The United Kingdom (UK) has long been a key player in the global import and export business, since the era of colonization. To service the needs of its citizens, SMEs (Small to Medium Enterprises), and to facilitate trade, the UK imports a great deal of goods, FMCGs (Fast Moving Consumer Goods), and machinery, whilst simultaneously exporting a great deal of precision goods such as, but not limited to, industrial machinery, motor vehicle parts, and pharmaceuticals.
Whilst many European Union (EU) members who are part of the European Single Market within the Schengen Area have scrapped physical borders across the single market by eliminating any form of border control, the UK does have a physical border with checkpoints to enforce border control, movement of goods and people, and apply customs on imports and exports. The responsibility of the enforceability of customs and duties on imports and exports in the UK rests on the shoulders of the HMRC (Her Majesty’s Revenue and Customs), which is a department of the UK government tasked with collecting taxes, payment of state support, and regulation of the national minimum wage.
The HMRC take an interest in imports and exports for a number of reasons, such as but not limited to, compiling trade statistics for the UK and the EU, ensuring a balance in trade figures for imports and exports so as to close the trade balance between the two figures, enacting strict policies on the prohibition of certain goods, and certainly for ensuring correct payments of any duties and/or value added tax.
This article will seek to lay out the legislation that binds importing and exporting procedures with regards to the United Kingdom. It will also analyze the various restrictions and caveats that arise when carrying out importing and exporting with the UK.
The HMRC lays out all of its general information for importers and exporters in the document titled ‘UK Trade Tariff: Volume 1’, published on the 1 January 2009. The collection details topics such as, but not limited to, the following:
- Value Added Tax (VAT);
- Prohibitions & Restrictions; and
- Other relevant rules and charges that may apply when importing or exporting from the UK.
Value Added Tax, or VAT, is applicable on goods imported into (and exported out of) the UK, and is governed by the Value Added Tax Act 1994 (an act of Parliament (Westminster), particularly Section 15 to Section 17 of this statute, which details the charge to the tax applicable in the case of ‘Imported Goods from Outside Member States’ (i.e., outside the EU).The VAT is charged as though it is a custom duty, and provisions in the Community Customs Code (from the European Economic Community), and the Customs and Excise Management Act 1979 apply whilst appropriating VAT in relation to imported goods.
The liability of VAT on goods is ascertained by assigning them ‘commodity codes’, which are again detailed in the ‘UK Trade Tariff: Volume 1’ from the HMRC. There are currently 3 codes, for goods imported into the UK, specified by the Trade Tariff, which are as follows:
- Code “S”: Goods falling under this category are liable to VAT on import, which is at the standard rate of 20% on the value of the goods, and was introduced on the 4 January 2011,
- Code “Z”: Goods falling under this category are liable to zero VAT (0%) on import,
- Code “A”: Goods falling under this category are liable to VAT on import at an effective rate of 5%.
On exportation, however, VAT is generally not applied, i.e., nil rate applied on VAT. Merely providing proof of evidence of export is enough for an export to be cleared. The rate of the VAT may increase or decrease, and Section 2(2) of the Value Added Tax Act 1994 grants Her Majesty’s Treasury (HM Treasury, or Treasury) to decrease or increase the rate of VAT by 25%, for up to periods of one year at a time.
Suspensions/Reductions for certain goods against Custom Duty and UK Trade Tariff
Under current EU legislation, some goods benefit from a temporary tariff suspension, which are designed to allow manufacturing industries amongst EU member states to compete on a level playing field with non-EU manufacturing industries. Thus, partial or complete suspensions are placed on goods, components, or raw material which is not available in a sufficient and sustainable quantity within the EU. The decisions of classifying products and granting them suspensions from taxes are taken individually by member states of the EU, however, in cooperation with other EU member states (and upon a case-by-case request basis), taking into account factors such as economic criteria surrounding each suspension/deduction request. In the UK, such requests are made directly by individuals to the Department for International Trade (DIT), manages all enquiries other than the actual classification of goods, which is dealt by the HMRC.
Suspensions issued against goods are of primarily one the following three categories, which are classified on the basis of the type of goods in question:
- General Temporary Suspensions: Such suspensions cover goods in sectors such as, but not limited to, chemical, microelectronics, fisheries, and some agricultural sectors. Under the UK Trade Tariff, such goods are classified under the aforementioned “S” code of VAT liability, and enjoy suspensions/deductions for a definite period of time,
- Goods Imported for Use in Particular Aircraft: This category of suspensions applies particularly to certain goods utilized in the repair, construction, or maintenance of aircrafts,
- Goods for certain types of Boats, Ships, and other Vessels: Custom duties are nullified and suspended for goods that are utilized in the repair, construction, or maintenance for particular types of cruise boats, excursion boats, fishing vessels, fishing boats, yachts, light vessels, warships, etc.
Also, to note, certain goods from states such as Turkey, which are imported into the EU via the UK, may additionally enjoy deducted custom duties. Direct bilateral arrangements between nations may also lead to the conception of other forms of reduced rates.
Excise duty, which is charged in addition to ‘Customs Duty’, are specific to certain products.
The excise duty is placed on the aforementioned goods under one the following circumstances:
- They are made available for consumption,
- Missing shipments or other dutiable consignments are found,
- Goods which are imported intended for personal use are later employed in commercial use,
- The goods are sold under distance-selling arrangements via a middle-man/broker/vendor.
The appropriate excise duty payable is assigned to individual items under Section 47 of the UK Trade Tariff, which details the “tax type codes” for each category of the aforementioned items.
Reliefs from Excise Duty
Items subject to excise duties may also be liable to reliefs from the same, however, these reliefs do not extend to include custom duties (such as VAT) to which these items may be liable. Such reliefs are applicable to select alcoholic liquors, spirits, and beers through various provisions under the Alcoholic Liquor Duties Act 1979, to tobacco products through Section 2(2) of the Tobacco Products Duty Act 1979, and to hydrocarbon oil via provisions under the Hydrocarbon Oil Duties Act 1979, respectively.
However, in certain cases, excise duty may be subject to drawback/refund under certain conditions. Per reg.7(6) of the Excise Goods (Drawback) Regulations 1995, the duty owed on the good must have been paid prior to 3 years after the import/export of that good.
Import Prohibitions & Restrictions
According to the terms of the UK Trade Tariff, certain restrictions are placed on the import of certain goods. Examples of these restrictions include the following:
- Licensing Restrictions: Licensing restrictions have been placed in the UK under EU Law and have been integrated into the provisions of the UK Trade Tariff. Goods which are imported into the UK, are primarily done so under the power of an Open General Import License (OGIL), which is issued by the Secretary of State with the powers conferred upon him/her under the Import of Goods Control Order 1954, which is bound to the act of parliament, the Import, Export, and Customs Powers Defence Act of 1939. This is the primary licensing restriction in place in the UK. In addition, specific licenses are needed to be issued by the Department for Business Innovation and Skills (or a similar EU issuing authority) for the import of specific goods originating from specific countries,
- Restrictions & Prohibitions imposed by customs upon goods originating from all countries outside the UK: Such restrictions are placed on goods such as, but not limited to, controlled drugs (under the Misuse of Drugs Act 1971), explosives, firearms, fireworks (under The Fireworks (Amendment) Regulations 2004), anti-personnel mines, indecent or obscene media, nuclear materials, offensive weapons, mammals which are susceptible to rabies, torture equipment, and realistic imitation firearms (under the Violent Crime Reduction Act 2006),
- Restrictions & Prohibitions imposed by customs on goods from third countries only (outside the EU): Such restrictions are placed upon goods such as, but not limited to, the following: animals, birds, livestock, animal pathogens, animal carcasses (by way of the EU Veterinary Checks regime), bushmeat, cat & dog fur, Chlorofluorocarbons (CFCs) and other ozone depleting chemical substances, counterfeit currency notes, counterfeit and pirated goods and media, embryos, goods bearing false indications of origin, goods infringing a trademark (under Section 89 of the Trade Marks Act 1994), goods infringing copyright (under Section 111 of the Copyright Designs and Patents Act 1988), hair & wool (under the Anthrax Prevention Order 1971), prison-made goods, and whale products.
Export Prohibitions & Restrictions:
Per the UK Trade Tariff, certain restrictions are placed on goods leaving the UK. Restrictions are placed on primarily three categories of goods leaving by the UK:
- Strategic Goods: These refer to military and dual-use goods, i.e., civil goods that may have a military use. Such goods are under the jurisdiction, and require a license from the Department for Business Innovation and Skills (BIS),
- Cultural Goods: Such goods, which may hold cultural and/or historical significance, are monitored by, and require a license from the Department for Culture, Media and Sport,
- Controlled Drugs & Precursor Chemicals: A license is required from the British Home Office to export goods that classify as “drugs” or may be used for the preparation of the same.
To facilitate the export of the aforementioned goods, the BIS, and the Department for Culture, Media, and Sport issue the following licenses:
- Open Export General Licenses (OGELs): such licenses sanction the export of specified goods only to particular destinations by the exporter,
- Open Individual Export Licenses (OIELs): such licenses give the exporter authority to export unlimited quantities of specific goods to particular destinations,
- Community General Export Authorization (CGEA): such licenses grant the exporter authority to export most (not all) dual-use goods to the United States of America, Australia, Japan, Canada, Norway, New Zealand, and Switzerland,
- Standard Individual Export Licenses (SIELs): such licenses grant the exporter authority to export goods in particular amounts only to specific destinations.
It is interesting to note that the need for having an export license is waived in the following cases:
- In the events that the goods are being transported/exported onboard flights abroad on aircraft which are owned and operated by the Civil Aviation flying unit,
- In the events that the goods are bring transported on behalf of the British Council,
- In the events that the goods are being exported on behalf of UK government departments, such as, but not limited to, HM Ambassadors, High Commissioners, and Governors of certain Commonwealth countries.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.