The changing customs duty landscape

The changing customs duty landscape

Over the last five years, there have been significant customs duty changes. The contributing factors to these changes include Brexit, the Windsor framework, and freeports.

The following article considers each of these points and how they have affected customs duty in the UK.

How has leaving the EU affected Customs duty?

Following the end of the transition period, the UK signed multiple trade deals including agreements with the EU and Australia. These deals aren’t without complexity, however, and it is the responsibility of the importer or exporter to ensure that customs declarations are correct.

In January 2022, the Government made it mandatory for any business importing goods into the UK to show a declaration of the origin of the goods and this allows them to benefit from reduced rates (for goods entering from areas the UK have trade deals with, i.e. the EU).

Statistics suggest that from July 2021 to June 2022, there was a 50% increase in the value of income collected by HM Treasury from customs duty payments, rising from £3.4 billion to £5.1 billion. It has been suggested that this increase has been caused by the introduction of the declaration of origin, as businesses that can’t show evidence of goods origin can be fined for paying the incorrect duty rate. However, it could just be an inevitable consequence of the UK leaving the EU and customs duty being applicable to imports.

The Windsor framework

Since the UK left the European Union, there have been questions over what happens with the import and export of goods from Great Britain to Northern Ireland and Republic of Ireland. The Northern Ireland protocol, which came into force in January 2021, introduced new checks on goods at Northern Ireland ports before they could be moved into the Republic of Ireland.

The Windsor framework changes this process and goods travelling from Great Britain now get separated into a green lane and a red lane. Goods for Northern Ireland travel through the green lane and don’t require any checks or additional paperwork. Goods destined for the Republic of Ireland travel through the red lane and are subjected to checks in the same way as all other exports to the EU.

Freeports

Freeports are areas which are classified as being outside the UK from a customs duty and VAT standpoint. This means that normal rules (and VAT and customs duty costs) don’t apply until the goods leave the freeport.

In March 2021, the Government announced the creation of eight freeports in England. Earlier this year, the Scottish and Welsh Governments announced the locations of their two respective freeports.

The benefits of a freeport include:

• A suspension of duty and VAT on goods that are moved into a freeport, which will only need to be paid once the goods have moved on from the freeport
• A VAT and duty exemption on goods imported into freeports, processed into finished goods, and then exported again

Businesses that incur significant duty costs and those who import and re-export products should consider the benefits of locating their activities in a freeport. 

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If you have any questions regarding the topics discussed above or would like to discuss your specific circumstances, please get in touch with a member of our specialist team or your usual Azets advisor.

Information correct at time of publishing, but may be subject to change in future. This article is for general information only and is not intended to be advice to any specific person. You are recommended to seek professional advice before taking or refraining from taking action on the basis of the contents of this article.