Post Brexit: why the origin of goods rules are vital for customs duty

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Post Brexit: why the origin of goods rules are vital for customs duty

The EU and UK entered into a Free Trade Agreement on 30 December 2020 - the EU UK Trade and Cooperation Agreement, ‘TCA’. This agreement governs the future trade relationship for goods moving between UK and the EU (and vice versa). The TCA was ratified by the UK parliament on 30 December 2020, and the EU parliament will aim to ratify it in early 2021.

The TCA allows for tariff-free access, (duty free) for goods moving between the UK and EU, (the ’Parties’ to the Agreement). However, this does not mean there will be blanket tariff-free access for all goods in all circumstances. In order for goods moving between the UK and EU to obtain this benefit, they must demonstrate ‘originating’ status within the UK or EU. This is demonstrated by meeting preferential rules of origin. There are four main types, and their application is determined by the customs classification of the product in question.

The rules of origin cover concepts such as: wholly produced, value-add production process, changes in customs classification (from materials to finished product) and specific processing activities. The rules of origin and detailed guidance on their application can be found in Annexes to the main TCA Agreement.

The key areas of risk arise as follows:

  1. Exporting UK goods to the EU
  2. Importing EU goods to the UK
  3. Terminology

At export

If you are a UK company wishing to sell goods to your EU customer with UK preferential origin status what are the risks that you should be aware of?

1. Products sourced from outside the UK/EU and sold to the EU

If you have sourced a product from a third country, this will not have UK preferential origin when exporting it to a customer in the EU, because there has been no economic value added in the UK and, therefore, this should not be exported with EU preferential origin status. Customs duty may be charged on these exports to the EU.

2. Products produced in the UK

These must have either been wholly produced in the UK: the simplest examples are goods found in the food and agricultural sectors. However, where non-originating materials are used in a production process, these can also qualify. The materials must have undergone a process to produce the finished (exported) goods which meets (or exceeds) the applicable preferential rule of origin.

As a starting point, therefore, UK exporters need to establish whether their materials are ‘originating’ or ‘non-originating’.

In order to do so, they should seek suppliers’ declarations to confirm the origin of their raw materials. A common error is the misconception that buying a material from a UK supplier ‘automatically’ confers UK preferential origin on that material. This is not the case. UK materials with originating status must have either been produced in the UK or themselves undergone a production process sufficient to acquire UK originating status for those materials/components.

Please note that if a preferential origin status is incorrectly certified by an exporter, the customs authorities in the customer’s (importing) country can seek retrospective repayment of any avoided duty for up to three years. If this leaves your EU customer facing customs duty arrears, it is bound to have an adverse impact on your commercial relationship with them.

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At import

The importer is always legally responsible for ensuring that correct information is declared to its national customs authority (even if this is transmitted by a third party such as a freight forwarder). This includes the correct preferential origin status of the import goods. If preferential origin is incorrectly claimed, the importer will be required to account for any unpaid duty. 

Therefore, as a matter of good practice, the importer should always try to seek assurance from its supplier that:

a) They have determined the correct rule of preferential origin for the imported products, and

b) This has been applied correctly.

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The TCA, (along with other third country Free Trade Agreements) uses very specific and unique terminology and concepts, for example:

  • Origin versus non-origin
  • Cumulation
  • Tolerances
  • Principle of territoriality
  • No drawback rules
  • Direct transport rules. 

These can be very complex in nature, and must be considered in conjunction with the rules of origin. Identifying and understanding all relevant terminology, its relevance and application is therefore key to getting your customs declarations right.

For help and advice on the rules of origin or any other customs duty issue please contact Juliet Wallwork or Hakan Henningsson.

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Hakan Henningsson

Director Tax Customs

Juliet Wallwork

Customs Duty Director


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