In today’s post-Brexit landscape, many UK businesses are beginning to learn about the implications of the EU-UK Free Trade and Cooperation Agreement, particularly with regards to origin.
There is a lot of confusion about how to qualify for EU preference under origin rules in relation to the union status of goods. Many businesses do not know about or understand how this works.
We are seeing numerous cases of GB businesses expecting to be able to use EU preference for EU-origin goods movements into Northern Ireland but finding themselves unable to do so. This is giving them the unexpected and unwanted surprises of having to pay import duty and VAT.
Here’s an example of how this can play out…
Example
A GB business imports goods from their Polish supplier. The goods enter GB into free circulation. In GB the goods are not sufficiently processed.
The GB business arranges a separate goods movement from GB to Northern Ireland to their customer. The GB business is expecting to use preference on the customs declarations.
Their rationale is that the goods are of Polish origin, they come from the EU, so the goods will therefore qualify for tariff-free entry.
However, their goods have lost customs union status and preference upon import into GB.
The GB business cannot now declare ‘Preference’ on their customs declarations and are therefore suddenly liable to pay import duty and VAT, something their sales manager has not accounted for, in the sale to their Northern Ireland customer.
Union Status
Union status is conferred on either:
- goods wholly obtained in the customs territory of the Union
- goods brought into the customs territory of the Union and released for free circulation
- goods obtained or produced in the customs territory of the Union, using only goods from the above mentioned goods, as per the EU guidance
Loss of union status
Union goods lose their union status when moved out of the EU customs territory as per the EU-UK TCA , Page 67, Article 52, Non-alteration.
Union goods lose their union status when, either:
- they are taken out of the customs territory of the Union
- they are placed under an external transit, storage or inward processing procedure
- they are placed under an end-use procedure and are subsequently abandoned or destroyed
- the declaration for release for free circulation has been invalidated after the release or they are used equivalent goods
Read this EU guidance for more information.
Intra-EU movements
The union status is retained whilst goods are physically located in EU customs territory, including when they move around within the EU customs territory.
For example, if goods move from France to Northern Ireland, having stayed within the EU, they will retain their union status and their preference, which is usually tariff-free.
Third country movements
Goods lose their union status if the goods move from France to GB, since GB as a third country, is outside the EU.
If the goods then move from GB to Northern Ireland, they cannot regain their lost ‘union’ status and claim preference. This status, once lost, cannot be returned.
Once moved out of EU territory and released into free circulation into a third country, the goods lose that union status permanently.
Solutions
One solution, to keep the union status of goods, is to re-route EU goods movements direct into Northern Ireland, making them intra-EU movements – for example from Poland to Northern Ireland. This means they do not lose this status.
Another way that a small number of businesses can keep customs union status when moving from the EU into GB is to use the customs procedure Transit.
Subject to conditions, goods keep their Union goods status if moving through the UK under Transit (T2), with or without Temporary Admission / Customs Warehousing, before returning to the EU. More guidance can be found here.
The movement of goods that are in free circulation, from any EU country to Northern Ireland, are counted as intra-Union movements, as stated by the Northern Ireland Protocol.
Please see the Northern Ireland Protocol for more guidance.
Two schemes
There are two schemes that can help certain eligible GB businesses cope with the import duty liability in Northern Ireland resulting from the lost union status of goods:
The UK Trader Scheme (UKTS) has been set up to help ensure traders do not pay tariffs on the movement of goods into Northern Ireland from Great Britain, where those goods remain in the UK’s customs territory.
It means that the goods must be declared as not ‘at risk’ of entering the EU. More information can be found here.
Another option available: is the duty waiver scheme – a type of de minimis aid for eligible GB businesses who are moving goods to Northern Ireland. This is a state aid scheme that helps a number of sectors with paying import duty.
Waivers for duty on goods that would normally be charged ‘at risk’ tariffs are provided in the form of ‘de minimis aid.’
De minimis aid refers to small amounts of aid given to businesses and is calculated in euros. It means that some businesses can claim up to €200,000 of aid over three tax years. This amount is dependent on the sector, with the fishery/aquaculture and agriculture sectors being examples of those which receive a smaller amount.
Find out more information here.
Further reading
The loss of customs union status is also covered by the ‘direct transport’ rule, which the EU has published guidance about here and here:.
The legislation covering the loss of union status, is also covered under the direct transport rule from the WTO – see table on page four.