Recent experiences have highlighted the significant impact on margins that any mistakes in applying customs duty rules can have on businesses – from incorrect valuations on products leading to a deficit of duty being paid, to reliefs for rejected or returned goods not being appropriately claimed.
Is your Simplified Import VAT Accounting Authorisation at risk? And why should you consider Authorised Economic Operator authorisation?
The Simplified Import VAT Accounting (SIVA) Scheme removes the need for importers to provide a financial guarantee required to operate a duty deferment account for VAT. Whilst a financial guarantee is still required for custom duty many importers have successfully used SIVA to significantly reduce the level of financial guarantees required creating a cost or cash flow saving.
In advance of the new Union Customs Code (UCC) legislation, which comes into force on 1 May 2016, HMRC has introduced revised criteria that importers have to meet before they can be authorised to reduce the level of financial guarantee required to operate a deferment account.
Importers who wish to reduce the VAT element of their guarantee to operate a duty deferment account must reach the criteria of Authorised Economic Operator (AEOC). Whilst the bar has always been set high to get SIVA approval in that importers must have been able to satisfy HMRC that they had been registered for VAT for at least three three years and have a good history of VAT compliance; HMRC is now introducing additional requirements to the existing SIVA approval that will have to be met by importers. These are as follows:
- proven financial solvency enabling the applicant to be able to fulfill his or her commitments for the type of business concerned; and
- a high level of records management including where necessary transport records enabling appropriate customs controls.
For SIVA approved businesses that do not currently have AEOC status, it is understood that HMRC will contact you to explain the AEOC requirements and how to obtain your re-approval. Importers will however be able to continue with existing authorisation after the 1 May 2016 implementation date until their authorisation is reassessed. The re-authorisation process will run until 30 April 2019.
For those importers that pay customs duty as well as import VAT this leads on to the question of whether you should apply for AEOC status. This is because, if you are AEOC authorised, you will be entitled to request a reduction in your duty deferment guarantee for customs duties. The reduction available is 70 per cent. However, there is no reduction available to businesses without an AEOC authorisation.
You will also be entitled to request a waiver of the potential debt guarantees (covering customs duty and if applicable Import VAT if you hold customs authorisations/approvals for example customs warehouse, inward processing, temporary storage).
To assess the impact of new Union Customs Code on your business please contact us.