Consultants in Logistics

Navigating Brexit Uncertainty

Navigating Brexit Uncertainty

A fundamental requirement of senior managers is the ability to operate in an environment of uncertainty; considering alternative scenarios, preparing appropriate plans, and exercising judgement. Few, however, have had to navigate the uncertainty of Brexit. As the UK’s departure from the EU looms, it is essential companies prepare their supply chains for possible scenarios ahead of the negotiation’s outcomes.

Contingency Planning

For those tasked with preparing logistics contingency plans the greatest challenge is to decide which scenarios should be planned for. The most extreme outcome for logistics planners would be for a “no-deal” Brexit, which could result in considerable delays at the ports, disruption to supply chains and greatly increased administration. As a minimum, it is almost certain there will be a need for systems changes unless the UK decides to stay in the Customs Union.

Where do you start?

All companies should have started the process of understanding what happens if the UK is not part of the EU Customs Union. For many organisations it is relatively straightforward to build greater buffer stocks into the supply chain and they have already commenced the process. However, for those organisations with significant infrastructure requirements putting in place the necessary resources as a contingency plan is simply not practical.

Free Movement of Goods

The European Union is a customs union, meaning that no duties are charged on goods moved between member states. When moving goods from EU countries to the UK shippers need to get a commodity code and pay VAT but not import duty. Under some circumstances shippers may need an import licence. For moving goods from the UK to other EU countries, shippers need to complete a proforma invoice and charge VAT as they would for UK customers. Certain restricted goods, including foods and agricultural machinery, require a license or follow special rules for export from the UK. Generally speaking, moving goods between EU countries incurs a modest amount of administration, with VAT payments covered via the regular VAT returns process. The lists of territories treated as being within the EU for customs duty and VAT is defined in Notice 117.

Non-EU Imports & Exports

In addition to the above, importing and exporting outside the EU requires:

  • An Economic Operator Registration and Identification (EORI) number to trade goods with countries outside the EU. This can normally be obtained in three working days
  • A copy of transport documentation, such as a Bill of Lading or other specific instructions
  • Exports need a commercial invoice, rather than a proforma invoice
  • For goods worth over £6,500 a valuation statement is also normally required
  • Intrastat declaration for goods over £1,500,000 imported or £250,000 exported
  • Import and export declarations are often done by couriers or freight forwarders as they are more familiar with the detailed requirements
  • Duty is often paid via the courier or freight forwarder. The value used for duty calculations includes commission, packing and transport

These examples demonstrate that imports and exports outside the EU are more complex than inside the EU. More detail can be obtained via the www.gov.uk website and other specialist sources.

Authorised Economic Operator (AEO)

For extra-EU movements goods are not released until the duty has been paid, adding potential for hold ups on import. One option to accelerate the customs process is to register as an Authorised Economic Operator (AEO). The AEO certificate is an internationally recognised quality mark that proves an organisation’s credibility in terms of security and compliance of customs controls and procedures. It gives quicker access to selected simplified customs procedures and, in some cases, the right to ‘fast-track’ your shipments through certain customs and safety and security procedures. There are two types of AEO status: AEO for customs simplification (AEOC) and AEO status for security and safety (AEOS). Organisations can apply for either or both.

Potential AEOC status benefits include:

  • Moving goods in temporary storage between different member states
  • Waiver of the presentation of goods requirements when making declarations in your records
  • A reduction in a business’s deferment account guarantee levels
  • Undertaking centralised clearance and completing self-assessment, when implemented

Companies with AEOS status can benefit from arrangements under Mutual Recognition Agreements (MRAs). MRAs are negotiated by the EU with third country customs authorities. Normally the benefits include faster clearance at the frontier, less interventions, and lower risk scores.

AEOC status is issued to any business that fulfils the specified criteria of having:

  • Good tax and customs compliance history
  • Good commercial and transport record-keeping standards
  • Financial solvency
  • Professional qualifications or demonstrating practical standards of competence in the activity they’re involved in

Due to the lack of available qualifications, the last criterium needs to be demonstrated against a three-year history of customs experience. AEOS only requires the first 3 criteria, but the company’s supply chain needs to meet certain security and safety standards.

Union Customs Code (UCC)

The UCC was introduced across the EU on 1st May 2016. There are a number of changes to how goods cross EU borders and some transitional arrangements will operate until 2020.

The main changes are:

  • New authorisations require mandatory guarantees for most special procedures and temporary storage (TS)
  • The ability to make some movements under TS rather than national transit or New Computerised Transit System (NCTS)
  • The removal of the earlier sales provisions relating to valuation – there are some transitional arrangements
  • All communications between customs authorities and economic operators must be electronic

HMRC has implemented the first software release for its new Customs Declaration Service (CDS) to replace CHIEF, the existing Customs Handling of Import and Export Freight system, in three phases between August 2018 and early 2019. The new system will meet the requirements of the Union Customs Code (UCC) and provides businesses with access to more of their customs information in one place. The main UCC related procedural and systems changes coincide with the Brexit timescales adding more complexity for a transfer from intra to extra EU goods movements.

In Conclusion

Moving goods between EU countries incurs a modest amount of administration. The process for extra-EU movements is significantly more complex, involves more effort, and the physical movements can be subject to delays. Simplified procedures can be followed by operating as an AEO, although entry criteria are stringent and the application process takes months, even if all requirements are met. To achieve AEO status by the March 2019 Brexit deadline, the application must be submitted in November 2018. Paying duties and holding waivers also has cash flow implications for importers. The introduction of the UCC has generated a number of procedural and systems changes which coincide with the Brexit timescales.

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