The largest change to UK and European Customs procedures in the last 20 years is due to take place on 1st May 2016, with the introduction of the Union Customs Code (UCC). The Institute of Export’s director for special projects, Mike Josypenko, looks at some of the issues which are in the offing for UK traders.
Why haven’t we heard more about this?
The European Union’s current customs framework, the Community Customs Code, has been due for an upgrade and overhaul for many years: introduced in the 1990s, member states have been discussing an updated framework for almost a decade.
At long last, the new Union Customs Code (UCC) is set to be unleashed onto EU on 1st May. Although it has been in preparation for several years (and has actually been on the statute books since 2013), many traders are only now becoming aware of the changes that the new customs framework will mean for them. This is partly because many of the code’s key provisions were still being negotiated and approved right up to the end of 2015, leading to a lack of definitive legislation for business to act on.
One of the most significant areas of change under UCC will be in the treatment of customs procedures that allow traders to delay or defer payment of import duty and / or VAT when goods are imported under specific circumstances – currently known as Customs Procedures with Economic Impact. Under the new code, these will be subject to major changes, some of which may be beneficial for traders, but many likely to involve additional administration and cost.
How will things change for traders who use Inward Processing Relief or other procedures?
Up until now, UK traders using Inward Processing Relief (IPR) have been able to suspend payment of customs duties when goods, components or raw materials are imported for processing and subsequent re-export outside the EU. Under the incoming UCC, this procedure will be combined with Processing under Customs Control – another system, which allows imported goods to be processed without payment of duty under specific circumstances. The new process will be known collectively as ‘Processing’, and will operate with a number of changes. Other procedures, such as Custom Warehousing and End Use are also changing.
Is it changing for better or worse?
Both! One positive change for traders using IPR is that goods will not now have to be re-exported outside the EU after processing. In the past, traders using IPR were subject to ‘compensatory interest’ – a form of penalty charge – if the processed goods were not re-exported, or otherwise disposed of under approved methods within a specific timeframe. The new regime will allow goods to be entered into home use, i.e. into free circulation after processing, without any penalty, provided that correct procedures are followed.
And the bad news?
A less welcome change for traders is the news that those using the new Processing regime, as well as other ‘Special Procedures’ (such as customs warehousing), will now have to provide HMRC with financial guarantees. These cover the value of all real and potential customs debt on goods covered by the procedure (in other words, import duty and VAT).
This is in addition to existing duty and VAT deferment requirements, which was not previously the case in the UK, so is a new financial burden for traders here. HMRC points out that this change is intended to bring us into line with many other EU member states, where traders already have to provide such guarantees.
An exemption will be given to companies who are authorised by HMRC as Authorised Economic Operators (Customs) – AEO (C). They will be allowed to apply for a waiver of guarantee for potential debts.
Another significant change means that traders who apply for Processing, or other ‘Special Processes’ (or who renew existing authorisations under the new regime), will have to conform to more rigorous requirements. These effectively mirror those for AEO (C) Accreditation, but without the full benefits of AEO (C) status. This, combined with the enhanced guarantee waivers mentioned above, is already leading many traders to seek AEO (C) status.
I only use the simplified version of IPR occasionally to process repairs or upgrades of products. Will this also affect me?
Yes. Currently, a large number of UK companies use a simplified version of the existing Inward Processing scheme to handle shipments that are sent back to them by overseas clients for repair or upgrade. The simplified scheme did not require prior authorisation and could be used on an ad hoc basis, up to ten times per year, without needing to provide guarantees for potential duty on the imported goods. Under the Union Customs Code, the scheme will be known as ‘authorisation by declaration’ and can only be used a maximum of three times per calendar year.
Traders using this scheme will also have to provide guarantees for the potential duty in advance of the import shipment. Because users of this simplified system are not formally authorised, there is less scope for HMRC to communicate the changes to them; as a result, these significant changes may come as a considerable and unwelcome surprise to many companies.
What should I do if the changes are only a few months away?
HMRC has recognised the size of the potential impact of the changes to traders (and is possibly mindful of potential backlogs in applications for AEO and other procedures). It has advised that companies already holding an existing authorisation for a customs procedure or for AEO can continue to operate under that authorisation and current conditions and rules – until the current authorisation expires, or until 1st May 2019, whichever is sooner. This effectively means that those companies with an existing current Inward Processing authorisation will not have to provide a guarantee for potential duty until their authorisation expires or is renewed. It will be welcome news to many members, however, we advise them to consider the long-term implications of this and start to prepare as soon as possible.
Where can I find out more?
As a result of the changes, HMRC is preparing a number of new application forms for the changed processes, as well as Customs notices and Information Papers. Many of these are still being produced at the time of writing, so traders are advised to watch out for the new versions of notices for any customs procedures they use, by visiting: https://www.gov.uk/government/publications/notice-999-catalogue-of-publications .
They should also monitor Customs Information Papers, which are likely to contain details of new HMRC procedures and forms. These can be found at: https://www.gov.uk/government/collections/customs-information-papers–2#customs-information-papers-2015 .