Duty Suspension and Reliefs
Overview
There are a number of customs procedures to delay and suspend payment of duty which may be beneficial to traders. Generally, goods are not released into free circulation by customs until import duty and VAT has been paid. If goods are imported regularly, it is possible to open up an account with HMRC to allow payments monthly in arrears. There must be a financial guarantee by a bank or equivalent institution.
It may be possible to delay liability to pay customs duty or Value Added Tax. If the goods are not needed immediately or they are intended for re-export they can be stored in an authorised custom warehouse. Duty and VAT is only payable when they are moved from the warehouse into free circulation.
Similar rules apply where goods are held in a designated free zone. A free zone is a holding area for non-EU goods where import duty and VAT is suspended or delayed until they are released into free circulation.
There are a number of reliefs available for specific types of goods in situations where they are imported for processing or later export. If goods are temporarily imported, relief from import duty or VAT may be available provided they remain in the same conditions as imported.
One method of temporary import is an ACA carnet. This is issued in the country of dispatch usually by the local Chamber of Commerce and is used in place of customs documents normally required. ACA carnets are applicable to countries which are signatories of the ACA Carnet or Istanbul Contravention. This relief is available to goods such as goods for demonstration, samples, goods for an exhibition, professional equipment.
If goods are being imported for purposes of processing and re-export, inward processing relief may be available. There are two methods of relief; suspension and drawback. Suspension allows importation and processing while duty and VAT are suspended. Under drawback, duty and VAT are paid but can be reclaimed. HMRC authorisation is required.
If goods are imported in order to be supplied in another European Union State, it may be possible to claim onward supply relief (OSR). This allows importation of the goods without paying import VAT. VAT is paid when the goods are supplied to the customer in the EU State of destination.
If goods are exported for repair or processing outside the European Union temporarily before being re-imported, it may be possible to claim outward processing relief. Relief from duty applies to the value of the goods originally exported
There are a number of other special import reliefs. They apply to particular types of businesses and groups such as charities, imports for exhibitions, low-value samples, and certain scientific goods. These reliefs are part of the Community System of Duty Reliefs (CSDR). Typically the reliefs apply to goods for a social purpose such as imports for the disabled or museum exhibits.
There are end-use reliefs by way of full and partial relief from import duty for certain designated industries such as civil aviation, shipbuilding. It is necessary for a business to be authorised to use this relief.
It is possible to reclaim duty on rejected imports. It is necessary to show that the goods have been re-exported or destroyed.
Customs Warehouses
Customs warehouses are premises authorised by HMRC which qualify for favourable customs treatment. By entering goods in a customs warehouse it is possible to delay payment of customs duty, import VAT and (where appropriate) excise duty until the goods leave the warehouse or enter another customs procedure.
Warehousing can be used when goods enter the State where:
- it is desired to re-export them
- it is uncertain about the final destination
- import licence or paperwork have been delayed
- it is intended to discharge them into another procedure such as inward processing relief.
For goods to be eligible for relief, they must have been imported from outside the EU and be liable to customs duty and/or import VAT. Alternatively, they may be moving under a duty suspension from one EU member state to another under the community transit procedure. If authorised, the procedure can be used for storing CAP goods that are eligible for export refund or goods under a common cold storage arrangement.
There are a number of different types of custom warehouse. A public warehouse is operated by a warehouse keeper for goods deposited by other traders. A private warehouse is used for storage of goods deposited by a trader who is himself authorised. There are three types of private warehouses; Type C, Type D and Type E.
Once goods are released from a customs warehouse procedure, it is necessary to pay the duties and taxes on them. Alternatively, it is possible to move them to another customs procedure (e.g. community transit which is the European Community Union’s system for moving goods between member states). They may also be transferred to another warehouse. In order to receive the transfer, the warehouse itself must be eligible for the transfer. This is usually used for non-community goods for which customs duties and charges are at stake.
Excise warehouses require guarantees in relation to taxes and duties while goods are in storage. Customs warehouses do not usually require a financial guarantee.
Goods stored in warehouses can be inspected by potential customers of the importer, with taxes and duties being payable upon release. Manufacturing or processing is not generally allowed in customs warehouses. It is permissible to improve the presentation, prepare for distribution and ensure the preservation of the goods.
Removal from warehouse for export must be declared under the normal or simplified customs procedures. The completed declaration must be presented to the warehouse keeper who is responsible for ensuring the removal is recorded.
Free Zones
Free zones are officially designated areas throughout the EU in which custom duties can be suspended on goods imported from outside the European Union. Common Agricultural Policy charges, VAT and excise duties may also be suspended until the goods are removed from the free zone or are used in the free zone. Goods held in the free zone are deemed to be outside the territory of the EU even though they are physically in it.
There are six free zones in the UK located at Liverpool, Preswick in Scotland, Sheerness in Kent, Southampton, Tilbury in Essex and on the Isle of Man. Each is controlled by the free zone manager and supervised by the local HMRC Office. Free zones exist in many other EU countries including the Shannon free zone.
The same rules other than the duty to pay duty apply to goods brought into a free zone in the same manner as other goods imported into the UK. For example, firearms, ammunition, drugs and goods requiring a public health certificate are required when goods enter the free zone.
It is necessary to obtain HMRC approval to run a business within a free zone. The nature of the business must justify presence in the free zone. Details of controls, description of the goods, where the goods are coming from, the custom status, the methods by which they have been transferred into the free zone must be approved. Stock records and other required information must be maintained.
Goods can be entered into a free zone in a number of ways:-
- directly from import from outside the EU
- from Community Transit (see our note on Community Transit)
- from another customs control such as customs warehousing, inward processing relief, processing under customs control etc. The relevant transport procedures for the customs procedure which must be complied with.
It is necessary to declare entry to a free zone on the Single Administrative Documents. It is necessary to give a copy of the customs declaration to the manager of the free zone who will record the details in their records.
It is permissible to store goods in the free zone for an unlimited time limit. Unwanted goods can be destroyed provided details are notified to HMRC and records are kept.
There are time limits in relation to retention of certain CAP goods. It is possible to undertake steps to keep the goods in good condition and ensure that they are capable of being sold. Subject to specific authorisation from HMRC, it is possible to process goods within the free zone.
In order to remove goods from a free zone, it is necessary to lodge a declaration on the Single Administrative Document. Customs simplified procedures can be used to remove the goods. Some goods may have to be examined before release. Sometimes customs will need to be notified in advance.
If goods are removed from the free zone and/or put in free circulation, import duty and other charges must be paid. A customs declaration is required. If goods are being removed to another country, it is necessary to decide whether they are being put into “free circulation” or whether they are remaining in a duty suspension scheme. If the latter is happening it will be necessary to enter the goods into the appropriate customs procedure. If goods are being exported to a non-EU country it is not necessary to pay import duty or customs charge. A customs re-exportation declaration is required. This can be done on the SAD or electronically.