Wigs for teddy bears are subject to Customs Duty, but the Upper Tribunal ruled that ‘realistic” hearts used for a Build-A-Bear toy are duty free.
Wigs for teddy bears are subject to Customs Duty, but the Upper Tribunal ruled that ‘realistic” hearts used for a Build-A-Bear toy are duty free.
HMRC has updated its guidance on how to pay Customs Duty, Excise Duties and VAT on imports from outside the UK.
The document covers, inter alia:
The update includes the removal of references to the Customs Handling of Import and Export Freight (CHIEF) system, as all import declarations must now be made through the Customs Declaration Service.
Methods of calculating import value
There are six methods for calculating the value of imported goods to assess the amount of Customs Duty and import VAT a business to pay. The same value is also used for trade statistics.
All six methods are outlined below and should be tried in order. If Method 1 does not apply, try Method 2. If that does not apply, try 3 and so on. However, Method 5 can be tried before 4.
Method 1
The transaction value – the price payable to the seller. This is the most common valuation and is used in most cases.
Try Method 2 if there has been no sale of goods.
Method 2
The customs value of identical goods, produced in the same country as the imports.
Try Method 3 if there are no identical goods.
Method 3
The customs value of similar goods, which must be:
Try Method 4 if there are no similar goods.
Method 4
The selling price of the goods (or identical or similar goods) in the UK.
Try Method 5 if there are no UK sales of the goods.
Method 5
The production cost of the goods, including the cost of any materials, manufacturing and any other processing used in production.
Try Method 6 if this production cost information is unavailable.
Method 6
Reasonably adapting one of the previous methods to fit unusual circumstances.
Legislation
In the UK valuation is covered by the Taxation (Cross-border Trade) Act 2018 & The Customs (Import Duty) (EU Exit) Regulations 2018 and The VAT Act 1994, Section 19.
What to include in the Method 1 calculation
If they are not already included in the seller’s price, the importer must add the costs of:
If you import goods from a processor – ie a business that assembles or otherwise works on one or more sets of existing products to create your new imported products – transaction values can be built up by adding to the processing costs the value of any materials or components you provided to the processor.
What to exclude from your calculation
Items to be left out of the customs value if certain conditions are met include:
Further details here.
Further to my article on new procedures, HMRC has issued a reminder of customs changes that come into effect on 1 January 2022.
It is now less than a month until full controls are introduced.
The Changes
Businesses will no longer be able to delay making import customs declarations under the Staged Customs Controls Most importers will have to make declarations and pay relevant tariffs at the point of import.
Ports and other border locations will be required to control goods moving Great Britain and the EU. This means that unless goods have a valid declaration and have received customs clearance, they will not be able to be released into circulation, and in most cases will not be able to leave the port. From 1 January 2022, goods may be directed to an Inland Border Facility for documentary or physical checks if these checks cannot be done at the border.
The UK’s deal called the Trade and Cooperation Agreement (TCA), means that the goods imported or exported may benefit from a reduced rate of Customs Duty (tariff preference). To use this a business will need proof that goods which are:
. imported from the EU originate there
. exported to the EU originate in the UK
Commodity codes are used worldwide to classify goods that are imported and exported. They are standardised up to six digits and reviewed by the World Customs Organisation every five years. Following the end of the latest review, the UK codes will be changing on 1 January 2022. HMRC guidance is available on finding commodity codes for imports into or exports out of the UK which includes information on using the ‘Trade Tariff Tool’ to find the correct commodity codes.
A VAT registered importer is able to continue to use Postponed VAT Accounting (PVA) on all customs declarations that are liable to import VAT (including supplementary declarations).
Further changes from 1 July 2022
The following changes will be introduced from July 2022:
Businesses must be prepared for these changes and I recommend that an experienced representative is used.
HMRC has announced new measures aimed at easing the tax burden on businesses which import goods.
The Chartered Institute of Taxation (COIT) has received the following information:
Businesses can defer payments due next on 15 April in certain circumstances
Urgent action is required.
Duty deferment account holders
Duty deferment account holders who are experiencing severe financial difficulty as a result of coronavirus and who are unable to make payment of deferred customs duties and import VAT due on 15 April 2020 can contact HMRC for approval to enter into an extended period to make full or partial payment, without having their guarantee called upon or their deferment account suspended.
The account holder should contact the Duty Deferment Office using the details below.
Tel: 03000 594243
Email: cdoenquiries@hmrc.gov.uk
Conditions
To use the measure a business will need to demonstrate how coronavirus has impacted its business’s finances and cash flow.
If a business has a Duty Deferment account, it will be able to use its account during the extended payment period agreed, unless it defaults on a subsequent payment in that period. if this happens, HMRC may suspend the account.
The outstanding payment will not affect a business’ duty deferment limit so there will be no need to increase its guarantee to cover the outstanding payment. Interest will not be charged on the outstanding payments provided they are paid in full by the agreed date.
Duty and import VAT payments – non duty deferment account
If a business is a registered importer who pays VAT and Duty at the time of import and is facing severe financial difficulties as a direct result of coronavirus, it can contact HMRC to request an extension to the payment deadline. Again, HMRC will ask for an explanation of how coronavirus has impacted the business’ finances. HMRC will then decide whether to agree an additional time to pay (TTP).
If the request is approved the conditions, including the length of time offered, will depend upon the individual circumstances and may require the holding of a guarantee for the period of the time extension. This facility is not available to non-registered importers.
For further information, please contact the Customs Debt Policy inbox custdebtrr.customspolicy@hmrc.gov.uk
A general guide to the latest on imports here.
The Government is consulting on plans to create up to ten freeports. Freeports may provide tariff flexibility, customs facilitations and tax measures designed to encourage global trade and attract inward investment post-Brexit. The proposed Freeports will have different customs rules to the rest of the country.
What is a Freeport?
Freeports are secure customs zones located at ports where business can be carried out inside a country’s land border, but where different customs rules apply. The paper says that Freeports may:
Typically, goods brought into a Freeport do not attract a requirement to pay duties until they leave the Freeport and enter the domestic market. No duty at all is payable the goods are re-exported. If raw materials are brought into a Freeport from overseas and processed into a final good before entering the domestic market, then duties will be paid on the final good.
Government aims
It is stated that the government wants Freeports to boost trade, jobs and investment. They say that is why they are proposing cutting red tape by streamlining customs processes, exploring the use of planning measures to speed up planning processes and accelerate development and housing delivery in and around Freeports, and consulting on a comprehensive set of tax breaks to support businesses. Of course, all this would be unnecessary if Brexit had not have occurred.
Deadline
The consultation deadline is 20 April 2020 so there is not a lot of time to make your views known.
HMRC has published guidance on the likely implications of a No-Deal Brexit. The guidance states that it is “unlikely” that the UK will leave the EU without a deal, however, in the recent political climate, observers comment that a No-Deal scenario is increasingly likely (to put it conservatively). Consequently, business must be in a position to deal with a No-Deal from 29 March 2019. The guidance may be summarised as follows:
Current position
From 29 March 2019 with a No-Deal Brexit
I have paraphrased some of the guidance for clarity and technical accuracy and the above points are not direct quotes.
Commentary
The apparent good news is that UK businesses importing goods from the EU will not have to pay VAT on the date that the goods enter the UK, but rather, will be able to account for the VAT later via a deferment system, presumably similar to the one in place for current non-EU imports. Helpful for cashflow, but an unwanted additional complexity, especially for small businesses. A concern is that HMRC cannot deal with the documentation requirements even before Brexit see here
A big negative for UK business is the fact that customs declarations and the payment of any other duties will now be required for imports from the EU – in the same way as currently applies when importing goods from outside the EU. Consequently, for goods entering the UK from the EU
This is an additional complication and a cost to a business which is currently able to bring goods into the UK from the EU without any of these declarations, payments or inspections. This is likely to lead to additional delays at the border and will certainly increase administration and costs. Whether this will encourage UK businesses to purchase more goods from UK suppliers remains to be seen. It is worth mentioning that HMRC has also said that UK importers need to take steps apply for an Economic Operator Registration and Identification Number (EORI) for businesses which do not already have one. Details here
Brexit may provide a ray of sunshine for FS and insurance suppliers (well for VAT anyway, the commercial impact may be somewhat different). In the event of a No-Deal Brexit, for UK FS and insurance providers, input VAT deduction rules in respect of services to the EU may be changed. Although no details are provided, it appears to me that input tax attributable to these supplies will be treated similarly to those currently provided to recipients outside the EU. Which will broadly mean that those supplies which would be exempt if provided in the UK would provide full input tax recovery if the recipient belongs anywhere outside the UK. This will be very good news for The City.
LVCR currently relieves goods worth under £15 which come into the UK from outside the EU from UK VAT. Its abolition means that all goods entering the UK as parcels sent by overseas businesses will be liable for VAT (unless they are zero-rated from VAT) if the value is under £15. An unwelcome and apparently unnecessary change.
Generally
It is prudent for businesses to consider how their imported goods will be classified and how they will submit import declarations in the result of a No-Deal Brexit. HMRC suggests that importers may want to consider looking at suitable commercial software and, or, engaging a commercial customs broker, freight forwarder or logistics provider. We advise contacting the relevant providers sooner, rather than later, to establish what you, or your client’s business may require. Of course, all of the above will increase the potential of a business receiving penalties and interest if it gets it wrong.
If you would like to discuss any of the above, please contact me, or a member of my team. Readers that know me, may admire my restraint in commenting, politically, on Brexit…
As I often find myself saying recently – good luck everybody.
If a business imports goods from countries outside the EU, there are changes being made by HMRC which it needs to beware of. If a business currently uses the UK Trade Tariff to make Customs declarations it will be affected by these changes.
The changes are set out here for imports. We understand that the changes for exports will be made available later in the year.
If a business’ agent or courier completes its declarations on its behalf, it may be prudent for a business to contact them discuss the impact of the changes.
Background
An overview of the changes may be found here
And a general guide to importing here
Why is the Tariff changing?
HMRC is phasing in the new Customs declaration Service (CDS) here from August to replace the current Customs Handling of Import and Export Freight (CHIEF) system. As well as being a modern, digital declaration service, CDS will accommodate new legislative requirements under the Union Customs Code UCC here In order to comply with the UCC, a business will need to provide extra information for its declarations which can be found in the tariff.
When will a business be required to use the new Tariff?
The majority of importers will start using CDS after November 2018, once their software provider or in-house software team has developed a CDS compatible software package. Some importers will start making declarations on CDS before this, but there is no action for a business to take unless it has been contacted by HMRC to be part of this group.
Brexit
As is very common with Brexit, it is unknown how the UK leaving the EU will affect this position. With a No-Deal Brexit seeming likely, the above rules are likely to apply to goods brought into the UK from other EU Member States after next March.
Please contact us should you have any queries.
Latest from the courts
In the Court of Appeal (CA) case of Hasbro European Trading BV (Hasbro) the issue was whether Customs Duty (CD) was due on the import of Beyblades. If they fall within the definition of a toy CD is payable at 4.7%. However, if they are more accurately classified as a game they are treated as duty free – so a significant difference in import cost dependent on what, superficially, appears to be a somewhat question of semantics.
Beyblades
For the purposes of the case, it is important to understand what a Beyblade is and how it is used.
Beyblade is the brand name for a line of spinning tops originally developed and manufactured by Tomy in Japan. The main novelty is that they are a series of items which are customisable, with interchangeable parts. A Beyblade is set in motion by means of a rip-cord powered launcher.
A “game” is played with two players. Each player is allowed a number of Beyblades to choose from during a match. Players may use any parts available to them to make their Beyblades), but may not switch parts once a match has started. The first player to reach seven points wins. Points are awarded to the player based on how their Beyblade knocks out the opponent’s
The Arguments
The case concerned the classification of Beyblades’. The appellant, Hasbro contended that Beyblades are correctly classified as “articles for … table or parlour games” under heading 9504 of the Combined Nomenclature. In contrast, HMRC maintained that Beyblades should be classified as “other toys” under heading 9503, The First-tier Tribunal FTT and the Upper Tribunal (U’) both previously agreed with HMRC’s analysis.
Classification
There are “explanatory notes” to the Harmonised System (HSENNs). The CA ruled that the classification rule which prefers the most specific description does not apply at the level of the HSENs: they are an important guide to interpretation, but do not have force of law.
The Decision
The CA allowed the appeal and went against the decisions in the FTT and UT. The judge concluded that “In the circumstances, it seems to me to fall to us to decide which of the alternative headings provides the more specific description. In my view, it is heading 9504. As I see it, “articles for … parlour games” encompasses a more limited range of goods than “toys” and “more clearly identifies Beyblades”, particularly since, as I say, “articles for … parlour games” reflects the fact that Beyblades are meant to be used in games…”. The fact that Beyblades are used in a competitive scenario seems to have swung the decision which knocked out HMRC. Consequently, there was no CD payable as they fell to be duty free.
Commentary
It does beg the question; why did this issue need to get to the CA for the appellant to finally win (but of course, this isn’t the first case which has raised that question). Perseverance was clearly the key word here. If you are convinced that HMRC is wrong on ay matter, it really does pay to challenge any ruling.
The Union Customs Code (UCC) is part of the modernisation of customs and serves as the new framework regulation on the rules and procedures for customs throughout the EU.
On 2 March 2018, the EC proposed that Customs authorities and economic operators be allowed to continue using already existing systems for the completion of certain customs formalities until 2025 at the latest. While most of the new or upgraded electronic systems that are necessary to apply the provisions of the UCC will be operational by 2020, some electronic systems may not be fully completed until 2025. Therefore this proposal would ensure that, in the case of the small number of customs formalities to be managed by the electronic systems that will not be completed by 2020, already existing electronic systems or paper-based procedures can continue to be used until the new systems are ready.
Full details of the latest proposals here
More on the background of how UCC affects UK importers and exporters here