Beyond Brexit: trade in goods Contents

Chapter 6: Customs

The TCA’s provisions

124.The UK is no longer in the EU customs union. Since 1 January 2021, traders from both Parties must fulfil customs formalities and be able to demonstrate adherence to additional rules. The TCA provides specific facilitations on top of the baseline for EU trade with a third country, which somewhat smooth the flow of the movement of goods. These facilitations include the provision for mutual recognition of each Party’s Authorised Economic Operator (AEO) scheme.

Box 4: Customs and Northern Ireland

Under the Ireland/Northern Ireland Protocol, Northern Ireland remains subject to the EU’s Union Customs Code. After a grace period to allow businesses to adjust, customs declarations will be required at the GB-NI border. As outlined in Chapter 3, there will also be origin requirements at the GB-NI border for products considered “at risk” of entering the EU.

The cost of customs

125.The Minister recognised that customs controls increase fiscal risks for traders,174 but the cost of these obligations will differ. Des Hiscock of ACITA and Customs Support stated that the cost of entry declarations varies significantly, “depending on the complexity of the declaration, how often a declaration is needed, and the quality and accessibility of the data presented for making the declaration”.175

126.There has been evidence of EU companies cancelling shipments to the UK because of customs complexities, which clearly places a financial risk on UK businesses. Evidence from the LEP Network cited a German company refusing to ship products to the UK and requiring customers to arrange the collection of goods themselves.176 Transport costs have also increased: Jellyworks Healthcare Ltd, which exports children’s first aid products, told us that “shipping has become more expensive, with an added cost of £5 per box shipped”.177

127.Customs requirements are not standalone. Adherence to other requirements is checked at customs control posts, most notably sanitary and phytosanitary (SPS) requirements (see Chapter 5) and rules of origin (see Chapter 3). Controls in their totality were described to us as “a dense network of legal compliance challenges”.178

128.Traders importing goods must follow a complicated and extensive series of steps. A Government guide to exporting goods outlines eight steps, of which one is: “Get your goods through customs.” This step takes the reader to another eight-step guide to making export declarations. Legal expert Nadiya Nychay told us: “Every exporter/producer needs to fill in an entry summary declaration. The amount of information in that declaration is staggering.”179

Room for cooperation?

129.The TCA is not the only document which determines customs arrangements between the two Parties. Indeed, the multiplicity of guidance documents is such that, as Anna Jerzewska told us, customs is “all about interpretation”:

“You have the FTA text, the TCA, the agreement, which is the basis of it all, but it is still very high level. Then you have the domestic guidance and the domestic interpretation of that. Not only does the EU have its interpretation of that, but every member state interprets the legislation perhaps slightly differently … Then you have the interpretation by the actual customs officer who is accepting that form.”180

130.Witnesses were optimistic about the potential for the UK and the EU to cooperate in customs procedures through the Trade Specialised Committee on Customs Cooperation and Rules of Origin. Legal expert David Thorneloe said: “I would probably single out in particular the trade facilitation measures and customs facilitation, where there is room to cooperate and agree processes that could be quite helpful in years to come.”181

Authorised Economic Operator schemes

131.The TCA provides for mutual recognition of Authorised Economic Operator (AEO) schemes, which can enable recognised operators to benefit from simplified customs and safety and security rules. The provisions in the TCA cover only simplified safety and security rules.

132.An AEO status is an “internationally recognised quality mark” which confirms that a business’s role in international supply chains is secure and that its customs control procedures meet certain standards and criteria.182 For those UK or EU operators with AEO status, the mutual recognition provisions are welcome. They will, we were told, “simplify the new customs declarations and paperwork that companies are exposed to”.183 Nadiya Nychay told us:

“Businesses that enjoy the status will enjoy equal treatment when going through the safety and security formalities in the partner’s jurisdiction when they bring in goods for import or export. It does not mean that there will be no controls; they will simply be lighter as compared with the partners that do not enjoy that status.”184

Accessibility

133.In our 2020 inquiry on non-tariff barriers, we found that the application process to become recognised under the UK’s AEO scheme was lengthy, and the threshold for recognition high. In evidence to this inquiry, the ADS Group told us:

“To successfully apply for and be granted AEO status is a complex, costly and time-consuming process. It is not easily achievable for SMEs … particularly given many smaller companies have no experience of dealing with customs formalities and would therefore find it challenging to pass the initial auditing process. For example, it took a major UK aerospace OEM [original equipment manufacturer] six years to comply and successfully achieve AEO status.”185

134.There are no formal size requirements to qualify as an AEO in the UK, but a certain level of sophistication is needed.186 In 2018, only around 600 UK businesses were registered, and fewer than half of the applications for recognition were approved between 2016 and March 2019.187 A loosening of the criteria could increase the impact of the UK scheme and extend its reach to SMEs. This would certainly be within the spirit of the TCA, which states that criteria for national schemes “shall allow small and medium-sized enterprises to qualify as AEOs”.188

135.The UK’s Authorised Economic Operator scheme is, for many businesses, inaccessible. The time-consuming application process and the high threshold for approval means that few businesses can take advantage of the simplifications it provides. We recommend that the Government take steps to simplify the application process and lower the threshold for entry, to enable easier access for small businesses.

A trusted trader scheme

136.In July 2020 we argued for “a new UK-EU trusted trader scheme that is accessible to a significant number of businesses by offering different status tiers, including one that is easy to obtain for SMEs”.189 This scheme is now even more important. The simplifications need not be identical to those offered to AEOs, but they should take account of the needs of small businesses that cannot access that scheme. It could be worked through by the Trade Specialised Committee on Customs Cooperation and Rules of Origin, and specific provisions agreed there.

137.Alex Veitch of Logistics UK argued for such a scheme for authorised parcel operators. This could, he said, “allow certified trusted companies to do one declaration per truck so that the companies are authorised as safe and secure. We do this all the time in air freight. We do it all the time in customs with AEO and authorised consigner/authorised consignee. It is nothing new.”190

138.We recommend that the Government seek the EU’s agreement to a trusted trader scheme to enable those businesses that do not meet the Authorised Economic Operator criteria to benefit from some simplifications to customs or safety and security processes. This scheme could be tiered to enable even smaller businesses to access some degree of relief. Provision for transporters—common in air freight—should also be sought.

The temporary movement of goods

139.Goods travelling temporarily out of the UK (such as goods for trade exhibitions, or musical instruments for performances) are no longer exempt from normal customs rules. ATA Carnets, which predate the TCA, are permits which enable faster movement of these goods to certain countries. There is an application process and a cost to obtaining these permits.191

140.The EU has waived the need for them under certain circumstances (for example, for musical instruments carried by an individual musician), but we received evidence that there is insufficient clarity on whether the need has been waived when entering the UK. The Association of British Orchestras told us: “We believe that the UK has applied the same exemption … We urgently need clarification from HMRC that our interpretation is correct.”192

141.The exemption does not apply to those goods which are carried by hauliers. Temporary movement of goods in this way could include a very wide range of items, from computer monitors, picture frames or candles destined for trade exhibitions, to the equipment needed to service a motorbike in a road race pit stop, or to sound and lighting equipment for a show. The Road Haulage Association asked that the Government seek “an agreement between the UK and EU that allows unlimited road haulage for goods used in cultural and sporting events that are imported on a temporary basis (under ATA Carnets).”193

142.The Government should urgently clarify the circumstances under which an ATA Carnet is required. Within the Trade Specialised Committee on Customs Cooperation and Rules of Origin, it should seek reciprocal exemptions for the most affected sectors.

Staffing

Customs officials

143.In our December 2020 letter on end-of-transition preparedness, we raised concerns that changes to customs requirements would “stretch the capacity of public-sector customs officials”.194 The evidence presented to this inquiry was inconclusive about the capacity of UK customs officials in January 2021. Alex Veitch told us: “In the operational bits I am involved in, there are a lot of customs officials in training. They are doing exactly what they need to do there. It is very much a temporary arrangement, and we will get there.”195 However, the City of London Corporation was concerned that they may not be able to deliver the expectations set out in the Border Operating Model, citing “the increase in checks required, the challenges with recruiting specialist staff, training staff in a Covid-secure environment and the tight timescales”.196 Nadiya Nychay emphasised the need to continue investing in the sector: “We need to put massive resources into preparing our civil servants for their functions to handle the amount of work and the flow of trade if we want to maintain the same levels of trade.”197

144.In response to our December 2020 letter, Paymaster General Penny Mordaunt wrote: “When thinking about readiness and customs agents’ capacity, it is more appropriate to focus on the capacity to make declarations, instead of numbers of staff employed.”198 This response appears not to recognise that staff numbers are an important indicator of capacity.

The customs intermediary sector

145.Businesses are strongly encouraged to use a customs agent or intermediary to assist with customs declarations. Logistics UK told us: “Customs declarations must be submitted by specialist customs agents with the right IT system and knowledge of how to do it.”199 Anna Jerzewska said that it was important for traders to select sufficiently experienced intermediaries. She reported that inexperienced companies charging for advice “will have ramifications down the line in terms of liability”.200

146.In our December 2020 letter we concluded: “There is insufficient capacity in the customs intermediary sector to handle additional post-transition customs checks.”201 That finding has been borne out. While a grant scheme has been in place to support the sector,202 it has not had sufficient impact. Anna Jerzewska stated simply that “we do not have enough capacity in the industry. There are not enough people.”203 The Institute for Government reported: “There have been widespread reports of firms struggling to find agents suited to their needs, finding the financial cost of securing agent capacity prohibitive, or facing delays due to the high demand on agents and pressures of training new staff.”204

147.The difficulties of finding a suitably qualified intermediary may fall particularly heavily upon smaller businesses with fewer resources and transactions. Anna Jerzewska told us: “It is a market where customs brokers can pick and choose who they want to work with. Clients are looking for new brokers.”205 This confirms evidence heard in our previous inquiry:206 it appears that while the sector is stretched for everybody, those businesses with least capacity to divert to customs processes are those that are struggling to find intermediaries.

148.Allie Renison from the Institute of Directors pointed to steps taken by Ireland, the Netherlands and France, which “know that their guidance will always be far too generic, so they have put fiscal support in place to help businesses access the specialist advice that will hand-hold them through the process. We urgently need some of that, otherwise businesses will cease trading.”207 While the SME Brexit Support Fund will assist to some extent (and is discussed further in Chapter 9), targeted and specific support for the sector—and those who wish to use it—is urgently needed.

149.The customs intermediary sector does not have the capacity to meet increased demand, and smaller businesses are bearing the brunt of the shortage. The Government should increase and extend grants to the sector to increase the capacity and consider what financial support could be provided to smaller businesses to access the crucial services of intermediaries.

IT systems

150.There were successes in the Government’s preparations for the end of the transition period. In the run-up to the end of the transition period there had been considerable concern over IT systems for declaring customs (CHIEF) and accessing Kent access permits (Check an HGV). But witnesses told us that these systems had generally worked well. Alex Veitch told us: “We have not had significant problems reported to us about these three systems.”208 Of CHIEF, the Minister said: “Although we all know that it might be creaky in places it was an operational and robust system.”209 Des Hiscock agreed that “the systems … are coping far better than expected”.210 Anna Jerzewska stated: “Most of the problems were to do with companies and users in general not having time beforehand and in situations where HMRC needed to change something or something was updated.”211

151.The LEP Network reported that preparedness was improving, and that there was “a marked difference on preparedness from the start to the end of January”.212 The Minister told us: “We are looking at … the other systems that we can build that will make this as seamless and as straightforward as possible.”213

Physical infrastructure

152.Some SPS checks on UK imports have not yet been introduced. These checks had been planned for April and July 2021, but following a timetable review concluded on 11 March, the Government announced that they would be introduced in October 2021 and January and March 2022. Announcing the change, the UK’s Chief Negotiator, Lord Frost, referred to disruption arising from the COVID-19 pandemic and the concerns of businesses, but made little mention of port readiness.214 The physical infrastructure for these checks is clearly a concern, though—in many cases, it is still to be built. In February 2021, the Minister acknowledged that “the most challenging area is infrastructure”.215

153.There have been mixed messages from the Government on its readiness to support infrastructure development. The Government told the House of Commons Public Accounts Committee that customs posts “are of course a commercial matter for the ports”.216 There is, though, a Port Infrastructure Fund. Allocations of this £200 million fund to enable physical infrastructure were, we were told, announced only on 17 December 2020.217 The Institute for Government told us:

“The fund was significantly oversubscribed—leaving some ports with significantly less money than they expected. The shortfall has led some ports—such as Portsmouth (which faces a £5 million shortfall)—to scale back their plans, including reducing the range of goods (such as live animals) their new border control posts will be able to handle.”218

154.Press reports appear to confirm our concern that the delay in allocating funding has led to very late construction of the necessary infrastructure.219 While the introduction of SPS checks has been delayed, we remain concerned about funding limitations which could place some ports at a competitive disadvantage due to their relative capacity to facilitate checks. While there are clearly commercial considerations, the Government must more fully ensure that all ports are ready for the legally required checks to be introduced in the coming year.

155.Funding to support the development of physical customs infrastructure has been insufficient, particularly given the very short timeframe for making improvements. We recommend that the Government release additional funding before these checks are imposed.

Trader awareness

156.The border requirements for UK importers to complete declarations, make VAT payments and declare compliance with rules of origin will be phased in throughout 2021. Businesses will, however, need to be able to prove adherence retrospectively, and may be subject to duties if unable to do so. We received evidence suggesting that many are not aware of this, and are thus not keeping the appropriate records. Anna Jerzewska told us:

“A lot of companies are importing without realising that they are importing. They are bringing goods in. They are supposed to be entering details into their records. They are supposed to be monitoring. They are supposed to be doing everything that importers need to do. Yet, because they are not aware of it, they bring goods in and forget.”220

157.The Office for Budget Responsibility forecast that customs duty revenue would be £200 million lower in 2021/22 as a result of non-compliance.221 The Institute for Government stated: “Businesses may be building up customs liabilities without realising—storing up problems for the future.”222 While problems have not appeared yet, they are foreseeable.

158.The full gamut of controls on imports into the UK is not yet implemented, with some customs and SPS processes being phased in. This presents a “complex patchwork timeframe of further Brexit changes”,223 for which preparations must be made.

159.The Government should embark on a renewed effort to raise awareness of record-keeping requirements, and we also recommend that the Government adopt a pragmatic approach to border inspections as new requirements are phased in.


174 Q 52 (Penny Mordaunt MP)

175 Q 38 (Des Hiscock)

176 Supplementary written evidence from the Local Enterprise Partnership Network (FUU0021)

177 Written evidence from Jellyworks Ltd (FUU0002)

178 Supplementary written evidence from Christophe Bondy (FUU0018)

179 Q 12 (Nadiya Nychay)

180 Q 41 (Dr Anna Jerzewska)

181 2 (David Thorneloe)

182 HM Revenue & Customs, ‘Guidance: Check if Authorised Economic Operator status could benefit you (14 January 2021): https://www.gov.uk/guidance/authorised-economic-operator-certification [accessed 9 March 2021]

183 Written evidence from ADS Group (FUU0015), Q 6 (Nadiya Nychay)

184 Q 6 (Nadiya Nychay)

185 Written evidence from ADS Group (FUU0015)

186 HM Revenue & Customs, ‘Guidance: Check if Authorised Economic Operator status could benefit you (14 January 2021): https://www.gov.uk/guidance/authorised-economic-operator-certification [accessed 9 March 2021]

187 BBC, ‘Brexit: Less than half of trusted trader applications approved’ (19 March 2019): https://www.bbc.co.uk/news/business-47628769 [accessed 2 March 2021]

188 Trade and Cooperation Agreement, 24 December 2020 (Annex Custms-1: Authorised Economic Operators, 2)

189 Letter from Baroness Verma, Chair of the EU Goods Sub-Committee, to Rt Hon Michael Gove MP, Chancellor of the Duchy of Lancaster, 30 July 2020: https://committees.parliament.uk/publications/2222/documents/20491/default/

190 Q 48 (Alex Veitch)

191 This cost is covered in more depth in the report of the EU Services Sub-Committee Beyond Brexit: trade in services (23rd Report, Session 2019–21, HL Paper 248)

192 Written evidence from the Association of British Orchestras (FUU0012)

193 Written evidence from The Road Haulage Association (FUU0014)

194 Letter from Baroness Verma, Chair of EU Goods Sub-Committee, to Rt Hon Michael Gove MP, Chancellor of the Duchy of Lancaster, 10 December 2020: https://committees.parliament.uk/publications/3919/documents/39339/default/

195 Q 41 (Alex Veitch)

196 Written evidence from the City of London Corporation (FUU0007)

197 Q 12 (Nadiya Nychay)

198 Letter from Rt Hon Penny Mordaunt MP to Baroness Verma, Chair of EU Goods Sub-Committee, 29 January 2021: https://committees.parliament.uk/publications/4514/documents/45685/default/

199 Written evidence from Logistics UK (FUU0011)

200 Q 41 (Dr Anna Jerzewska)

201 Letter from Baroness Verma, Chair of EU Goods Sub-Committee, to Rt Hon Michael Gove MP, Chancellor of the Duchy of Lancaster, 10 December 2020: https://committees.parliament.uk/publications/3919/documents/39339/default/

202 HM Revenue & Customs, ‘Applications open for £50 million to boost UK customs intermediaries’ (29 July 2020): https://www.gov.uk/government/news/applications-open-for-50-million-funding-to-boost-uk-customs-intermediaries [accessed 4 March 2021]

203 Q 41 (Dr Anna Jerzewska)

204 Written evidence from the Institute for Government (FUU0019)

205 41 (Dr Anna Jerzewska)

206 Letter from Baroness Verma, Chair of EU Goods Sub-Committee, to Rt Hon Michael Gove MP, Chancellor of the Duchy of Lancaster, 10 December 2020: https://committees.parliament.uk/publications/3919/documents/39339/default/

207 Q 26 (Allie Renison)

208 Q 40 (Alex Veitch)

209 Q 51 (Penny Mordaunt MP)

210 Q 40 (Des Hiscock)

211 Q 40 (Dr Anna Jerzewska)

212 Supplementary written evidence from the Local Enterprise Partnership Network (FUU0021)

213 Q 51 (Penny Mordaunt MP)

214 Letter from Lord Frost, Minister of State, Cabinet Office, to Sir Bill Cash, Chair of the European Scrutiny Committee, and Lord Kinnoull, Chair of the EU Select Committee, 11 March 2021: https://committees.parliament.uk/publications/5107/documents/50447/default/

215 Q 52 (Penny Mordaunt MP)

216 Oral evidence taken before the Public Accounts Committee, 21 January 2021 (Session 2019–21), Q 148 (Emma Churchill)

217 Written evidence from the Institute for Government (FUU0019)

218 Ibid.

219 ‘British ports say they are not ready for Brexit customs checks’, The Guardian (7 March 2021): https://www.theguardian.com/business/2021/mar/07/british-ports-say-they-are-not-ready-for-brexit-customs-checks [accessed 9 March 2021]. See also Letter from Baroness Verma, Chair of EU Goods Sub-Committee, to Rt Hon Michael Gove MP, Chancellor of the Duchy of Lancaster (10 December 2020): https://committees.parliament.uk/publications/3919/documents/39339/default/ [accessed 4 March 2021]

220 42 (Dr Anna Jerzewska)

221 Office for Budget Responsibility, Economic and fiscal outlook, CP 318, November 2020, p 138: http://cdn.obr.uk/CCS1020397650–001_OBR-November2020-EFO-v2-Web-accessible.pdf [accessed 4 March 2021]

222 Written evidence from the Institute for Government (FUU0019)

223 Ibid.




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