By Gavin Everson, Director, Global Trade Consulting
Businesses throughout the UK are in for a reckoning and it’s going to take many of their financial officers by unpleasant surprise.
Since the launch of the post-Brexit customs regime at the top of the year, British importers of non-controlled goods have been relatively shielded from the most acute agonies of the country’s divorce from the European Union – customs paperwork.
That’s because London allowed businesses moving non-controlled goods into Great Britain to do so without presenting a full customs declaration. This program is known as Entry into Declarants’ Records (EIDR). Businesses can make use of the EIDR by submitting a supplementary declaration within 175 days (essentially six months) of importing goods.
The kicker is that to use EIDR, a business must submit its supplementary declaration using an electronic system to which the vast majority of businesses have no access (and little desire in which to invest), or through a customs broker. Not surprisingly, customs brokers have been overwhelmed by the deluge of requests and, in many cases, are struggling to facilitate EIDR on behalf of businesses due to the absence of information required for the supplementary declaration. Most brokers are operating at overcapacity and traders who had not previously secured a broker’s assistance with EIDR processing are now struggling to find a broker to support them.
Add to this that British border personnel are woefully understaffed and struggling to keep pace with the sheer volume of entries (estimates are that several million entries are yet to be declared or processed), and the fact that the EIDR program has been extended to year’s end (entries after December 31, 2021 cannot make use of EIDR), and you have the recipe for a perfect storm.
For most British businesses, customs documentation is an enigma, particularly since many of the imports have traditionally come from the EU where single-market rules absolved importers from having to making formal customs entries for uncontrolled goods. Many of these importers continue to dismiss the new red tape as a thorn in their side and have been lax in submitting the requisite documentation within the 175-day period or have incomplete documentation.
The reality, however, is that they are simply delaying the inevitable. While the processing of entries may be delayed, entries will eventually be reviewed and the consequence for non-compliant businesses will be severe. Not only is it possible customs officials will issue fines and penalties, it’s also quite likely businesses will have to pay retroactive duties on goods that do not qualify for the EU-UK Trade and Cooperation Agreement (TCA), not to mention retroactive VAT.
The challenge for financial officers is that the issuance of fines or retroactive duties – which can often amount to large sums depending on the total value of the entries in question – isn’t likely to happen in the same fiscal year as the entry of imports. The result is that customs non-compliance has the potential to leave gaping holes in 2022 business budgets. The shortfall will inevitably result in the scaling back of business, either by limiting investment or operational contraction.
In some cases, it could mean incurring greater debt. For chronic violators of customs rules, customs officials could also revoke importing privileges, requiring businesses to find domestic sources for their supply.
In short, what started out as a program to temporarily relieve businesses from having to cope with the minutiae of customs documentation may turn into a financial quagmire for those same enterprises.
What’s an Importer to Do?
As noted above, finding a customs broker is no easy feat in a market overwhelmed by businesses struggling to keep pace with customs requirements. But some brokers and trade consultants continue to take on new clients. Securing a trade partner sooner rather than later will give you the opportunity to get ahead of the inevitable administrative burden before customs officials come calling.
As my colleague, David Merritt, noted in these pages several months ago, there is recourse for businesses looking to soften the transition to the post-Brexit world, but going it alone is likely beyond the comfort zone of most traders. The role a trade consultant can play is multifold, from reviewing import volumes and documentation and providing advice on the most efficient means of completing supplementary declarations, to performing audits of the declarations by brokers, and analyzing a business’s imports to identify cost-savings through tax reduction.
Ignoring the problem in hopes it will go away is most likely to result in untimely calamity down the road with adverse impact on the health of a business and possibly its ability to maintain its existing supply chain partners.
There’s little sense in delaying the inevitable, particularly with the stakes so high.
Gavin Everson has more than 35 years of experience in customs, international trade and logistics management, particularly in implementing customs and logistics processes and systems. He has responsibility for advising and delivering Customs solutions to Livingston’s EMEA clients.