Following the end of the transition period on 31 December 2020, customs and VAT controls were applied to the trade in goods between the EU and GB for the first time in nearly 30 years creating additional administration and financial costs for businesses as well as impacting on supply chains.
Five months on we look at some of the recurring issues faced by businesses as they move from the initial shock of a new trading regime to bedding down new procedures and processes and transition to a new “normal” trading regime with GB.
1. Accuracy of customs declarations
An import declaration is equivalent to a tax return – if it is incorrect the person in who’s name the declaration is filed may be liable to pay additional duties, interest and penalties as well as face increased scrutiny by tax authorities.
Many businesses rely on their logistics partner to arrange the completion and filing of customs declarations whilst others have outsourced their requirements to third party customs agents.
However, it is important that businesses maintain visibility over the declarations submitted on their behalf to ensure that they are comfortable filings are correct, any errors are minimised, and corrective action needed is taken as soon as possible.
Our recommendation is for businesses to see customs as a key tax risk and to focus on building the necessary processes and controls to ensure declarations are accurate as well as reviewing declarations and procedures applied to date.
2. Harnessing the Trade and Cooperation Agreement
The Trade and Cooperation Agreement (“TCA”) provides that preferential 0% customs duties can apply to the import of GB origin goods into the EU or EU origin goods into GB.
If you are claiming preference on goods imported from GB it is important to be aware of the conditions for claiming the relief, in particular the requirement to obtain statements of origin from suppliers and for the goods to be of GB origin and not just shipped from GB.
Alternatively, if you are claiming relief based on importers knowledge do you have the relevant back up information to support the relief claimed?
Likewise, if you are supplying into GB and anticipate your customers claiming origin on your supplies, it is important to be aware of your obligations in respect of providing valid statements of origin to your customers.
3. Are your customs processes working efficiently?
Several months into the new trading regime, it is an opportune time for businesses to assess how well their customs procedures are working and whether they are delivering value to the businesses.
For instance, if your business sources goods from the UK, have you implemented controls and procedures to maximise your ability to claim preferential 0% duties under the TCA where the goods are of GB origin? If you have determined that preference cannot be claimed, have you examined whether Returned Goods Relief can be used to avoid paying duty on the re-import of EU goods from UK distribution hubs?
Is your supply chain delivering as expected or do you need to assess alternative routes or processes? Transporting goods to the EU via the GB land bridge traditionally allowed for reduced delivery times. However, due to increased checks and paperwork arising on the GB land bridge post Brexit and with the attendant risk of additional delays at customs border posts, many businesses have shifted their supply chain to direct shipping between Ireland and the EU in order to minimise the risk of delays but at the cost of increased transport charges. Remember that the UK has yet to introduce full customs controls on imports and these will likely lead to additional delays once fully introduced on 1 January 2022.
If you are experiencing delays at import, a high incidence of orange or red routing, or managing a large guarantee supporting a deferment account or other customs procedures, consider whether obtaining Authorised Economic Operator status would be beneficial to the business.
4. Is Delivered Duty Paid being correctly implemented?
Many businesses have agreed to sell or purchase goods on a Delivered Duty Paid (“DDP”) basis whereby the supplier, amongst other obligations, is required to undertake all customs export and import formalities.
In some cases where DDP is agreed, delays in the movement of goods between Ireland and Great Britain can arise in circumstances where suppliers operate on the basis the necessary import declarations can be filed in the name of the customer. Such an approach gives rise to a risk for the customer as typically they have limited or no visibility over the contents of the customs declaration filed in their name. As a result, care should be taken by businesses operating on DDP terms in the event that the supplier seeks to arrange the importation of goods in the name of the customer.
In addition, further delays can arise if the supplier is not correctly set up to operate VAT in the country of import, or the supplier has not fully addressed local regulatory controls as a result of being the importer. As a result, where parties agree to operate on DDP terms, the implications of doing so should be fully understood and implemented accordingly.
5. The Northern Ireland Protocol
Complex VAT and Customs rules apply in respect of goods movements via Northern Ireland to and from Ireland.
If your supply chain involves the movement of goods via Northern Ireland make sure you are familiar with the resultant VAT and Customs obligations arising in Ireland, Northern Ireland and potentially GB.
6. Value Added Tax
The VAT rules concerning the trade in goods with GB and the trade in services with the United Kingdom (including Northern Ireland) has changed since 1 January 2021. Businesses should be satisfied they have understood and implemented these changes, in particular ensuring VAT registration and accounting obligations are properly managed, assessing whether VAT use and enjoyment rules impact the business and whether VAT recovery on local and foreign costs is impacted.
Many businesses are operating Postponed Import VAT Accounting (“PIVA”) in order to avoid the payment of VAT at the time of import into Ireland and instead account for the VAT arising in their normal VAT returns.
Businesses should ensure that appropriate procedures are in place to calculate and record import VAT in the VAT returns as otherwise this may lead to an exposure to VAT, penalties and interest if PIVA is not operated correctly and VAT recorded in the relevant VAT returns.
Get in touch
If you have any questions concerning customs and Brexit, please contact one of our customs team members below - we'd be delighted to hear from you.
Contact our VAT & Customs team
Partner, Head of Indirect Tax - VAT & Customs
KPMG in Ireland
Principal, Indirect Taxes - VAT, Customs and Excise
KPMG in Ireland
Partner, Indirect Taxes – VAT & Customs
KPMG in Ireland