A Comprehensive Guide to UK Customs Regulations for Businesses
The internationalisation of customs law has developed significantly since the inception of the General Agreement on Tariffs and Trade (GATT) and the World Trade Organisation. The roots of customs law can be traced back to ancient times when the Egyptians, Greeks, and Romans imposed customs duties on goods crossing their borders. Just as with other branches of international law, customs law also evolved with the growth of trade, industrialisation, and changes in the world economic order.
Customs law intersects with commercial law, tax law, administrative law, and even criminal law. It regulates a broad spectrum of issues, including export restrictions, health, environmental and safety standards for traded goods, prohibited and restricted goods, cross-border movement of cultural and humanitarian heritage, collection of cross-border taxes, and trade statistics. The law also sets out rules for the submission of information, record-keeping, the declaration of goods, and import privileges and reliefs, among other areas. This wide-ranging scope underlines the integral role of customs law in global trade and commerce.
Customs law very closely intersects with tax law, which began forming with the growth of international trade at the end of the 19th century. This was when the first double taxation treaties started to be implemented between states.
The modern system of customs law in the UK, with its structured tariffs, detailed regulations, and professional enforcement body, continued to evolve over the 19th and 20th centuries. This evolution was shaped by factors like industrialisation, changes in international trade, and the country’s membership in the European Union, followed by its subsequent exit. One must always bear in mind that UK regulation is governed by various parts of international, EU, and UK legislation, and these are closely intertwined.
UK Customs Regulation must reflect established principles of fairness and international standards for the movement of goods and residents, enshrined in UK law according to the UK’s international commitments. This is evident, for example, when individuals traverse international borders to or from the UK; they are granted relief from customs duties and tariffs in accordance with both UK and international law. Such laws typically afford relief from customs duty and VAT for persons making temporary entries into the country, akin to laws internationally recognised and implemented.
Although travellers are not required to make formal declarations, their actions essentially serve as such when they opt to traverse the ‘green channel’ at ports or airports.
Another consideration is the movement of goods among traders. This movement can be split theoretically as movement of goods between independent trading parties or intra-company movement of goods. After the UK’s exit from the European Union, there was a significant gap that needed to be legislated or transposed into UK law to ensure the uninterrupted functioning of cross-border movements. This was particularly the case in areas where there was no national legislation, and competencies had been delegated to the European Union. This also includes trade policy, customs duties, and international trade agreements.
At the same time, there are details of customs law that EU law did not specifically address, which obliged the UK, as a member state at the time, to address them in domestic legislation. These domestic laws relate to customs duty collection (although duties form part of EU’s own resources and provide part of the EU budget), legal enforcement, penalties, and appeals. In the UK, these areas are governed by the Customs and Excise Management Act 1979 (CEMA) and could be classed as EU-derived domestic legislation. Some parts of the CEMA 1979 were amended by the Taxation (Cross-border Trade) Act 2018 (TCTA). Organising the UK border regime, UK duty regime, and the continuity of trade agreements required the creation and implementation of primary UK legislation. The TCTA 2018 created UK primary law in relation to the new customs regime and made amendments to retained EU law. The TCTA 2018 also included measures on amendments to regulation for VAT, Excise, and the creation of the UK’s own Trade Remedies Authority. There was a significant body of primary and secondary legislation created for customs rules during and after the transition period which could be followed via the following link.
Among the significant changes after the transition period were the implementation of the UK Global Tariff, the creation of a new cross-border regime and border operating model, the migration of import declarations to the Customs Declaration System, the establishment of infrastructure and controls for checks of imports of food and feed of animal origin, alcohol duty reform, and the implementation of a trade sanctions and trade remedies regime. The staged controls implemented by the Border Operating Model allowed a simplified declarations procedure for all UK traders during 2021. After that, frontier customs declarations became compulsory for goods imported from the EU starting from 1 January 2022. The requirements for Safety and Security declarations for imports to the UK were postponed until July 2022 and eventually were extended until further notice. Also, the Border Control Posts and requirements, and Health Certificates requirements for products of animal origin were postponed for a decision to be made in Autumn 2023. A public consultation was launched for the Border Target Operating Model (BTOM) which will determine the further implementation of border controls with the EU and the rest of the world.
Before the UK’s departure from the European Union, the UK enjoyed free movement of goods with the EU without customs checks and goods arriving from the rest of the world were placed in storage at customs prior to their customs clearance. After the transition period, the majority of goods from the EU started to be imported via a pre-lodged model based on frontier customs declarations. The state-run Goods Vehicle Movement Service (GVMS) was created for the orderly control of significant trade traffic from the EU.
To review the Border Target Operating Model, please visit the following link.
After the end of the transition period, all UK businesses involved in international trade were required to have a UK EORI (Economic Operator Registration Identification) number, and businesses based in NI needed to have an NI EORI number. The UK implemented its own AEO (Authorised Economic Operator) scheme according to Section 22 of the TCTA 2018 and in line with established principles of the World Customs Organisation.
Section 21 of the TCTA 2018 lays down rules for customs representation in a direct or indirect capacity. It’s worth noting that as a standard approach, anything done by an agent acting as a direct representative is treated as if done by the principal. This is also reflected in the TCTA 2018. Please check our article on customs intermediaries for more information and help with selecting a customs intermediary.
HMRC is running a public consultation on a voluntary code for customs intermediaries until the 31st of August 2023.
Section 8 of the TCTA 2018 delegates authority to the Treasury to make regulations establishing and maintaining a UK product classification tariff. The UK tariff for the classification of goods is based on the internationally harmonised tariff of HS codes. The UK Classification Tariff is supported online and HMRC’s look-up service provides very useful guidance for traders, helping to identify compliance requirements related to the import or export of goods to and from the UK.
Additionally, HMRC provides support for traders based on laws established by the TCTA 2018 through a system of rulings for tariff classifications. These rulings come in two forms: non-legally binding rulings and legally binding rulings, also known as Advance Tariff Rulings.
Although VAT was part of national competence, with the EU having broad guidelines before the UK’s departure from the EU, and the Value Added Tax Act 1994 (VATA 1994) was and is the law regulating VAT in the UK, the departure of the UK from the EU had implications on the treatment of VAT as a consequence of the UK and EU becoming third countries. As a result, intra-community trade rules stopped applying to VAT transactions between the EU and UK. Taxable supplies to and from the EU are now zero-rated as exports to a third country, and import VAT on importation applies according to the rules of VAT applied to the sale of local goods. Postponed VAT Accounting (PIVA) allows traders in the UK to declare import VAT through their VAT returns, simplifying cash flow for qualifying traders.
The Trade Act 2021, makes provision about the implementation of international trade agreements, the establishment of the Trade Remedies Authority, and conferring functions on it, as well as the collection and disclosure of information relating to trade. The law allows the government to make provisions by Statutory Instruments to implement non-tariff provisions of the UK’s rolled-over trade agreements. Section 9 of the TCTA 2018 gives the Treasury the power (on the recommendation of the Secretary of State) to create Statutory Instruments for the implementation of preferential tariff agreements between the UK and other countries. At the time of writing this blog, the UK has 70 free trade agreements with other countries and blocs.
The increasing number of the UK’s free trade agreements don’t have provisions for duty drawbacks. Additional care must be taken by traders not to infringe WTO rules, which categorise restrictions on duty drawback regimes as subsidies, or to violate local requirements for documentation, timing, and eligibility. The provisions of free trade agreements specify duty drawback and can be applied via the inward processing procedure or free port procedure. Eight economic zones, known as freeports, have been created in the UK, allowing various reliefs and subsidies for businesses establishing themselves within the territory of these ports.
Customs enforcement was under national customs competence even prior to the UK’s departure from the European Union. EU Law imposed obligations on HMRC, just as it did on other competent customs authorities, to ensure compliance by traders. Traders have the opportunity to appeal customs decisions via the First-Tier Tribunal and Upper Tribunal for civil cases, unless they prefer to use alternative dispute resolution. This applies post-UK departure from the EU as well.
Civil penalties for customs contraventions were set out in the Customs (Contravention of a Relevant Rule) Regulation 2003 and the Export (Penalty) Regulation 2003. These laws were amended to bring them in coherence with the Union Customs Code (UCC), which replaced the Community Customs Code (CCC). Voluntary disclosures from traders can mitigate customs contraventions and should always be used if discrepancies become apparent to the traders.
The Criminal Justice Act 1993 provisions cover activities carried out in the UK which may lead to offences in another member state of the EU. The Customs and Excise Management Act 1979, Section 170(3), provides for heavy fines and imprisonment for contraventions of customs regulation.
The future of UK Customs Regulation is intrinsically related to the growth of digital trade, the increasing importance of customs-related data, and the new smart border planned to be implemented by 2025. These plans are in tandem with the global WCO and UN driven programmes for the modernisation of communication and facilitation of trade. To learn more about the UK Single Trade Window, please follow the provided link.
For more information on the new EU customs strategy, please follow the provided link.