This time last year it would have been hard to even imagine anything that could push Brexit off of the front page or to the back of your mind. Whilst a global pandemic was able to quieten the Brexit debate, the virus hasn't been able to derail or delay the changes which will rapidly start unfolding from the 1st of January 2021. These changes will undeniably touch almost everyone in the Western World and regrettably we still don't really know how.
But what do we know?
Not a great deal. After a quick read of the official import guidance website the first thing that caught our eye was that the duty payable on the import of 'Live Asses' will reduce to 6% from 7.8%. This certainly goes against the laws of supply and demand given that these are already plentiful in our little Kingdom. But seriously.....
For almost every import brought into the UK, the importer will have to pay custom duties and VAT. Regardless of a deal being made, on the 1st of January 2021 the UK will move away from the EU’s Common External Tariff and will move to the UK Global Tariff (UKGT). If the UK leaves the EU without a deal, the custom duty tariffs for imports from the EU and the rest of the world will change. Current reports suggest that the UK will move to temporary rates for up to 12 months or until the government completes its public consultation and introduces a permanent tariff regime.
Based on where the goods come from, the tariff rates can be classified as either preferential (also called Most Favoured Nation or MFN) and non-preferential.
A preferential tariff rate will be applicable on goods if the country they are imported from has trade agreement with the UK and is a part of the UK’s generalised scheme of preferences. Non-preferential tariffs will be applicable for those countries which do not hold an official trade agreement with the UK and these will eventually have to comply with the trade regulations set up by World Trade Organisation (WTO). You can learn more about the non-preferential tariff rates in case of a no-deal Brexit here.
So we know our current rates and we know the rates in the event of a no deal Brexit but we don't actually know the rates that will actually be payable if a deal is struck or if new terms are negotiated. We also don't know if the government might alter VAT rates or excise duties both of which are important levers that the government can pull to favour or punish certain global trading partners.
If you have registered your business for VAT, then you will have to pay your import VAT while filing your VAT return. If your business is involved in the import of alcohol, tobacco, or biofuels, you will have to pay excise duties also. You can find the rates for excise duties on everything from Animals to Works of Art here.
How can the Surety Market help Importers by providing Bonds?
If your business imports goods frequently, you can set up a duty deferment account. This allows you to make a delayed one off payment per time interval (for instance, once a month), instead of making payments every time you import something. A Surety Bond from an acceptable Surety will enable your business to unlock this credit and help to improve your cash flow by guaranteeing that the deferred duty will be paid.
Given that we do not know the level of duty that an importer might be required to pay in two months or two years time it could be worth setting up a duty deferment account in advance of the Brexit deadline.
Why might this be a good idea?
An importing company might be paying an affordable amount of duty on each import, lets use £50,000 per month for this example. If the duty payable increases by 10% to £55,000 per month on the 1st of January 2021 then this might still be affordable and the importer can continue to pay duty at the point of import. If at the end of the transition period the level of duty payable is increased to £100,000 per month the importer might require an additional month to sell the imported goods and receive payment before being able to pay the duty. The importer now urgently requires a duty deferment bond but meanwhile life goes on so they will either have to reduce imports to an affordable level creating product shortages and missed sales or obtain expensive short term trade finance to fund the duty whilst the duty deferment account is set up and a bond put in place.
Setting up a small duty deferment account now could prove to be a really clever strategic decision for any importer of goods. The deferment value can be tweaked up or down in the event of any changes in the level of duty payable with little notice and the importer will avoid the inevitable rush to set up deferment accounts which will arrive after the changes are made. It is safe to say that the deferments office will be 'very sorry that they can't take your call' and 'experiencing very high call volumes' in the not so distant future.
Setting up a small duty deferment account now could prove to be a really clever strategic decision
How can Phillips Schroeder Surety help importers?
Provide advice on how to set up a duty deferment account.
Provide quotes for the duty deferment guarantee from the entirety of the domestic Surety market.
Manage the process of placing the Surety Bond (duty deferment guarantee).
Obtain contrasting quotes upon the renewal of the guarantee to ensure that importers always pay the cheapest price possible for their duty deferment guarantee.
Please call us on 07903365653 or email at rick.phillips@pssurety.co.uk or use the contact us page of our website.
Phillips Schroeder Surety Limited is regulated by the FCA in order to act as a Surety Bond Broker. We do not charge our client's to use our services as we are paid a fixed commission by the insurers that underwrite the bonds that we obtain on behalf of our clients. The insurers do not add our commission to our client's premium payable therefore there is no discount for approaching the market directly.
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