How we've helped our clients

Customs Warehouse & Returned Goods Relief

The situation/challenge

Company moves goods from the Far East to the United Kingdom and subsequently, the Republic of Ireland. This is a long-standing operation implemented prior to Brexit that allowed import of third-country goods into the EU and a subsequent free movement of goods within the EU.

Post-Brexit, however, the UK has become a third country to the EU. As a consequence, the EU free trade agreement with the Far East countries could no longer be employed unless in conjunction with other Free Trade Agreements concluded by the UK with the EU and the Far East countries where the supplier/manufacturer was located.

This new post-Brexit set-up could imply payment of Customs duties in both territories – the UK and the EU. This is because often Free Trade Agreements have a direct transport rule that implies that goods should not be Customs cleared in a third country. The purpose of this rule is to ensure that goods arriving from the Far East supplier to the EU have not undergone any transformation.

The company also has suppliers in the EU that it has long-standing pre-Brexit undertakings with and they wished to retain these relationships.

The challenges

Post Brexit the company faced an ongoing problem of how to benefit from two different Free Trade Agreements and other Customs facilitations, where previously they were simply operating within the EU FTAs framework.
The business needed to understand the impact on different stakeholders in their supply chain in order to save costs, ensure compliance by gathering the relevant documentary proof and implement changes to physical processes.
For Customs duties relating to the company’s EU suppliers, a different treatment would be needed. More specifically, it was necessary to re-import EU goods into the EU under nil Customs duties and import VAT.

Our solutions

Our Customs Team worked with the company to set up a Customs Warehouse which enabled suspension of Customs duties and import VAT in the UK in order to subsequently import goods under Preference into the Republic of Ireland.

This would ensure storage of goods under Customs supervision and so prove to the EU authorities that goods were not transformed and can, therefore, be transported to the EU under preferential origin and, therefore, reduced or nil Customs duties.

As part of the process to set up the Customs Warehouse, our team also undertook:

Submitting the application to the relevant authorities.
Helping the business review and change operating processes and procedures in order to ensure the movement of goods into and out of the warehouse is correctly tracked, in accordance with regulations.
Helping the client shape and use suitable software to enable more efficient management of the new processes.
Supporting the business with the creation of written procedures for staff on how to ensure compliance with the new requirements and practices.
For goods originating in the EU, we were able to make use of Returned Goods Relief ensuring reimportation of goods in the EU was cost-effective.
We worked with the client to obtain the necessary Certificate of Origin pertaining to a variety of trade arrangements which included Free Trade Agreements and Generalised Scheme of Preferences, which means no duty is payable at import.

Benefits

Saved potential Customs duties and import VAT on goods imported from the Far East, (currently charged at third-country rates that can be as high as 12% and 20% respectively), resulting in a positive impact on the company’s cash flow and bottom line.
Substantial savings for the business long-term through no duty or VAT being payable on goods imported from within the EU and re-imported to a different customer in the EU.
Improved record keeping and stock control through better systems.
Better controls over storage processes which ensures compliance with the terms and conditions governing use of a Customs Warehouse.

Valuations and Customs Duties

Our Solutions

Our team reviewed a particular set of historic data taking into account discounting and sampling and presented various options for determining value, to the business. We selected the appropriate Valuation method, deducting certain elements while including others. This allowed us to arrive at the correct unit price.
We sourced a freight forwarder/Customs agent who can accommodate the complexity of the situation and act as an indirect representative.

We worked closely with the business to rebuild their understanding of what was needed from Customs Duty and VAT points of view.
We reviewed their pro-forma invoices to ensure all necessary details were included.
As elements of the business relate to food, we ran checks for the specific requirements governing food products and ensured they didn’t need further licences for exporting/importing food related goods.

Benefits

Through our advice on valuation method and other Customs components, the business is reassured that it neither overpaid nor underpaid Customs duties and in the event of an HMRC audit, would be using the correct declared value.

The situation

The company is based in the European Union and is sending goods to the UK. The business sells to both the B2C and B2B market. Its transactions are, however, only known after the goods are imported into the UK.

The company dispatch goods to the UK in bulk on a regular basis and require a third-party logistics provider in the UK to receive the goods and manage the distribution, for both online sales and negotiated bulk supply contracts.

The challenges

The business does not have a transaction value when sending the goods to their third-party logistics partner, so technically does not sell the goods before they are imported into the UK.

Because there is no transaction value for the goods at the point of import the company cannot declare an actual sales price upon which Customs duties and import VAT would be payable. Instead, they issue a pro-forma invoice with a nominal value for the goods. This creates an issue when determining the Customs value of the goods, because they also cannot be valued at the cost price from the supplier, nor at a price charged per unit, because the company offers free items and other discounts depending on the quantity of the goods purchased.
There are a number of different methods Customs use to value products – our first challenge was to determine which method would be most appropriate for this particular company. We then had to assist the company in sourcing a supply chain that could deal with this complexity.

The business is very customer focused and in the interest of meeting their high service standards, often moved goods prior to fully understanding the Customs duty implications. In addition, a key manager within the business left the business and there were significant gaps in knowledge relating to logistics and Customs matters.
Different goods sold to B2C and B2B are of different Origins, meaning that Preferential Treatment and 0% Customs duties could potentially be claimed on some goods.

Our solutions

We advised on a number of short-term actions that allowed the company to save costs and import goods into the EU under reduced or nil Customs duties. We have also explored VAT aspects ensuring import VAT was easily recoverable. Several actions were not purely based on costs savings, but rather compliance and correct import processes set-up, alongside specific instructions to freight forwarders/Customs Agents.

As a long-term action plan, it was possible to set up an EU entity in the Republic of Ireland, post-Brexit, which included reorganising the corporate structure and adapting the supply chain and the relevant Customs and VAT solutions accordingly.

The tariff classifications for some of the parts being imported/exported can change on an annual basis. We conducted a review and successfully reclassified several of the products – ultimately this ensures they are neither overpaying nor underpaying Customs duties.

There are specific rules governing Origin determination for a manufacturing business that enable these organisations to issue their own Origin Statements which result in a preferential customs duty rate of 0% - if done correctly. We reviewed this to ensure the business was compliant – as any error could have resulted in Customs duties of as high as 12% being payable.

We reviewed the existing transfer pricing agreement and considered the implications for a variety of supply chain issues. This allowed the company to properly determine the value of the goods and determine the exact responsibilities each entity needed to fulfil. Additionally, we ensured the business had a correct set-up and management strategy pertaining to a flash-title model, where the UK entity retained most profit, but still relied on the EU entity to facilitate sales to EU customers.

The challenges

Prior to a Brexit agreement, the business was considering setting up an entity in an EU country, to facilitate the movement of their goods in Europe post Brexit. This would require us to run through various scenarios based on possible outcomes and long-term implications. The business considered the possibility of registering a subsidiary in the EU, something its bigger EU customers were requesting. This, however, would be the long-term solution, while a short-term mitigation strategy was also necessary.

Post Brexit, we needed to ensure current classifications for their products were correct and all supply chain scenarios were in line with Customs rules. A lot of emphasis was placed on exploring the manufacturing process, where materials from different parts of the world were used to assemble the final product.

The business also in effect would end-up ‘trading with itself’ by way of a new EU establishment, which together with Customs duties had implications for Customs Valuation, Transfer Pricing, import VAT/VAT generally, invoicing and otherwise, requiring review and correct management.

Preferential duty rates, Country of Origin and Transfer Pricing

The situation

This UK-based company manufacture exhaust parts for vehicles. Their customer base is spread across the European Union. They also regularly participate in exhibitions and fairs that require them to move these goods within the EU for marketing purposes.

It was important for the business, post-Brexit, to be able to import sufficient stock in the EU and to continue to service their EU customer base. Similarly, it was important for the business to retain control over all transactions and keep profit in the UK.

Benefits

Helped the business successfully set up an entity in the Republic of Ireland which in turn enabled them to keep its biggest customers happy and Customs duties low and also, limit any potential price hikes which would adversely have impacted customer retention.
Ensured correct record keeping and invoicing necessary to meet Customs Duty, VAT and Transfer Pricing obligations.
Allowed the business to fully control its profit and operations by means of a flash-title model, where the EU entity would retain ownership of the goods for only a very limited period of time.