1 MINUTE GUIDE TO ... CUSTOMS DUTY

(June 2004)

Introduction

Customs duty is paid when goods cross international borders. Do you know how much duty you pay? Do you know how it is calculated? Are you satisfied that duty assessments raised on your business are correct? Could you cut the costs of your manufacturing, distribution or selling operation through customs planning?

10 Key Points

1. Legal
   The legal basis for customs duty is in European law. The UK is part of the European Union (EU) along with the other 24 member states. The 25 member states make up a customs union. Decisions about customs duty legislation are made in Brussels by the European Commission. Those laws are enforced and the duties collected in the UK by HM Customs & Excise.
   
   
2. When customs duty applies
   Whenever any goods (raw materials, components, semi-finished and finished) cross an international border, there is the potential for a customs duty charge. Goods moving within a customs union are not regarded as crossing borders for customs duty purposes. E.g. a car manufactured in the USA imported into the UK attracts customs duty, whereas a car manufactured in Italy and sold in the UK does not. The amount of customs duty due depends on the commercial arrangements involved in the import, the type of goods, the country where the goods are manufactured and whether there are any reliefs to reduce or eliminate the customs duty.
   
   
3. Customs valuation
   The customs valuation of goods is calculated on 1 of 6 methods. The most often used is the transaction method, based on the price paid for the goods. So if there is a sale of the goods leading to importation, then the sale price is the starting point. To this have to be added freight insurance and other adjustments to arrive at a landed cost. In some circumstances payments for intangibles such as royalties have to be included in the values. Commercial arrangements directly affect customs valuation. Where there is a physical transfer but no sale, or they are leased, rented, provided free of charge, or there is a sale but the price is influenced between related parties, then one of the other 5 methods is used.
   
   
4. Customs duty rates
   The rate of customs duty charged on the customs value is determined according to the tariff classification of the goods from 0% to 25%. The UK Tariff is based on the EC Tariff and in turn on the international tariff coding system covering everything in the world. International trade disputes arise when countries interpret the tariff rules differently! Smart importers use tariff engineering to achieve different classifications with a lower duty rate when planning their product design, or when deciding the make up of consignments.
   
   
5. Tariff measures
   The classification of goods also enables international trade to be controlled through tariff measures – a sort of economic mechanism. These include preferential duty rate incentives, or anti-dumping duty/measures imposed for goods from certain countries, or complete suspension of duty to encourage specific imports, or quotas on the amount of goods that can be imported, or the amount that can be imported at preferential rates. Some goods are subject to licensing arrangements.
   
   
6. Origin of goods
   This is one of the key determining factors for customs duty on imported goods. Origin may be different to where the goods are shipped from. Different goods have different qualifying origin criteria. Essentially if grown, reared or dug up in a particular country they usually originate there. However catching fish is problematic and can depend on the nationality of the ship's crew! Otherwise the nature and degree of processing or manufacture is the key factor. Preferential origin rules can confer lower rates of duty. Non-preferential origin rules can deem goods to be subject to anti-dumping or other tariff measures.
   
   
7. Reliefs
   There is a wide range of reliefs from customs duty. These include processing reliefs for goods imported, further manufactured and re-exported, and for goods exported for further processing that are then re-imported, and for goods with certain designated end uses.. These are economic measures. There are reliefs for moving personal possessions, personal import allowances (on holiday), inherited goods and so on, plus reliefs of a social, scientific, sporting, research and philanthropic nature. A wide range often under used but with one aspect in common – they must be claimed at the time of import as it is notoriously difficult and almost always impossible to backdate them.
   
   
8. Deferring payment
   If duty cannot be eliminated or relieved, then clearly paying as late as possible is attractive. Deferment arrangements enable import charges to be settled up to 45 days after importation. Customs warehousing enables goods to be stored with duty and import VAT suspended until taken out of the warehouse. This means that no duty cost is tied up in warehoused, unused, slow moving or redundant stock.
   
   
9. Other taxes at import
   In addition to customs duty, other taxes that may apply to imports include excise duty (in respect of tobacco, alcohol and oil, or goods containing these), common agricultural policy (CAP) levy on agricultural goods and foodstuffs and anti-dumping duty on goods that the EC believes may injure EU economic interests. Then there is import VAT which is payable on the duty inclusive value of the goods. Recoverable as input tax by VAT registered businesses but a sticking tax otherwise and often for the smaller business or occasional importer.
   
   
10. Compliance and planning
    Many of the above aspects are involved in making a customs entry declaration when clearing importing goods with HM Customs & Excise. Many businesses use freight agents to handle this but the legal responsibility for the legal compliance and correctness of the declaration always remains with the importer. There are fines for errors. This is customs compliance. Then there is customs planning: customs valuation, tariff classification, origin, use of reliefs and delayed payment are all areas susceptible to planning to reduce the cost of importing.

About the Author

This guide was compiled by Quadrel, the international trade and customs consultants. Quadrel is a professional services organisation providing specialist information, advice and representation in customs compliance and customs duties planning, as well as training in import, export and international trade matters.

For more information on Quadrel, contact Philip Brigstock-Bates on 01784 497005 (Egham, Surrey) or by email at pbb@quadrel.co.uk (www.quadrel.co.uk).

Disclaimer

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