A local tax expert has warned that the recent description of the problems faced by British Seafood businesses trying to deliver their products to EU customers as “Teething problems” significantly understates the complex and challenging issues many food businesses are having to address.
We spoke with Heather Williams, a local Tax Partner with Azets in the firm’s recently-opened Bournemouth office, who said that businesses are having to tackle a complex web of new rules and procedures and warned that mistakes could be costly: “Most rules and procedures relating to the movement of goods from the UK to the EU fall within the remit of HM Revenue and Customs and these include Customs Duties and VAT. Businesses must be aware that if these are not dealt with in an accurate and timely manner it can lead to significant border delays, unexpected costs and at worst, penalties. There are signs that the UK and EU border authorities are taking a more lenient approach at present to maintain the flow of goods but business’s procedures and payments of tax in this area will come under scrutiny at some point in the future,” said Heather.
She added, “Fortunately, in spite of the problems, we understand that some local seafood and other food businesses have persevered and successfully delivered their products to EU markets. However, there are many others that will be struggling with a new and complex regime. There are compensation schemes available but these may not go far enough.”
Six areas to consider
Heather highlighted six key areas that all businesses should be aware of when planning or engaging in trade with the EU:
- Incoterms and Delivery Terms. These are the terms between suppliers and customers that determine responsibility for matters such as delivery of the goods and export/import formalities. Although this should be a negotiation between supplier and customer, there are examples of some large logistics providers urging UK suppliers to deliver on DDP (Delivered Duty Paid) incoterms because the freight will be sent to the EU on “Groupage” (e.g. where multiple different suppliers’ goods are grouped together on one truck). There is a clear commercial reasoning for this from the logistics providers’ perspective. However, it is important that UK suppliers understand the VAT and Customs consequences of supplying on DDP terms.
- EORI number (short for Economic Operators Registration and Identification number). UK suppliers will need a UK EORI number to export goods from the UK. If the UK suppliers are responsible for importation of the goods from the EU, then they will also need an EU EORI number. These EORI numbers are required in advance of the export/import declarations.
- EU Import VAT. Although the supply and importation of seafood is zero rated in the UK, many EU countries do not share the same zero-rated status. Therefore, if UK suppliers are responsible for importation of the goods in the EU, then they can be expected to pay import VAT in the EU.
- EU VAT Registration. Where a UK supplier is responsible for importation/delivery of goods in the EU, then it may be required to register for VAT in the countries of importation/delivery. A consequence of VAT registration is that UK suppliers may need to charge Output VAT on their supplies, depending on local rules. Once VAT registered, import VAT can normally be reclaimed through submission of the VAT returns. It is also possible to apply for simplification schemes such as Postponed VAT Accounting to neutralise import VAT and support cash flow.
- Customs Declaration will be required. This service is normally performed by a Logistics Agent if freight and delivery of the goods is outsourced – or by a Customs Agent if suppliers have their own in-house fleet of vehicles for deliveries. A suite of accompanying documents will also be required including commercial invoices and health declarations. Consignments will also need to be correctly labelled for EU markets.
- Customs Representative. UK companies should ensure they have the correct type of “Customs Representation” from their logistics and customs agent. Some EU countries require businesses established outside the EU to have an ‘Indirect Representation’ for customs purposes, whereas others may permit “Direct” Representation. Noteworthy is that being an indirect representative will mean that agents have joint and several liability over import VAT and Duty. Customs agents may therefore be reluctant to provide an Indirect Representation for UK suppliers due to the shared risks.
Heather concluded by urging businesses concerned about the new rules and procedures to seek advice as soon as possible. “We have been supporting our clients by working with our overseas affiliates and undertaking, for example, supply chain reviews, to determine the most efficient EU VAT/Duty model. Although multiple VAT registrations may be required for some businesses, it may be possible to register for VAT and EORI in one EU country, to allow goods to be imported into the EU and distributed into other EU countries. Sadly, it has become evident already that there is no one-size-fits-all BREXIT solution and each business will operate slightly differently with tailored solutions required.”