Breakfast briefing exporting post brexit
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This document summarizes a breakfast briefing held by PKF Francis Clark on trading post-Brexit. Presentations were given on the practicalities of Brexit for businesses and the potential customs and VAT impacts of a no-deal Brexit scenario. The customs presentation covered topics like customs duty calculation, classification, rules of origin, valuation, and special procedures. It noted increased costs, declaration burdens, and pressure on ports in a no-deal scenario. The VAT presentation discussed potential impacts like the end of EU refund systems and changes to MOSS and distance selling rules. It advised preparing for new requirements. Q&A and discussion followed the presentations.
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Breakfast briefing exporting post brexit
- 1. Trading post Brexit Breakfast Briefings – Winter 2018/2019 Welcome: Daniel Sladen, Francis Clark 4 December 2018
- 5. pkf-francisclark.co.uk . Presentations followed by discussion Presenter Topic Dr Colin Piper Export Manager, Business West Practicalities of Brexit Liam Dushynsky Director, PKF Francis Clark Custom Duties and VAT impact
- 6. Practicalities of Brexit – Colin Piper
- 7. Current Trading Arrangements Do you currently: 1. Only sell your goods/services within the UK? 2. Sell in the UK and within the EU? 3. Sell globally? No. 2 is likely to see the most difference in operations.
- 8. What do you need to consider? • Product • Customer • Operations
- 9. Product What do you sell? High-Value, Unique or low value? Do you need speed to the market? Can you cover any additional costs? Are you impacted by EU regulations?
- 10. Customer What is your relationship? Have you had a conversation regarding Brexit? What is it that concerns them?
- 11. Operations Can you withstand an internal/external shock? Who is responsible for making sure you are Brexit ready? Do you have EU nationals working for you? Could disruption at Dover or increasing activity for your freight forwarder affect you? Rules of origin – have you conducted an audit on your local suppliers? Contracts – do they reference the UK being part of the EU? IP – what are the rules post-Brexit? Incoterms – which one will you use?
- 13. Thank you colin.piper@businesswest.co.uk – 07469 391216
- 15. VAT and Customs Liam Dushynsky Dec 2018
- 16. Contents • No Deal VAT Impact • Customs Duty • What is Customs Duty • How it works • No Deal Customs Impact • Things to know
- 17. Impact of No Deal Brexit on VAT • VAT system continues (UK Law not EU) • No change for domestic transactions • No EU Refund system (13th Directive now) • Mini One Stop Shop (MOSS) – Requirements around exit day (10 days to get on OSS) • Postponed Import VAT Accounting • Confirmed for “No-Deal” / Possible for other scenarios • Applies to Imports from ANY country
- 18. Issues for customers (not on postponed import VAT) FRUK £10K + £2K Based on £10K purchases a month (1st) also based on 20% VAT/IVA/TVA rate unlikely to be able to claim until middle of May –DIFFERENT RATES APPLY Month VAT Cumulative April £2K £2K May £2K £4K June £2K £6K May £2K £8K
- 19. Impact of No Deal Brexit on VAT • No longer subject to EU VAT Policy – Flexibility in VAT Rates • End of Distance Selling Arrangements • Zero-Rate sales to EU on UK VAT Return • End of Triangulation • Likely to have to register in the EU • Change supply chain? • UK no longer apply to use simplification rules • Call off stock • Installed goods • Land related services
- 20. www.website.com Customs Duty – What is the point? • Increased Tax Take • Post Brexit – HMRC get to keep it • Protectionism • Encourages Domestic purchases • Limits ability of Foreign suppliers to undercut • Acts to restrict unfavourable flows of goods • Security • Controls and limits the entrance of high risk goods (e.g. Animal products / Weapons etc.)
- 21. www.website.com Customs Duty – How does it work? • Currently a uniform EU wide Tax on imports (not on exports) • Absolute cost – Not recoverable like VAT • Liability and duty payment on the Importer (In General) • Can’t rely on another (Freight forwarder) • Can’t use no knowledge as an excuse
- 22. www.website.com Calculation: Customs Duty & Import VAT Customs Duty Ad Valorem: Customs Value x Duty Rate e.g. Plastic Sheeting = 6.5% £200 X 6.5% = £13.00 Specific: Attribute (Weight, Length, Unit) determines the duty (In Euros as set by the EU) e.g. Processed Cheese Duty Rate = 144.90 EUR / 100 kg 30kg = 43.47 EUR Import VAT (Customs Value + Customs Duty) x VAT Rate ((e.g. (£200 + £13) x 20%) = £42.60
- 23. Trade Landscape in a No Deal Scenario • Customs Declaration - Expected to rise from 55m to 255m – extra costs to clear goods [£6b in admin costs] • 360% Increase on Flow through ports • Pressure on Dover and Felixstowe, other ports likely to become more utilised
- 24. Impact of No Deal Brexit on Customs Duty • End of Acquisitions and Dispatches – These become Imports and Exports • EORI – Required for Imports and Exports – Need to get one • Licenses, Testing • Declaration Burden • No access to EU FTAs and Preferences? • Extra costs and compliance for you and customer
- 25. www.website.com Overview Valuation Special Procedures Origin & Preference Classification Determine baseline duty/risk Reduce/Remove Duty Customs Valuation: Determines Duty Classification: Determines Duty, Measures, Compliance Origin and Preference: Use of Trade Agreements, Reducing duty burden (But required proof of origin) Special procedures: Application to suspend or avoid duty if circumstances met (Requires Guarantees)
- 26. www.website.com Classification • 16,500 different codes found in the Tariff – Lots of NOTES • Generally done via a word search only • Coding is complex, technical and time consuming • Complex Rules (General Interpretive Rules) – Must be followed in order to determine code • Guidance (HSENs, CNENs, BTIs) – Some behind paywalls • Changes – Stop Press Notices and Correlation Tables
- 27. www.website.com General Rules of Interpretation Six Rules agreed on by the WCO that must be used when classifying an item How to deal with: 1. The main headings (4 digits) which goods are classified under 2. Incomplete or unfinished articles and articles of mixed materials or substances 3. Goods which can be classified under more than one description, composite goods of different materials and sets for retail 4. Goods which can’t be classified using the first 3 rules 5. Items of Packaging that come with the goods 6. Subheadings (6 digits +) which goods are classed under
- 28. www.website.com Classification Approach “Just a guess…” • Must justify – Quote Rules –E.g. GIR 1 & 3 + HSENs “This was used last time…” or “[…] told me to” or “The Freight Forwarder suggested…” • Liability remains with the importer “The Manufacturer said use this…” • A Chinese 8 digit code may not be correct for UK Import purposes “It is only an Intrastat…” • Penalty Risk for false reporting • Brexit Impact – Liability on C88 Would anyone guess a Tax Code?
- 29. pkf-francisclark.co.uk . Money Saving The finer detail Strip it down Build it up
- 30. www.website.com Valuation • Agreed by WTO – Must be considered in order • Vast majority use Rule 1 (Transaction Value) • Not as simple as it may seem…
- 31. www.website.com Valuation Common Additions: • IP Rights (Licensing etc.) • Tooling and Assists • Sellers Commission Common Deductions: • Buying commission • Contractual discounts • Post landing charges • Right to reproduce • Interest
- 32. www.website.com Which country is most likely to be the “Origin” at time of export to Canada? Raw Copper / Forging Raw Steel / Forging Labelling & Cleaning Machining & Assembly Re- Packaging Storage and Consignment
- 33. www.website.com Origin • Not the same as “Shipped From”! • Determines preferential (Reduced) Duty, Restrictions etc. • In general – origin is where last significant & economically justified processing occurred • There are different requirements for “Preferential” and “Non-Preferential Origin” • Used for reduced duty with Free Trade Agreements and Unilateral GSP for developing countries • Need Origin Statement, Evidence of shipment, Proof that rules have been followed
- 34. www.website.com Special Procedures Relief from Duty using.. • Processing: Inward Processing (IP) and Outward Processing (OP) relief • Specific Use: Temporary Admissions (TA) and End-Use Relief (EnU) scheme • Storage: Temporary Storage (TS) and Customs Warehousing (CW) • Transit: Internal and External Transit • UK Customs Simplified Freight Procedures (CFSP)
- 35. www.website.com AEO Status • Two types – AEO(C) & AEO(S) • Link to “Trusted Trader” mentioned in Chequers proposals? • Only useful if mutual recognition – Not yet confirmed • Recognised or not – still subject to traffic tailbacks! • Months of preparation – Often 180 days between application and acknowledgment • Need to have customs qualification or demonstrate long term experience in customs
- 36. Trading post Brexit Breakfast Briefings – Winter 2018/2019 Wrap Up: Daniel Sladen, Francis Clark 4 December 2018
- 37. Next… Q&A and/ or discussion • With opportunity for Q&A for presenters • Discussion Future breakfasts – 1st Tuesday of the month • Sustainable business – 8th January (FC Boardroom) • Pre-year tax planning • CIOSIF update Other dates for the diary • Finance in Cornwall – 25th June 2019 (with British Business Bank and Institute of Chartered Accountants in England and Wales?) And do not forget our blog, which contains details of new funds/ sources of SME funding that come to our attention, and our Finance in Cornwall factsheet. pkf-francisclark.co.uk
- 38. Q&A and/ or discussion pkf-francisclark.co.uk
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Editor's Notes
- Can your margins cover any additional costs Health/Chemicals – need to be located in an EU state Others – need to have an importer located in the EU willing to take liability. SW based toy company has setup a German company so it is responsible for the importer liability.
- SW company with a good business selling iPad docking stations to schools felt it would cope well with Brexit. EU buyers very worried about import paperwork
- Do you have contracts with penalties for late delivery? RoO – 50-55% needs to be of local origin. Need to prove origin in order to benefit from any trade deal.
- Postponed accounting for import VAT on goods in the event of a no deal - UK VAT registered businesses importing goods to the UK will be able to account for import VAT on their VAT return, rather than paying import VAT on or soon after the time that the goods arrive at the UK border. This will apply both to imports from the EU and non-EU countries. Customs declarations and the payment of any other duties will still be required
- Postponed accounting for import VAT on goods in the event of a no deal - UK VAT registered businesses importing goods to the UK will be able to account for import VAT on their VAT return, rather than paying import VAT on or soon after the time that the goods arrive at the UK border. This will apply both to imports from the EU and non-EU countries. Customs declarations and the payment of any other duties will still be required
- https://www.taxation.co.uk/Articles/2017/04/04/336250/beginner-s-guide-customs-duties
- https://www.ey.com/Publication/vwLUAssets/EY-brexit-keeping-your-goods-moving/$File/EY-brexit-keeping-your-goods-moving.pdf
- https://www2.deloitte.com/global/en/pages/public-sector/articles/Potential-implications-of-Brexit-customs-and-trade.html
- I would not go into too much detail on this slide – just trying to make the point that this is an important issue and that HMRC have made no comment as yet on the conflicting cases which leaves us in limbo. Could mention that we wrote to HMRC in December on a case where zero-rating would apply if Gemeente Borsele followed but may not if Longridge followed. Section 94 of the VAT Act says that ‘business’ includes any trade, profession or vocation. It also specifies that some particular activities are business, including admission to premises for consideration, supplies by membership organisations to their members, and activities in connection with the termination of a business. It is accepted, however, that the term is to be construed in line with the EU concept of ‘economic activity’. Lord Fisher ‘tests’ (a) whether the activity is a ‘serious undertaking earnestly pursued’ or a ‘serious occupation, not necessarily confined to commercial or profit making undertakings’; (b) whether the activity is an occupation or function actively pursued with reasonable or recognisable continuity; (c) whether the activity has a certain measure of substance as measured by the quarterly or annual value of taxable supplies made; (d) whether the activity was conducted in a regular manner and on sound and recognised business principles; (e) whether the activity is predominantly concerned with the making of taxable supplies to consumers for a consideration; (f) whether the taxable supplies are of a kind which, subject to differences of detail, are commonly made by those who seek to profit by them. These tests came to be favoured by HMRC, and acquired a degree of authority in subsequent UK cases. Test (e) was, however, generally seen as the most important. In view of this, it has generally been supposed that the High Court in Fisher had endorsed them, and indeed they have often been cited on this basis. In reality, the Court was not at all impressed. It thought that HMRC had set too much store by Morrison’s Academy, which concerned a very different situation, and that: ‘The courts, however, cannot, by the formulation of tests and by the expounding of indicia, substitute any test or phrase different from that set out in the statutory provision and I am sure that their Lordships [in Morrison’s Academy] had no intention of doing so.’ Whilst it was understandable that HMRC should have a preference for ‘simple rules’: ‘I regard counsel's submission for the Crown, however, as unacceptable because it would force into the category of “business” many activities which, in my judgment, do not fall within the true meaning of “business”’ Rarely can the unacceptable submission of a defeated counsel have proved quite so influential. 2016 cases Longridge on the Thames – charity providing boating and other water based courses and activities. Charges for activities, sometimes discounted or waived. Also relied on donations and volunteer labour. Court of Appeal held that as charges were more than nominal and were directly linked to the cost of the activity, the activities were business and the charity could not therefore provide a certificate for zero-rating in respect of new building. Gemeente Borsele – CJEU case. Dutch local authority providing heavily subsidised school bus service. No charge for about 2/3 of pupils, for longer journeys parents were expected to make a contribution based on fares for comparable public transport. The contributions made up about 3% of the cost of the service. CJEU said that existence of a supply of services for consideration was not enough to demonstrate an economic activity. CJEU and AG thought that Borsele was not operating in a market but rather to be the final consumer of transport services. No genuine link between the amounts paid and services supplied. Link not direct enough to be regarded as consideration therefore the services were not regarded as an economic activity. HMRC has not yet commented on the implications and interaction of the 2 cases. Healthwatch Hampshire CIC – issue whether the activities undertaken in the contract with the local authority are an economic activity for VAT purposes. HMRC argued they were the performance of public functions or state (statutory) activities even though not undertaken by the local authority. Taxpayer won. Bear in mind if undertaking statutory activities.
- Source Customs AEO Fact Sheet in X Drive AEOC Status Provides: Expedited applications for customs simplifications such as inward/outward processing relief, customs warehousing and temporary storage. Significant reductions or waivers of comprehensive guarantees (subject to UCC rules) AEOC status is a qualification requirement for: The movement of goods in temporary storage between different member states Ability to apply for a notification waiver when making an entry in a declarant’s records (EIDR) A 70% reduction in a business’s deferment account guarantee The undertaking centralised clearance (when available) The completion of self-assessment (when implemented) AEOS status provides: Access to the benefits provided through mutual recognition agreements with third countries Reduced customs management checks Fast tracking and prioritisation of goods through customs controls The AEO application process also entails indirect and collateral benefits. Applicants are required to undertake an end-to-end review of the business, which can identify areas for improvement and therefore lead to: Improved security awareness within the business Streamlined workflows and increased efficiency Enhanced data management Improved due diligence procedures Early identification of theft and fraud Improved customer relationships by reducing delivery delays AEO status is applied for using HMRC Form C117. An additional Questionnaire C118 can also be completed to support the application and better understand the requirements. HMRC undertake a site visit and detailed pre-authorisation audit within 65 days of an application meaning preparation is vital. Prior to submitting an application for AEO status, applicants need to analyse their business to ensure that the required criteria and standards can be met and fully evidenced. This involves reviewing: Business processes, systems and controls Existing accreditations or authorisations which may satisfy part of the criteria for AEO status Areas of risk, to understand their potential impact on the business, customs matters and the AEO application The timescales involved in AEO application are extensive once an application has been submitted: Acknowledgement of receipt: 30 days from application Acceptance: 120 – 180 days from acknowledgement