David Gough, a VAT and duties consultant at tax consulting firm Chiltern plc, provides some useful tips for first-time importers
FOR first-time importers there are a number of hurdles to overcome such as the mechanics of ordering and paying for the product, declaring the goods to Customs (now HMRC) and paying any import duty, VAT and other charges due.
For customs purposes the word import defines the process of bringing goods from outside the EU into the EU. Goods moving between the EU are described as acquisitions.
Imports must be formally declared or “entered” to HMRC using form C88. Most import entries are submitted electronically.
Most importers will employ an import agent to declare the goods to HMRC on their behalf and to calculate the taxes due. Once the taxes have been paid the goods can be released from HMRC control into “free circulation” within the EU.
Whilst the VAT paid at importation is usually recoverable on the VAT return, other charges are not, so any mistake made will affect the bottom line. Furthermore whilst HMRC can raise assessments for underpaid import duty (capped at three years) it is much more difficult to recover overpaid duty.
Information on importing can be found on the HMRC website http://www.hmrc.gov.uk/businesses/. There is also a useful HMRC publication called Breaking down the Barriers which can be downloaded from their website.
Get your tariff classification right
Imported goods are classified using a ten-digit commodity code (sometimes known as a tariff heading) which is entered on the import declaration. All goods from carpets to computers, no matter how obscure, will have a commodity code. The code will determine both the duty payable and any restrictions (such as the need for an import licence) that apply to the goods. Getting the code wrong will result in the wrong amount of duty being payable.
You can check the commodity code at http://europa.eu.int/comm/taxation_customs/dds/en/tarhome.htm.
There are also HMRC classification guides for certain products which are available at www.uktradeinfo.com/index.cfm?task=classindex
Guidance from HMRC can be found in Notice 600.
Get the value right
Import duty is chargeable on the CIF (cost, insurance and freight) open market value of shipping the imported goods to the port of importation. This value must be adjusted to take into account costs such as royalty and licence fees and materials supplied free of charge to the manufacturer, which must be added to the import value whilst buying commission and post importation transport costs can be deducted from the import value.
The value will not be accepted as an open market value if the importer is “related” to the seller and the relationship affects the value. A special valuation method may therefore need to be agreed. There are six methods of valuation for importation purposes which must be used in strict sequence.
Getting the value wrong will result in the incorrect amount of duty being payable. Guidance from HMRC can be found in Notice 252.
Claim preferential duty rates
Many developing countries or countries in the process of joining the EU have preferential trade agreements with the EU. Under these agreements goods that meet the specific origin rules can be imported into the EU at a reduced or nil rate of duty provided a valid preference certificate issued in the exporting country is obtained and submitted with the import entry.
HMRC may check preference documents if they suspect that the origin rules have not been met. If the documents are subsequently found to be incorrectly issued additional duty and penalties may be payable.
Some preferential duty rates may be subject to a tariff quota. This is a pre-set value or quantity of goods, which may be imported into the EU during a specified period at a reduced rate of duty. When the quota is exhausted the full rate of duty will be payable.
Check out any import licensing restrictions
A number of goods need a licence before they can be imported into the EU. If a licence is needed and is not presented at the time of importation, the goods cannot be released from HMRC control. Failure to apply for a licence before the goods arrive can therefore delay importation and increase port storage charges.
Apply for a duty deferment account
Customs duties, import VAT and other charges payable at import must be paid or deferred before the goods can be removed from HMRC control. Payment may be made to HMRC direct although many importers make payment through their import agent who will use a duty deferment account.
A duty deferment account is a trade facilitation measure, which can defer payment of duties and VAT payable at import by between two and six weeks and speed up the importation process. Importers have a monthly credit limit. Once approved by HMRC a Deferment Approval Number (DAN) is given and instead of paying the agent the charges due at import, importers need only quote their DAN on the import entry. HMRC will then debit the designated bank account on 15th of the following month for the charges payable.
Importers must give HMRC a financial guarantee for the maximum expected charges due in a calendar month. The guarantee can be topped up for a period if higher imports are expected. Guidance from HMRC can be found in Notice 101.
Apply for SIVA
For approved simplified import VAT accounting (SIVA), the guarantee required for duty deferment will be based on the duty and other charges payable excluding the VAT element. SIVA approval therefore reduces the cost of operating duty deferment.
Guidance from HMRC can be found on the HMRC website.
Apply for general valuation statements (C109)
Importers must submit a formal valuation declaration with each import entry. For businesses who import from the same supplier on a regular basis, it is possible to submit a “long term”, or “season ticket”, three-year valuation statement setting out the basis of valuation. This is called a General Valuation Statement (GVS) and avoids the need to submit valuation statements with each entry.
Guidance from HMRC can be found in Notice 251.
Check out any import duty reliefs
There are a number of schemes that relieve, or delay payment of, import duty and/or VAT on goods, which are permanently or temporarily imported in certain circumstances. Relief is claimed via a special customs procedure code on the import entry.
Common reliefs are:
• Inward processing relief – goods imported for processing/repair and re-export.
• Temporary imports – goods for exhibition etc.
• Returned goods relief for goods being returned to the original supplier.
Guidance as to the scope and nature of reliefs available can be found on the HMRC website.
Use a bonded (Customs) warehouse
A (Customs) bonded warehouse is one that has been authorised by HMRC for storing goods, which have not yet been formally imported into the EU. Any duty payable on the goods is suspended and has to be secured by a bond or financial guarantee.
Goods placed in a bonded warehouse can be sold in bond, exported outside the EU or removed to home use, ie formally imported.
Customs warehousing can be helpful if you want to: delay paying import duty and/or VAT on imported goods; re-export imported goods (no duty and/or VAT will be payable at all); and delay providing an import licence. Guidance from HMRC can be found in Notice 232.
Make sure that the import agent is told in writing how to declare the goods. It is the responsibility of the importer to ensure that any agent completes the import entry correctly. To avoid mistakes it is always worthwhile giving the agent written instructions for each consignment or supplier confirming the basis of value and any adjustments to the value, the commodity code and any preferential rate to be claimed.
Make sure that you receive a copy of the import entry after acceptance by HMRC and check that the details declared to Customs are correct.
The agent should provide a copy of the import entry form C88 or a plain paper version. The box numbers shown on the plain paper C88 will correspond to the printed version of the form which can be downloaded from the HMRC website. It is important to check that the details declared are correct.
If the wrong value or commodity code has been entered by the agent the importer will still be liable for any errors. If duty has been overpaid it may still be possible to rectify the error if HMRC are notified quickly.