The Recent General Election and its Impact on International Trade and Brexit

17th January 2020

Following the landslide victory of Boris Johnson’s Conservative Government in the General Election last week, the UK leaving the European Union on the 31st January will go ahead.

We have a transition agreement in place with the EU until December 2020. Prime Minister Johnson is putting through a bill to block further extension to the transition agreement if a trade agreement is not reached by the end of next year.

So what does all this mean for business?

In the first instance it would not be wise to sit back on your laurels and expect another 12 months of no change to our trading arrangements with Europe. We need to start planning now for progressive implementation of customs procedures, considering that from the start of business on Monday 3rd February we will no longer be in an economic partnership with Europe or any of the countries with whom we currently have free trade agreements, (though about 20 continuity agreements have already been ratified with individual countries and economic blocs)This means that in effect the UK will have to trade will all other countries as a third country, therefore full customs procedures should be implemented, the transition agreement will offset that in the short term but it could be that we start to see controls and procedures within 3 to 4 months, therefore by May or June.

The key elements of how your business will be affected are:

Duties

The vast majority of business sectors will be subject to duties being implemented on their imported and exported products. An average duty fee will be between 2.5% and 3.5% of the value. This will include many products important to Sheffield like animal feeds, raw material alloys, chemicals and pharmaceuticals. Some materials and products however will have a higher duty level applied e.g. cars at 10%: and foodstuffs may range from potatoes at 11.5% and beef at 84% for exports and 0% and +45% respectively for imports.

A temporary rates structure has been implemented for a 12 month period after which the government will introduce a permanent tariff regime following a public consultation.

VAT

20% VAT will be applied for the first time to imports from the EU but can be reclaimed on submission of the quarterly VAT return. It will however have a serious negative effect on cash flow because the 20% must be paid before the goods can be cleared into the country. Any European customers will be charged VAT and duty on importation of goods from the UK.

Many customers are likely to request a change of delivery incoterms to a delivered duty paid basis (DDP), in which case a registered European VAT number will be needed in-order to reclaim the VAT, albeit this will also have cash flow implications.

Customs Documentation

Circa 138,000 businesses in the UK trade only with Europe. For the past 45 years these businesses have not had to complete any normal customs documentation at all apart from Intrastat. This will change BUT most of those businesses will not know what their legal obligations or customs procedure requirements are for international shipments.

  • CUSTOMS DECLARATIONS: There are currently approx. 55 million import and export declarations submitted to HMRC every year for trade outside the EU but after Brexit this is projected to increase to over 200 million per annum.
  • CERTIFICATES of ORIGIN: Non-European Free Trade Agreements (FTA) the UK currently has with 45 individual countries or FTA Blocs by being a member of the EU will disappear. After 31 January it is likely that most of those countries will require Certificates of Origin. The UK will no longer be able to supply EC Certificates of Origin and have already printed UK Certificates of Origin which are in stock at the Chamber. The preferential trade documentation, called EUR1’s will completely disappear, however for those few markets with whom the UK will have agreements after Brexit (continuity agreements), the name of the document will stay as EUR1’s. Printing of these documents is in hand and they will be available from the Chamber.

International Requirements – How can Sheffield Chamber International Trade Centre help?

For the past 18 months Sheffield Chamber International Trade Centre has been preparing to assist companies to mitigate the effects of Brexit (whether a hard or soft exit from Europe), and to help company’s prepare for imminent changes to export and import procedures internationally as driven by the World Customs Organisation and the World Trade Organisation.

The Chamber has invested substantially in new staff, training in areas like import/export recording and declarations on the new international computerised CDS system (which will replace the UK specific CHIEF system), and gaining new approvals like REX, AES and AEO. It has also enlisted the services of an ex HMRC VAT and Customs Compliance specialist, on a retainer contract. Under consultancy agreements the Chamber has been helping companies audit their current procedures, upgrade them as necessary, apply for and obtain the approvals they may need in the future.

The Sheffield International Trade Centre can now offer a program and support package called must do’s – preparation for brexit and beyond. We have been asked by government to ramp up our offer to business as the deadline date is fast approaching and we have entered an agreement with Sheffield City Council to provide services to all business who contact us for assistance.

This practical assistance falls into four areas.

A – Legal Understanding

  1. Running a customs compliance audit / training to ensure the companies understand that they will have to start a documentation trail following the same rules and regulations as they would for exporting and importing from Non-EU countries.
  2. Issuing Standard Operating procedures covering each aspect of the import and export process from order placement to receipt and the subsequent documentation which must be retained for customs purposes.
  3. Explaining the requirement for import and export customs declarations, the impact and effect on all business and the mitigating circumstances SCCI are putting in place.
  4. Understanding the responsibilities and liabilities of the exporter, the imprter and third parties such as forwarding agents, clearing agents etc.
  5. Working with companies to make applications for certain customs systems which will create an easier and cost effective transition following the compliance audit.

B – Cost Liability

  1. Looking at the vulnerable aspects of the business from the point of view of added cost at point of purchase and/or sale in the form of Tax, Duty, (dependent on commodity code) freight delay and calculating the net result to the bottom line.
  2. Close explanation of the VAT liability and the need to mitigate risk of non-proof of export therefore inability to Zero rate VAT

C – Cost Mitigation and Border Delay

Depending on the above analysing ways to reduce the cost assessing each of the following systems

  1. Inward Processing Relief (IPR). Primarily for Raw materials bought into the UK from both EU and Non-EU countries, processed then re-exported thereby only paying import duty on the added value. Outward Processing Relief (OPR), similar to IPR but for UK companies sending raw material out of the UK for processing thus reducing the dutiable cost liability significantly. Ensuring their customers in the EU (and internationally) are familiar with the OPR application and control procedure.
  2. Ensuring the companies understand the Transitional Simplified Procedures for import laid out by HMRC in April 2019 and this leading into Customs Freight Simplified Procedures (CFSP) meaning there will be a summary clearance at the port and full declaration must be made at the trader’s premises in the preceding 72 hours.
  3. Bringing goods into the UK using a customs warehouse so tax and duty need only be paid on the incremental values rather than the whole consignment thus assisting cash flow.
  4. Building stocks on the European mainland by using a customs warehouse thus assisting cash flow and reducing risk of delay at border points.

Explaining about the benefit and cost of consignment stock.

D – Trusted Trader

  1. Full explanation of the importance of trusted trader standards REX; AES and AEO as laid out in the revision of the SAFE Framework in June 2015 and subsequent changes to the Union Customs Codes May 2016 and the impact for companies when the UK leaves the EU. (although this extends to the rest of the world as well).
  2. Offering a full service to help businesses achieve REX, AES and AEO approvals.
  3. Offering a one stop shop for businesses (and particularly SME’s) to handle all their documentation, customs and export procedures. Sheffield Chamber is an approved Customs Broker.
  4. Please note that this document and the service it describes is focused on companies that trade in goods abroad. Every Business, and every individual is likely to see cost and price changes from Brexit. Businesses offering or buying services will probably see implications in the future albeit this is less well defined.

E – Brexit Prepared?

  1. Check you have an EORI number. Economic Operators Registration and Identification Number
  2. Decide who will make the import and export declarations for you. Ie. Sheffield Chamber of Commerce as accredited Customs Brokers through ChamberCustoms
  3. Understand all of the customs systems to make importing easier, such as TSP,IPR etc. If you are not sure or do not know if your company will qualify for simplified imports, ask us!
  4. Understand what a deferment account is, do you need one?
  5. Do you need SIVA (Simplified Import VAT accounting) or a CCG (Customs Conditional Guarantee)?
  6. Check the rate of Tax and Duty you will need to pay for imports.
  7. Understand what your customers overseas will need to pay regarding Tax and Duty within the EU
  8. Understand what your non-EU customers will have to pay regarding import duty for those countries where we will no longer have a Free Trade Agreement (FTA)
  9. Export Licences for controlled goods may be required for shipment to the EU. If your products are classified under controlled goods, please check the regulations and requirements.

For further information please do not delay. Book an appointment to see one of our specially trained staff ASAP. Call 0114 201 8888 or contact customs@scci.org.uk

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