There are plenty of cogs moving in the great machine that is shipping goods between countries, and customs clearance is one of them.
Though the term might knot your stomach, don’t panic. Clearing your goods through customs does not have to be stressful!
Whether you’ve heard of it or not, we’re here to break the process into manageable chunks so that you’re informed, and thoroughly understand the process.
What Is Customs Clearance?
Customs clearance is the process of declaring goods as they enter or exit a country through its border.
Every country has different rules surrounding importing and exporting. This means that the documentation needed and the fees payable in duties and tax vary depending on the journey
your cargo will take to its destination.
What Documents Are Essential For Customs Clearance?
What’s required will differ by country, but most countries will want to see the following documentation as standard:
- Purchase order
- Sales invoice. If exporting goods this invoice will come from the buyer, if importing goods it will be issued by the supplier.
- Packing list. This document outlines what the goods are as well as the dimensions of each package or container.
- Bill of Lading (or BoL). The BoL is one of the main legal documents in shipping and acts as a contract between all parties involved.
- Certificate of origin. This is a trade document that certifies that the goods in this particular shipment come from where the seller says they do.
- Any other documentation as required by the buyer or supplier.
Some goods will also need a licence to be imported or exported, such as dangerous or hazardous materials. Read up on the ins and outs of shipping hazmat in our recent blog.
How Long Does It Take?
Have you got the correct documentation ready to go?
If so, customs clearance is usually completed in minutes. But if your goods need to be inspected, or you haven’t got the right papers, it could look more like days. Even weeks.
Customs inspections prevent the import or export of goods that are breaking the country’s rules and regulations and are an essential part of the freight transport process.
Examples of reasons a clearance officer might want to detain and inspect your shipment include:
- Doubts surrounding improper declaration
- Suspicion of smuggling
- Suspicion of trademark violation
Understanding How Customs Charges Are Calculated
Customs charges vary because they are determined by what you’re shipping.
All imported goods have their own duty rate, which is calculated using its commodity code. Commodity codes are used in shipping to classify goods in the clearance process, enabling you to accurately fill out declarations, work out if there is duty and VAT to pay or even qualify for any duty reliefs.
As well as duty charges, VAT is generally charged against all three of the following:
- The total cost of goods
- Shipping costs
- Duty rate
Together this charge is known as the ‘taxable import’. In the UK, the rate of VAT is currently set at 20%, but this will vary from country to country.
If your cargo needs to be held by customs for any reason you may incur additional fees for storage or associated tests and x-rays.
Certain products may also be subject to anti-dumping duty, an import charge imposed to protect a country’s own manufacture of a product. If imported goods are being brought in and ‘dumped’ at a substantially lower value than a similar product that exists in the importing country, this is considered ‘dumping’, and as such incurs anti-dumping charges.
When And How Are Customs Charges Paid?
Most businesses moving goods around the world will use a freight forwarder or customs broker. These expert companies work through all of the admin that the importers and exporters would otherwise have to do themselves.
Importers who don’t use a customs broker or freight forwarder are generally sent an invoice which needs to be paid for the shipment to be released.
Depending on the incoterms the cargo has been shipped under, of which there are many, the importer may not be liable for covering the cost of import charges at all. Incoterms are the legal terms of the shipment that lay out the agreed risks and costs for each party.
Struggling to streamline your import and export finances? Duty deferment is a scheme that can help UK importers with this by delaying most customs charges. Seeking advice from your freight forwarder or similar can help you work out whether duty deferment is right for you and your business.
Duty Relief And The UK GSP Relief Scheme
Duty relief schemes are government initiatives that allow importers to pay lower customs duty and VAT charges, depending on where the goods are from, what they are and what the importer plans to do with them when they arrive.
The UK GSP, or Generalised Scheme of Preferences, is the main duty relief available to UK importers. The scheme is in place to aid businesses in developing countries to trade more freely.
Alongside the UK GSP, which pays attention to where the shipment is coming from and what it is, there are other duty relief schemes in existence that are based on other variables.
Some schemes may provide charge exemption depending on how long a product will stay in its destination country, and what it’s used for. Here are a couple of examples:
- Temporary admission. This scheme applies to cargo shipped to the UK for definitive short-term use, like items for auction or demonstration.
- Bonded warehousing. Under this scheme, customs warehouses withhold duty and VAT charges until the goods are ready for onward travel.
- Inward Processing Relief (IPR) is another customs regime. Under IPR goods are allowed to be imported into the UK for processing before being exported without paying any charges on the initial movement.
- Outward Processing Relief (OPR) allows EU traders to temporarily export goods for repair or processing in non-EU countries and then re-import them with full or partial duty relief.
Relief schemes can save you money. To find out whether you qualify for any, check the government Trade Tariff website.
Customs Clearance Is A Vital Part Of The Shipping Process
Customs prevents illegal or prohibited items from entering a country and determines what level of import tax and duty is to be applied.
If you’ve done your homework, clearing your goods through customs can be fast and easy and, if the nature of your cargo qualifies you for some relief, not all that costly either.
Feeling a bit lost at the mention of commodity codes? Not sure if any of the relief schemes apply to you? We’ve got your back. Call Millennium today for expert advice and make sure you’re not spending money where you don’t have to.