MHA | Customs Special Procedures

Customs Special Procedures

Andrew Thurston · July 24th 2023 · read


Does your company import or export goods for further processing? Maybe it imports/exports goods for repair or servicing. 

If you are involved in the above, your company will now need to consider the use of one of HMRC’s Customs Special Procedures, otherwise it may be subject to HMRC intervention and the issue of customs assessments and penalties for poor compliance.
MHA have been providing advice and assistance to clients on the following HMRC Special Procedures for several years. These procedures limit the customs and VAT liabilities which may increase profitability and minimise the risk of non-reclaimable import duties.

Inward Processing

This procedure is used by companies who import goods for processing or repair/servicing. By using this procedure an importer can waive the requirement to pay the UK import duties. The liability for these duties is discharged once the processed/repaired goods are re-exported from the UK.

The procedure involves additional compliance obligations and companies must be aware that these can, if not implemented correctly, result in HMRC action and duty assessments. It is vitally important that any business considering applying for inward processing understand the obligations, recording requirements and potential risks. MHA can assist companies with this process and ensure that the required audit trail is implemented to minmise the risk to the business once inward processing is operational. This also helps with ensuring that any application is processed efficiently by HMRC.

Our experts have many years’ experience within HMRC of reviewing and auditing approvals for inward processing and this experience is key to ensuring that your business is fully coherent with the regulations and benefits of using this procedure.

Inward processing is also commonly utilised to comply with HMRC's import VAT policy.. If you import goods for service/repair, your company will have to consider inward processing as only the owner of the goods can legally reclaim any import VAT. If your company is currently paying import VAT it may be subject to a VAT assessment if HMRC identify this error. It is therefore important to consider the benefits of inward processing as this will waive the requirement to pay VAT on importation.

Outward Processing

This is the opposite to inward processing and is used by companies who are exporting goods for processing/repair/servicing.

Outward processing allows the exporter to minimise the duty liabilities on the goods on return to the UK. For example.

Goods exported to USA for processing. Value on export is £11,000.

The goods are processed in the USA and made into a finished product. The value has increased due to labour, additional materials and profit whilst in the USA.

Under outward processing, the UK company can import the finished product and only pay the import duties on the costs incurred outside the UK. Therefore, the following would apply:

  • Processing costs on the finished Product - £500
  • Cost of additional materials used in USA - £400
  • Cost of import freight - £1,000
  • Value of exported goods - £11,000

For a ‘normal import’ all of the above would be declared as costs relating to the finished product. The £500 would not be shown on the import invoice as it is a cost not incurred by the US company.

If the duty rate was 2%, the duty would be calculated as (500 + 400 + 1000 + 11000) x 2% = £258.

Using outward processing, the cost of the UK goods is removed from the calculation, thus reducing the customs duty: (500 + 400 + 1000) x 2% = £38.

This provides a significant saving. Many UK companies import processed goods without using outward processing. In all cases the value declared to HMRC will be correct so the risk to the company is that it will receive a significant customs assessment. These costs, if not considered as part of the sales price will impact the profit margin of the product, so it is important for outward processing to be considered.

Where goods are exported to the EU for processing, the UK/EU Trade agreement allows for the customs duty to be waived. It is still important to ensure that the correct process is followed, otherwise HMRC will raise a customs assessment for any underpaid duties.

One of the ‘hidden’ risks to OP is the import VAT. HMRC are currently only allowing the owner of the goods to reclaim the import VAT. By using OP you are reducing the VAT liability but, where you are arranging the overseas repair, you will not be the owner and therefore you may have a ‘sticking’ VAT liability which HMRC could challenge if it is reclaimed on your UK VAT Return.

Temporary Admission

If you are a company who imports goods into the UK for one of the following reasons, then temporary admission must be considered to minimise the import duty impact.

  • Means of transport (road, rail, air, sea and inland waterways transport)
  • Medical, surgical and laboratory equipment on loan
  • Sound, image or data‐carrying media and publicity material
  • Professional equipment
  • Pedagogic material and scientific equipment (for the manufacture of goods and more than 50% of the resulting goods are exported)
  • Goods used to carry out tests or subject to tests
  • Samples
  • Replacement means of production
  • Goods exhibited or used at a public event not purely organised for the commercial sale of the goods

As there is no sale at time of import, it is important for the importer to consider temporary admission otherwise duty and VAT will be payable on the full value of the goods. Where the importer is not the owner, the VAT position is also critical as any VAT paid will not be recoverable so temporary admission must be considered where goods are imported for loan.

In many cases, the owner will need to be declared as the importer and this will require the use of an Indirect Customs Representative. Failure to manage Temporary Admission could render the UK company subject to the imposition of ‘sticking’ VAT and customs duties so it is important to understand the procedure.

Our Customs experts are available to discuss your company’s requirements for using one of the above special procedures and can advise on the benefits and risks so it is fully aware of the options and impact that the procedure may have on resourcing and processes.

Get in touch with our experienced customs experts.

Contact our team today!
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