With the advent of global trading and the relative ease with which goods can move within the EU, the practical issues and costs that need to be considered when importing goods into the UK can often come as a shock.
With the majority of fresh produce both zero-rated for VAT purposes as well as subject to a nil duty rate, the mechanisms of the entry procedure are not so much likely to result in financial penalty but a delay in clearing the goods.
Before commencing the importation of any goods, VAT-registered businesses need to obtain a Traders Unique Reference Number (TURN) - this is the importers VAT number plus a further three-digit code identifier. This is the number quoted on the Customs Duty and import VAT forms and acts as the businesses identity. Unlike import VAT, any Customs Duty payable is not recoverable by businesses.
Customs Duty therefore represents an additional cost of goods. There are a few exceptions and these are dependent upon the nature of the goods and the purpose of importing them into the UK. The first step in the process is the completion of an import declaration. This will usually be done on a C88 Single Administrative Document (SAD). A SAD document is needed for every import and requires, among other things, the nature and the value of the goods imported, the commodity code, importers TURN and a CPC (Customs Procedure Code).
All goods are classified by a 10-digit ‘commodity code’, which not only describes the nature of the goods, but also assigns a duty rate to them. A value for the goods must be calculated and declared on the SAD document for Customs Duty purposes using an approved calculation method. Generally, this will be the transaction value method. The transaction value is the value on any invoice, plus insurance, freight, and certain other costs.
Clearly, entering the correct valuation is vital in determining the right amount of duty to be paid. As an alternative, businesses can use Simplified Procedure Values methods for the purpose of calculating the value for Customs declaration purposes. The methods are updated fortnightly.
The origin of goods is another factor involved in determining the correct rate of duty. The EC has various trading agreements in place with many countries around the world. The conditions for obtaining a preferential rate vary from country to country, and it must be supported by proof (in the form of a certificate or a declaration on an invoice) that the preferential rate applies.
As an example, bananas imported from African, Caribbean and Pacific countries have a duty-free annual import quota of 750,000 tonnes, hence enjoying preferential treatment, whereas bananas imported into the EC from Latin American countries have an import tariff of €176/t. Imports of certain fresh fruit and vegetables are subject to quality inspections by Horticultural Inspectors (HMI) and importers must pre-notify HMI of the arrival of consignments prior to customs clearance. However, these controls are under revision with changes being phased in.
Although the duty can be paid by cash or bankers draft, regular importers find it useful to maintain a deferment account to pay the Customs Duty more efficiently. The deferment account can also be set up to pay any import VAT. A freight forwarder or agent will often have a deferment account for use by the importer on payment of an extra fee.
UK VAT is also payable by businesses on the importation of goods. VAT is levied at the border as part of the customs procedure. The rate at which VAT is charged on import is the same as if goods were supplied in the UK (17.5 per cent). However, VAT is not chargeable on the majority of fresh produce imported into the UK as under current legislation, the importation and supply of food products are zero rated for VAT purposes.
Steve Kettle is a senior indirect tax manager at KPMG LLP
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