Recently I wrote a post Buying from Europe? Import changes made it a whole lot more complicated and costlier! I found that complicated to get my head round and that was just for consumers! When it came to importing for businesses it was even more complicated! So I asked Lisa Grove to write a guest post!
Questions about importing charges
The last year has certainly brought its challenges. Brexit has raised many questions in the retail arena. Where the free trade agreement ended, a plethora of questions began. How do I import into the UK? What do I need? What are my legal responsibilities as an importer of goods?
I’d say these are the most frequent questions I’ve been asked in the last six months. Unfortunately, there isn’t a one size fits all answer to this. Obviously, what commodity you are looking to import or export, along with the anticipated volume of product, will be major factors. If you haven’t already, I recommend starting with the government’s Check, Change, Go. While this was part of their prepare for Brexit campaign, it will give you a good indication of where to begin.
So, what do you need?
An EORI is an Economic Operator Registration and Identification Number. Essentially, it’s a digital reference ID that is unique to your business for tracking and registering customs information. You will, however, need EORI in place whether you are VAT registered or not. It is very simple to apply for, takes less than 72 hours to come through and is free to get, so don’t let anyone try and charge you!
Incoterms: What are they and what do they mean to your business?
INCOTERMS or International Commercial Terms are a set of pre-defined trade codes, compiled by the International Chamber of Commerce (ICC). They are used as a basis for sales contracts, and clearly establish the ‘point of delivery’ within a contract. This avoids any confusion or misunderstanding for both buyer and seller. The responsibilities and costs associated with shipping globally are clearly defined within the terms.
If you were shipping goods from the EU prior to Brexit, then you’ll need to review your INCOTERMS and re-confirm them with your suppliers. The guidance is currently that DDP is switched to DAP and EXW is switched to FCA. If you’re not sure about the responsibilities of each, then hopefully the diagram below will help.
What’s an HTS?
Home Theatre System? Alas, no. HTS is the Harmonised Tariff System. In plain English, it’s a 10-digit commodity code that classifies your products.
You can search for your HTS code on the HMRC website. There is a search function, however, I warn you it’s not a simple as it sounds. If you’re searching for a ‘dress’, you’ll need to know if it’s women’s or girls? What’s it made from? Is it knitted or woven? You need to be able to drill down to the very detail of the product, to ensure that you correctly classify your goods, and ultimately pay the correct rates of duty & VAT.
It’s worth noting that the first six digits of the HTS code are internationally recognised. So, you may find that the supplier includes the HTS code on their paperwork. Don’t assume that it is correct, but it will give you the right area to look in as a starting point.
Making a declaration to HMRC
Customs declarations will need to be made on all import and export movements. You can complete
the declaration yourself or use a forwarder or broker. You are responsible for the declarations, even if you have a forwarder or agent doing this for you. It is best to provide them with instructions rather than leave them to do their own thing. If they make a mistake, and you have not issued any instruction, you are fully liable for those errors.
What about duty & VAT?
From a retail and business point of view, you need to factor in the potential duty and VAT. There are six different methods for calculating import duty & VAT. However, method one is the most common, and I’ve detailed how you can calculate what you should expect to pay:-
|Value of Goods: £1125
Cost to Ship: £150*
* Even if there is no cost to you because your terms are pre-paid, if the freight is not show in the build up of the value of goods or the invoice not clearly marked, then an amount will be declared on the customs declaration. I’ve given a rough estimate would of £150 for this ‘order’.
**Again you might not be paying this charge, but the industry standard calculation is 0.25% of the Cost of Goods + The cost of Shipping (£1125+£150 x 0.25% = £3.18)
VAT Adjustment Fee: £100***
*** This also isn’t a payable fee as such, but it makes up part of the dutiable value. This amount will vary depending on the mode of shipping (sea, air, rail etc), and the volume weight of the consignment. For the purpose of this calculation, I have used the airfreight rate, which is: 40p per chargeable kilo or a minimum amount of £100, whichever is the greater. The VAT Adjustment represents the UK proportion of the freight charges (Import clearance, handling, delivery etc), regardless of if they cost more or less than £100.
Duty Rate = 12% (For the purpose of this declaration, we’ve established this dress is cotton, from China and is a woman’s)
VAT Rate = 20%
Duty is calculated: Value of Goods + Shipping costs + Insurance + VAT Adjustment Fee x 12% Duty
£1125 + £150 + £3.18 + £100 = £1378.18 x 12% = £165.38
VAT is calculated: Value of Goods + Shipping costs + Insurance + VAT Adjustment Fee + Duty outlaid x 20%
£1125 + £150 + £3.18 + £100 + £165.38 = £1543.56 x 20% = £308.71
Duty Payable = £165.38
VAT Payable = £308.71
You can of course ask your courier/haulier/forwarder for advice and further info, but please remember that it’s your responsibility as an importer/exporter to be compliant. Their advice is just that, and unfortunately in this country there is no such thing as a licenced broker, so that guidance can vary greatly at times.
How can I prepare my business
If you’re not yet importing or exporting, but are planning to do so, then there are some actions that you can take now;
- Apply for a GB EORI number (If you’ve already got one, then you’re ahead of the game here!)
- Source a Customs Intermediary – either a customs agent, Freight Forwarder or broker. If you know anyone who already purchases from overseas, then start by asking for their recommendation. Suppliers may also nominate a forwarder, but if you’re paying the freight, then you need to specify.
- Prepare resources for entry instructions – Know your goods, classify them and ascertain their HTS code. You’ll also need to know the country of origin – don’t assume it’s the same as the country you’re purchasing from.
- Monitor changes and updates to trade agreements related to your business or products.
What if I have a higher volume of shipments?
- Consider applying for a Duty Deferment Account (DDA): When you are importing goods regularly it can be beneficial to have a duty deferment account (DDA). This enables customs charges, including customs duty, excise duty, and import VAT to be paid once a month through Direct Debit, instead of being paid on individual consignments.
- You can also investigate if a SIVA Deferment account might be beneficial (Simplified Import VAT Accounting). This works on a similar basis to a Duty Deferment Account, but only enables payment of VAT on account. You will need to have your customs and VAT records in order, for the last 3 years. It is still possible to apply if you have been VAT registered for less than three years, but you will be subject to more stringent credit reference checks.
Please don’t panic or be overwhelmed by the terminology here. These are both just options, and realistically, they will only be beneficial if you are shipping large volumes of stock, frequently.
I wish I could give you a magic wand or at the very least a failsafe list of actions to ensure you have everything covered. Sadly, there are just too many variables and specifics – not to mention my wand broke years ago
The best advice I can give you as business owners, is to work through the action points above, do your research and ensure that you are as prepared as you can be.
Try not to feel overwhelmed. Work out a list that is applicable (or potentially) to your supply chain. Then break it down into manageable chunks. Start with Check, Change, Go, then apply for your EORI, if you haven’t already. Prioritise the rest by urgency and time to implement.
About the Author
Lisa is a Virtual Assistant (VA) and runs Above & Beyond Admin. She’s qualified in International Trade and Service and worked as a global account manager for a large logistics company.
She has extensive experience in logistics, both as a VA and as an account manager. Lisa has co-ordinated end to end logistics solutions for many blue-chip companies, including those in the Military, Aerospace and Retail sectors. She was awarded Runner Up BIFA Young Freight Forwarder of the Year, UKACC Customer Service Agent of the Year and the YRC President’s Award Winner.
If you struggle with organisation or time management, then you might like to download her FREE Essential Digital Toolkit to help manage your task list.
If you’re looking for assistance with classifying your goods, preparing customs declaration instructions, or want to talk through what’s specifically required for your business, then you can find out more about her logistics unlocked service here.
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