14 January 2019

Ready for Brexit: Your Supply Chain - Briefing 2

How to evaluate the risks around increases in administrative procedures and costs when providing necessary data on goods coming into the UK from the EU

Continuing our Commercial team’s series of briefings to help your business’s Brexit steering group work through the direct risks associated with different possible outcomes and their impact on your supply chain management, we look at the risks arising from an increase in the complexity or requirements for customs paperwork and information on imported goods.

Taking our inspiration from the approach taken by Next plc in last year’s report on its internal preparedness for Brexit, assessing this particular potential risk of increasing administrative procedures is one of the most practical of the issues facing businesses which import goods into the UK.

EORI

An Economic Operator Registration and Identification (EORI) number is used to track and register customs information in the EU. Currently, any EU based business which is trading goods with countries outside the EU needs an EORI number. Likewise, businesses based outside the EU also need an EORI number to trade goods with companies in the EU. So if the UK leaves the EU without a deal, it’s likely that UK-based businesses will need to get an EORI number to continue trading with customers located in the EU after Brexit.

Again, for any business which has been trading outside the EU to date, this is unlikely to be a new requirement. It is more of an issue for businesses who have only traded to date within the UK or on a limited basis within the EU who might need to plan time to apply for such registration details to be put in place.

It’s also worth remembering that your EU customers will also need an EU EORI number if they don’t already have one. HMRC are currently advising that this takes only three working days to receive an EORI number which you’ll receive by email.

Customs declarations

Within the EU the movement of goods has, since the early 1990s, required the completion of Intrastat reporting. This system has various thresholds for when it applies, but here in the UK if your business sends more than £250,000 of goods from the UK to other EU countries or receives more than £1.5 million worth of goods into the UK from other EU countries, you should already be registered to provide and submit information using the Intrastat filings system.

Intrastat filings require specific information about the sales or purchases of goods between the UK and other EU countries. In respect of each transaction, this required information includes:

  • description of the goods;
  • commodity code of the goods;
  • quantity and value of the goods;
  • delivery terms;
  • country of departure and arrival (using country codes); and
  • any shipping costs.

In general terms, it appears likely therefore that any business already completing Intrastat filings is going to be used to compiling and submitting the sort of information required for customs declarations from third countries into and out of the EU, so will have the necessary information and administrative systems in place to compile this information.

Where the increase in customs declarations information might be more of a risk is for businesses which haven’t met the Intrastat threshold before and now will be required to compile this information for the first time on a transaction by transaction basis. In which case, it is obviously worthwhile considering how such a requirement could be met by your business’s existing accounting and other software systems or whether adjustments are needed. Likewise if this is a new procedure for a business not currently compiling this type of information there may be benefit in planning for some staff training to understand potentially new processes.

Trusted Trader status

The concept of a ‘trusted trader’ has its origins in the World Customs Organisation, the representative body of customs administrations across the world. The concept is based on a global trader which can establish their credentials, financial stability and robust systems for securely accounting for goods that they transport across country borders. Holding such status generally entitles the holder to elements of fast-tracking through customs systems, simplified customs procedures and reductions in the number of physical and document checks on their goods.

In the EU the current trusted trader certification scheme is known as Authorised Economic Operator status (AEO). AEO status is an ‘internationally recognised quality mark indicating that your role in the international supply chain is secure, and that your customs controls and procedures are efficient and compliant’. 

The trusted trader concept has been referred to by the current UK Government in their white paper on Brexit, as it is hopeful of securing EU recognition of an AEO status granted in the UK.  However, this cannot be guaranteed and, in the event of no deal, the absence of mutual recognition would mean the trusted trader arrangement would not be in place between the UK and the EU, so any AEO certification would not be of benefit.  If the UK does manage to negotiate mutual recognition with the EU, then any business already holding AEO status could have a distinct advantage.

The scheme in the UK is managed by HMRC and whilst the forms to apply for certification are relatively short, the information required to demonstrate sufficient trading history, financial history and stability as well as physical procedures and arrangements is quite extensive and the assessment required by the HMRC can take some time to arrange. Some businesses rely on their freight forwarders or distribution partners to have this AEO status as their route to smoother customs passage, rather than obtaining certification themselves or until they reach a stage of being able to demonstrate the three years of experience in meeting customs requirements to obtain a certification of their own.

At present, there is reporting of a distinct increase in UK companies applying for AEO status and as a result an increase in the time one can expect that application process to take with HMRC from around six months to more like 12 months and possibly even up to 18 months. On the plus side, the exercise itself clearly requires a degree of self-awareness for any business in relation to its supply chain management that could be argued to have positive benefits for planning and risk management purposes throughout this period of adjustment to Brexit.

If you would like any assistance in evaluating the risk of increased customs administration for your business in its preparation for Brexit, please do get in touch with any member of our Commercial team whose contact details can be found here.