1, businesses will need to assess the impact of full duty rates being applied on imports—and many goods may see drastic increases.

Companies will need to update internal compliance procedures—and define the EU and UK separately—in accordance with how the tariff will be implemented over the coming years.

VAT-Postponed Accounting

The UK Border Operating Model, published July 13, provides insight into postponed VAT accounting and how it will be used post-transition. Companies will need to inform their brokers of their intention to use this method of accounting for VAT. With this model, the C79 will be replaced with a schedule report issued by HMRC. Worth noting: VAT-postponed accounting will not be used in conjunction with CFSP and Entry In Declarant’s Records.

Moving Stock Within a Company, Between Divisions

The movement of stock causes complex valuation dependencies. With that, it’s important to set up transfer pricing studies to conform with multiple EU member-states and the UK. While these can be costly to implement, in the long term they can avert potential customs fines and retrospective duty payments.

Understanding the intricacies of customs can be a challenge at any time. But with Brexit and its various phases, it can become even more so. To take advantage of customs expertise, consult with a Flexport broker.

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