Reducing Customs Duty costs in challenging times

In the current economic climate, with rising material and freight costs and uncertain customer demand, businesses are looking to streamline their supply chains wherever possible and reduce associated costs such as customs duty and other indirect taxes. Cutting corners on your compliance creates risks that, in the longer-term, can trigger significant cost for your business. Fortunately, there are better ways.

Using duty reliefs

An effective way for businesses to manage customs duty costs in the UK, is by taking advantage of available duty reliefs which legally reduce or minimise the amount of duty paid. The first step is to carry out a cost-benefit analysis to assess which of the reliefs is suitable for your business - when done correctly, this can enable your business not only to improve its cashflow, but to achieve bottom line cost savings.

Businesses that import and then re-export goods out of the UK should pay particular attention to Customs Warehousing: this is a relief that enables the suspension of customs duty and import VAT on third-country goods imported into the UK. If businesses re-export their goods from a customs warehouse, no customs duty or import VAT is due on the re-exported goods. However, if goods held in a customs warehouse are subsequently released into free circulation in the UK, customs duty and import VAT will then be payable on the goods that enter the UK market. Even then, there is still a cashflow advantage for the business by deferring duty and VAT from the date of importation until the date the goods are released from the customs warehouse to enter the UK market. Often this cashflow is significant enough to support a cost benefit analysis to implement customs warehousing.  

For example, one of our clients in the on-line retail sector has an average annual import duty liability of £9 million from suppliers in the EU and Far East. Its customer base is split equally between the UK and EU but, for logistical reasons, it imports in bulk into the UK, where goods are broken down, inspected and repacked for sale to end customers. We helped the business through the implementation of a customs warehouse, and it no longer has to pay duty on those imports which are ultimately destined for sale to non-UK customers – achieving on-going duty savings of over £200K per annum.

For a UK established business importing parts or materials for processing, then Inward Processing relief (IPR) should be considered. This relief suspends customs duty and import VAT on goods that are imported to be processed, and then re-exported. To operate IPR, your stock record keeping must be of a high standard: we can help you set up a strong documentation regime as part of the process of applying for IPR.