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Explainer: how to get the most from duty deferment

UK businesses seem to have lots of questions around duty deferment, post-Brexit. How do they get up and running with a deferment account?

  • UK businesses can set up a duty deferment accounts to allow them to pay duties following the month of import. This can require a bank guarantee
  • It is possible to get a guarantee waiver, such as the Simplified Import VAT Accounting (SIVA) scheme
  • The COVID pandemic is delaying bank guarantees from being completed

Since the UK left the EU on 1 January 2021, UK businesses importing goods from the EU have had to pay import VAT and other duties at the border, when goods are cleared to enter the UK.

To ease the cashflow impacts of those VAT and duty costs, the UK government introduced postponed VAT, which allows any import VAT to be accounted for as input and output VAT on the same VAT return.

“In the old world, we had the acquisition tax, which got reported on box two of your VAT return,” says Sheered Dewedi, Managing Partner at Shenward Accountants. “You’ve now got postponed accounting as a substitute, effectively. Businesses are able to treat the VAT that they should have paid on the EU imports in a very similar way as before.”

Duty costs

But businesses still have to pay duty on imported goods. This has had the biggest impacts on margins and cashflow. Dewedi says that companies are weighing up whether they can sustain additional costs or whether their customers would pay a higher price.

“In such a delicate climate that we’re in with COVID, not many of our clients are able to pass on that cost,” says Dewedi. “Once the dust settles and we do return to some sort of normality, we’ll be advising our clients to look at it again and see whether the business can continue to be sustainable without passing anything onto their customers.”

The new lockdown has created a perfect storm for businesses as they adjust to the new rules post-transition period. “Everything that could be a challenge is a challenge at the same time.”

Although duties will still apply, you can defer payments to the 15th of the month following the month of import. To do this, you need to have a duty deferment account.

Setting up a deferment account

To set up a deferment account, businesses may need a financial guarantee from their bank. That, at the moment, is proving to be challenging.

“With COVID, getting those guarantees has taken a little bit longer than it normally would,” says Dewedi. “It’s meant that businesses are having to pay the duties at the outset rather than being having those different terms in place. So we’re helping clients from that perspective.”

Some businesses can apply for a guarantee waiver. You can apply for a waiver if you have:

  • no serious or repeated infringements of customs or tax rules in the past three years,
  • no record of serious criminal offences related to your business activities in the past three years, and
  • you held positive net assets (excluding goodwill) at the date of your application and for the past three years (or, if shorter, for the period you have been trading).

There are two different types of guarantee waiver:

  • approval for a guarantee waiver to defer customs duty, import VAT and excise up to £10,000 per month,
  • approval for a guarantee waiver to defer customs duty, import VAT and excise up to a specified amount over £10,000 per month.

You do not need to apply for a guarantee waiver if you have one of the following approvals:

  • Authorised Economic Operator status (AEO(C) or AEO(F)).
  • Excise Payments Security System (EPSS) authorisation.
  • Simplified Import VAT Accounting (SIVA) scheme.

If you apply for a guarantee waiver you may need:

  • records of any times when your business has not followed customs or tax rules in the last three years,
  • financial records.

Information required

Businesses need the following information to apply for a duty deferment account:

  • EORI number
  • name associated with your EORI number
  • registered company number (if this applies), in the UK this will be from Companies House
  • UK address associated with your EORI number
  • correspondence address
  • VAT number (if this applies)
  • company directors’ and officials’ details, including date of birth
  • person responsible for customs authorisations, their details and practical customs experience
  • your estimated debt

Further information on duty deferment

Mark Rowland is a journalist and former editor of Accounting Technician and 20 magazine.

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