Customs Duty- A 60 Second Guide

28 October 2011

Customs planning is often seen as a dark art or an unavoidable cost of sourcing overseas. This 60 second guide aims to give you a quick understanding and frame of reference for any deeper research in to customs duty and planning:

• Customs duties are charged on the import of tangible goods from outside of the European Union

• The customs rules are similar in most trading countries as they stem from international agreements from the World Trade Organisation (WTO) and World Customs Organisation (WCO). Be aware that there are differences in implementation of these global standards

• Customs duties are normally charged as a percentage of the value of imported goods but some goods subject to duty based on their weight or number

• Customs duty rates vary between 0-217%. The un-weighted average duty rate is 4.1% in the EU but some sectors incur significantly higher costs (e.g., textiles 12%)

• Customs compliance is subject to audit based control. Although your goods are declared to the customs authorities at time of import these transactions remain open for three years

• The impact of customs errors include:

  • Collection of underpaid customs duties
  • Penalties (of up to £2,500 per innocent mistake)
  • Removal or suspension of customs duty relief schemes
  • Time consuming investigations and delays in getting your goods

• Customs duty is included in the list of taxes under the Senior Accounting Officer provisions for companies with turnovers of £200m plus. Any failures to establish and maintain adequate customs processes can give rise to personal penalties on senior Finance Executives

• Most businesses use freight forwarders to make the legal customs declarations on their behalf. These agents work as Direct Representatives meaning that the importer is solely liable for the customs duties and accuracy of the customs declarations. Failure to instruct the agents and check these declarations may be seen as abdication rather than delegation of the task

• Customs duty costs are based on four core elements:

  • The customs classification of the goods- choosing the right code from a tariff of 16,000 items sets the duty rate
  • The origin of the goods- whether trade agreements apply to reduce the duty or commercial policy measures apply to increase the duty or impose restrictions
  • The customs value- regulations set out various items that must be included or may be excluded from the imported goods to arrive at an acceptable customs value
  • The assigned treatment- regulations provide a number of absolute duty relief schemes or methods for delaying the payment of customs duties and import VAT

• Customs planning aims to:

  • Minimise the risk of additional duty demands and penalties
  • Reduce ongoing customs costs to improve margins
  • Recover overpayments of customs duties going back three years

• Key developments in customs regulation are focussing on improving supply chain security to minimise the risks of criminals and terrorists stealing the identity of importers


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