Time to get accustomed to customs

For years the words Brexit and ‘uncertainty’, have gone together. While there is still much that is unknown about what future trade arrangements with the UK will look like, some things are certain.

 

On 31st December 2020 the current EU/UK transition period ends. It will not be extended because the agreed deadline for doing so, 1st July, has passed.

For now the EU and UK are continuing to negotiate their new relationship, including how trade will be done from 1st January. If there is no agreement by that stage there will be a ‘no deal’ Brexit.

Regardless of whether or not a trade agreement is reached, there will be change.

 

All change

Irish businesses that import from, or export to, the UK will have to contend with new checks and administrative procedures, including customs declarations.

Understandably the pandemic has seen many businesses switch focus, and resources, from Brexit to managing the Covid-19 crisis. However, as the UK will leave the EU’s single market and its customs union on 1st January, businesses must now prepare for it.

“Everybody is focused on Covid but this is happening on 1st January. Because talks are still going on, people might still think ‘they will sort something out’. They won’t,” says Carol Lynch, a partner at professional services firm BDO.

Even though businesses already have “enough on their plate”, they have to get ready, she says.

 

Supports to help

There are a number of supports available to help, including the information available on this website and dedicated Brexit grants, advice and training from Enterprise Ireland and Local Enterprise Offices.

These include Enterprise Ireland’s Be Prepared Grant, which is worth up to €5,000 and helps businesses to avail of external expertise to develop action plans.

This can be used to investigate the potential to diversify into new markets, invest in innovation, improve operational competitiveness or enhance strategic financial capability. “All that help is there so sign up and start learning, and working out what you need to do,” says Lynch.

The fact that customs clearance agents are in short supply makes it even more important that business owners and senior managers have as much customs knowledge in-house as possible. “Don’t panic, you have four months left, just don’t leave it to the last minute,” she says.

 

Revisit relationships

Don’t let uncertainty around tariffs stop you either. “In the absence of certainty, look at compliance principles,” recommends Dr Andrew Grainger of Trade Facilitation Consulting.

“At the moment, the EU is in a transition period so there is nothing to comply with. It will never be as good as it is now, with as few hurdles. Normally the direction of travel is towards trade facilitation, making trade as easy as possible.”  Brexit has reversed this long term trend.

He recommends businesses start by revisiting their commercial relationships, to see how much of the customs burden might be taken on by suppliers. For example, some may consider establishing a base in Ireland, which would help.

Getting up to speed on Incoterms, the international commercial terms published by the International Chamber of Commerce, is vital. “If you are to revisit your commercial relationships, it is going to require informed conversations,” he explains.

 

 

Expanded horizons

As a market of more than 65 million people, right on our doorstep, the UK will remain an important trading partner for Ireland’s businesses.

However, they must now consider trading further afield too, to make the most of EU membership.  “From the Netherlands to Germany or Sweden, there are opportunities galore, as members of one of the world’s largest markets,” he says.

In the meantime, to facilitate UK trade, decide how you will clear your goods, either in-house or through a third party. If the latter, you need to find and appoint a customs intermediary, agent or freight forwarder.

When you do, be clear about your instructions and about where responsibilities and liabilities lie, he recommends.  Be ready to introduce performance monitoring systems and make sure all data, such as invoices and transport documents, which form the basis for customs declarations, is accurate, says Grainger.

Look at ways to derive advantageous customs treatment, either for yourself or via your agent, such as through the use of deferment accounts, customs warehousing or inward processing relief, for example.

 

Firm deadline

The fact that previous Brexit deadlines came and went, leaving some Irish businesses overstocked, may leave some reluctant to prepare again. “But this is a firm deadline,” cautions Ronan McDonnell of The Logistics Consultant.

Moreover, with the UK able to determine its own trade policy, it is “highly unlikely there will be any soft landing” come 1st January, he says.

While the Northern Ireland protocol has sorted many issues for those businesses trading with NI, “for businesses trading with GB, it’s going to be a whole new world,” he says. Getting to grips with issues such as customs classifications and commodity codes will be key.

“Most businesses know now it’s inevitable. We don’t know whether or not tariffs will apply but the paperwork will be there regardless,” he says. “Even if we have a trade deal, that doesn’t mean you won’t have to process customs declarations.”

It’s why businesses that haven’t done so already should talk to Enterprise Ireland and the Local Enterprise Offices. They don’t have to go it alone. “There is help available,” he says.

Get tailored advice from a consultant with the Brexit: Act On Initiative

New UK Global Tariff

The UK has announced its new tariff system which will apply at the end of the transition period to all countries, including Ireland, with which it has no free trade agreement.

Known as the UK Global Tariff, it will be applicable from Jan 1st 2021. If a trade deal between the UK and EU is reached before this date the aim would be to avoid the imposition of all or most of the tariffs.

To see the import duty that applies to goods imported into the UK, enter your commodity code into the Tariffs Tracker tool on the UK government website.

Get tailored advice from a consultant with the Brexit: Act On Initiative

Customs: Eight steps to get Brexit ready

With the clock steadily ticking down to January 2021 and Brexit, it’s time for businesses to prepare for a very different trading environment with the UK.

Unless an extension is sought thanks to the Covid-19 crisis, businesses that trade with the UK must be prepared to meet and pay customs requirements by then. These requirements can be time-consuming and complicated, so it’s important for businesses to allow enough time to prepare as needed.

 

Transition period

“The UK has left the European Union, and we’re now in transition until January 1st 2021,” explains Carol Lynch, Partner at BDO Customs & International Trade Services in Ireland. “It’s important that businesses use this time wisely in order to prepare for trading with the UK in 2021. Ultimately, trading with the UK will be like trading with any other non-EU country, so if you haven’t traded outside the EU before, it’s essential that you know what to expect and make any preparations necessary to deal with the changes.”

 

Learning the customs rules and regulations

Essentially customs is another tax, complete with forms and payments, but with the UK being a part of the EU for so long, it’s something that many businesses and individuals won’t be familiar with. “The first step for everybody is to start learning about customs rules and regulations,” advises Carol. “There is a lot to learn, for instance the tariff classification codes and how to fill out an Import or Export Declaration Form, but there is help available. There are many courses currently operating; for instance, Local Enterprise Offices are offering one-day courses and workshops on customs and trading rules, and Enterprise Ireland is offering the online Customs Insight courses. Find out what’s in your area and avail of it.

“In my view, you need about six months to prepare. There are a number of authorisations that some companies might need and some might not, but to avoid putting pressure on yourself, you really need to start preparing six months in advance. Some steps are very quick, but some take a little time, such as setting up your payment option, so it’s important to allow for this.”

 

Next steps for your business

Like any other tax return, businesses are responsible for correctly filling out Import and Export Declaration Forms, and paying the correct amount. To ensure you’re prepared, Carol has outlined eight steps for businesses to follow in order to be ready for the January 2021 deadline.

 

1. Ensure you have a Customs Registration Number – EORI

You simply cannot import or export to the UK without being registered with customs. This can be done online with Revenue at any time and can be completed in literally 10 minutes.

 

2. Decide how you are going to pay your customs duties

One option is to pay customs through a cash account. Alternatively, another option is to pay through a Deferred Payment Account. This allows you to import goods into Ireland from the UK and pay customs duties and import tax on those goods by direct debit the following month. This requires applying first to Revenue for a Customs Deferred Payment Authorisation, and then to your bank for a comprehensive guarantee to cover the duties. You need to allow for time to get together the information for Revenue and to apply to the bank for the guarantee; I would recommend giving this process at least three months, so see September as the absolute deadline to get this process underway.

 

3. Classify your Goods

You must know the classifications for your goods when filling out your Import or Export Declaration. This is quite a complicated process and takes some time depending on your range and complexity of products – but again, you cannot import or export without giving your goods a classification number. Some think a clearance agent will do this for them, but they won’t – you are responsible for ensuring you have the correct classification codes for your goods.

 

4. Decide who will lodge Customs Declarations

You have two options when deciding who will lodge your customs declarations – employ a Clearance Agent to act on your behalf when liaising with customs, or train someone in your own company to fill out and lodge the forms. There is a shortage of Clearance Agents both here and in the UK; this is something we’re trying to address in BDO by offering training and advice for businesses.

 

5. Determine who is responsible for customs paperwork/ charges

Make a list of who you buy from in the UK, who do you sell to. Do you deliver goods to your customers’ door or do you expect them to import their goods themselves? Similarly, are your UK suppliers delivering to your door or do you have to import them into Ireland? Who is responsible for paying the charges? This responsibility must be clearly mapped out using either in-house personnel or with a broker.

 

6. Check additional requirements if you are handling agricultural goods

Additional veterinary checks and certificates may be required along with prior notifications with customs. You must be registered with the Department of Agriculture, Food and the Marine and familiarise yourself with what is needed ahead of the deadline – and ensure you give yourself enough time to complete any necessary checks or forms.

 

7. Review your VAT position

With the UK out of the EU, the VAT rules have changed for trading between the UK and Ireland, and this could impact your cashflow. Review these and ensure you’re prepared.

 

8. Check the Rules of Origin

Depending on the form of free trade agreement agreed with the UK, certain goods may qualify for lower or zero tariffs depending on where the product originated. Again, this is where checking the rules of origin and getting the correct classification for your goods is essential in order to establish if your goods qualify under any free trade agreement.

 

For more comprehensive Customs information for Irish exporters visit our Customs & Logistics pages.

Services sector post Brexit

Much of the discussion around Brexit has focused on importing and exporting physical goods to/from the United Kingdom, while failing to address the service sectors that comprise a significant proportion of the Irish economy. In service sectors, the value of the product often lies in the expertise and quality of the service offered by firms to their customers.

Below, the Brexit Unit in Enterprise Ireland explores some of the issues that may affect the service sector as a result of Brexit.

 

Intellectual Property

The value of a business is increasingly linked to its Intellectual Property (IP). IP includes patents, trademarks, copyrights and trade secrets. Presently EU trademarks, for example, are protected within the EU but not in third countries. Brexit will affect the protection afforded in the UK for those who have registered European Union Trademarks (EUTMs) or designs, the future trading agreement will determine what protections remain.

According to Joe Doyle, IP Manager at Enterprise Ireland, in a ‘no-deal’ scenario it is almost certain that EUTMs and designs will eventually cease to have effect in the UK. Companies are advised to conduct an IP audit, assessing their dependence on IP protection in the UK and the associated risks of losing such protection. Firms should subsequently speak with legal and IP advisors to ensure their IP Strategies are Brexit-proof.

 

Contracts/Legal

Service sector businesses with exposure to the UK market will need to start planning for the legal changes that are likely to arise post Brexit. Contractual and legal challenges could emerge with cross-border service level agreements (SLAs), product licences, insurance policies and data transfers, which may not be legally protected or recognised after the UK leaves the EU. Companies should take steps to review their existing contracts and trading arrangements, reviewing their most strategic contracts and employing caution when entering new contracts with UK based parties.

 

Data

Data has a fundamental role in today’s business with many companies outsourcing services such as payroll, promotional marketing and the storage of IP addresses to third countries.

The EU has developed high data protection standards and after Brexit the UK will no longer fall within the remit of these standards, becoming a third country. Consequently, there will be greater risk associated with the transfer of data between the EU and the UK after Brexit. Irish companies that intend to transfer personal data to the UK will need to act by putting safeguards in place to protect the data in the context of its transfer and subsequent processing. One such way is the use of Standard Contractual Clauses (SCCs)  which is likely to be relevant to most Irish businesses that transfer personal data to the UK.

The Data Protection Commission has published guidelines for firms seeking to learn about data transfers post-Brexit. You can also learn more from this webinar where Data Commissioner Nicola Coogan outlined the impact Brexit is likely to have on data flows between Ireland and the UK.

 

People

To continue working in the UK after Brexit, EU citizens are required to apply to the UK government for settled status, living in the UK for more than 5 years, or pre-settled status, residing in the UK for less than 5 years. When the UK leaves the EU, Ireland and the UK will automatically revert to the common travel area (CTA) and Irish citizens will be automatically viewed as ‘settled’ on arrival in the UK. This will be the case with or without a Brexit deal.

The rights of UK citizens living and working in the EU after Brexit will be far more complex given the fact that individual states have control over the status of individuals who choose to reside and work within their territory. It’s crucial that individuals, as well as Irish firms employing UK citizens in EU states, check the terms of residency and employment within the given jurisdiction(s) where one resides as they will need to make an application to stay within that respective country.

This Brexit webinar provides more detail on how Brexit will impact the movement of people.

 

Regulation

Regulation varies greatly between different service sector industries and it tends to be most stringent in the areas of finance, aviation and healthcare.

The UK may choose regulatory alignment with the EU in many sectors, especially given the importance of the services sector in the UK which benefits largely from trade within the EU. The UK will, however, lose the ‘passporting’ rights that apply to many service sector industries that operate throughout the EU as a single market.

Companies operating in sectors that are highly regulated should assess the impact that Brexit will have on their operations. It’s important that such companies speak to their relevant regulator to ensure they are taking the right steps to mitigate the impact that Brexit will have on their operations.

The financial services sector is particularly exposed to Brexit and the Central Bank has issued Brexit guidance for financial service firms which can be accessed here.

 

Foreign Exchange and Currency

The uncertainty of Brexit has added to the challenge faced by businesses when trading between the UK and Ireland, especially in relation to currency volatility where fluctuations in Euro-Sterling rates may have a significant adverse impact on company profitability.

Companies should measure and manage exposure to such currency fluctuations, establish protective mechanisms to minimise risk and uncertainty and continue to monitor any potential risks that may emerge. In the Brexit Webinar series John Power, Director of SGL, outlines the impact of Brexit on Currency and Foreign Exchange.

The Enterprise Ireland Currency Impact Calculator can help you understand the effect of movements in the sterling/euro exchange rate on your business.

Service sector companies can use the Be Prepared Grant to determine how the company could respond to the threats and opportunities of Brexit.

 

Incoterms

When the UK leaves the EU it will become a third country. This means that there will be an extra administration burden on those who trade between the EU and the UK.

Import and export declarations will have to be completed for all shipments, and duties may have to be paid. But who is responsible for carrying this extra burden and cost? Is it the buyer or the seller? This is where Incoterms come in.

What are Incoterms?

International commercial terms, or ‘Incoterms’ as they are often called, define where the responsibility lies between the buyer and the seller. Incoterms set rules for the delivery of goods between trading partners and are recognised globally. These rules help to clarify; who is responsible for the costs involved in the delivery of goods, such costs include insurance, freight/shipping and duty and who is responsible for the import/ export declarations and the associated filing costs.

 

Negotiating Incoterms

Brexit IncotermsCompanies should try to negotiate the best terms, ensuring that they strike the right balance of keeping buyers satisfied while also ensuring that they are not taking on any extra expenses which they cannot afford or that would make their sales unprofitable. It is important to consider how you will process any declarations and if you can afford to take on the extra costs associated with any of the methods available.

This article on processing customs declarations can provide you with an insight of what processing customs declarations would mean for your business.

When agreeing on Incoterms, it can often be the case that the buyer has the greatest say and may dictate the terms. Some companies may take on responsibility for the declarations and duties in order to avoid passing the burden on to their end customer especially where it could be easy to find an alternative supplier locally.

 

Incoterms in Practice

There are currently 11 categories of Incoterms but we will look at two to understand how they work in practice.

EX Works (EXW) typically involves the buyer taking on the majority of the risk and costs involved. The seller agrees to have the goods available for collection at an agreed location. The buyer collects the goods and is responsible for both export and import declarations, shipping costs and the payment of duties.

Take for example, a French car manufacturer selling cars to a UK car dealership, under the term ‘Ex Works Paris’. The car manufacturer (the seller) will have the goods available for collection at their factory in Paris. The UK dealership (the buyer) will collect these goods. They will bring them to the port, ensure that they have the correct export documentation submitted. They must pay for the shipping and insurance cost. When they reach the UK, they are responsible for having the correct import documentation completed and that duties are paid. Finally, the UK dealership must pay for the transport from the point of entry at the port to their premises.

Delivered Duty Paid (DDP) is another term that is used regularly. Many large supermarket chains, for example, have stipulated to their suppliers that they must continue to supply goods under DDP terms post- Brexit. This term requires that the seller accepts all responsibility and costs for delivering the goods to the named place of destination. The seller must pay for both the export and import declarations along with taxes, duties, insurance and transport costs.

Take for example, an Irish vegetable producer supplying a supermarket in the UK under the term ‘DDP Birmingham’. The Irish supplier will now have to submit an export declaration for the goods to leave the country. They will have to pay for transport costs and insurance to get the goods to the UK. In order for the goods to be allowed into the UK, the supplier must ensure that they have the correct import documentation and that all duties and taxes have been paid. Once the goods have been imported, the Irish supplier must deliver the goods to the premises of the supermarket (the buyer) in Birmingham.

It is important that all companies are aware of the potential impact and extra cost that an Incoterm may have on their business before agreeing terms with their supplier or buyer.

For companies that feel that their customers could easily find an alternative supplier, it is vital that they take the necessary steps to increase their competitive advantage. Through continued innovation and engagement with their UK customers, companies can ensure that they provide not only a superior product but also better quality service than that of their competitors, making customers less likely to switch.

Further information on incoterms, can be found on the International Chamber of Commerce’s website.

If you would like to learn more about trading with a third country and the customs processes involved, register for Enterprise Ireland’s online Customs Insights Course.