Research exploring UK trading businesses' responses to future customs processes: report

Question 1

Glossary

Accepted Answer

Term	Definition
Border Operating Model	This document, published by the government, provides detail on how the border between Great Britain and the EU will work and the actions that traders, hauliers and passengers need to take.
Customs Freight Simplified Procedures	This refers to an optional scheme to make customs processes more straightforward by using a simplified declaration procedure or entry in declarant’s records. Traders must be authorised to use Customs Freight Simplified Procedures.
CN22 and CN23	Types of customs declaration forms which detail the content of a package that is being sent by Royal Mail. CN22 forms are used for goods up to the value of £270 and CN23 forms are used for goods valued at over £270.
Controlled goods	Include excise goods like alcohol and tobacco, and some goods that need a licence to import, such as explosives or drug precursor chemicals
Customer Relationship Management	Systems for managing present and future customers.
Duty Deferment Account	This allows authorised traders to pay customs charges once a month through Direct Debit rather than on individual consignments.
Economic Operators Registration and Identification number	A number is required for all businesses moving goods into or out of the UK.
EU only traders	The businesses that took part in this study which traded with the UK and countries in the EU but not with any other countries.
EU and rest of world traders	The businesses that took part in this study which traded with the UK and countries both within and outside the EU.
Fast parcel operator	Businesses that transport documents, parcels and freight across the world in a specific time frame.
Goods Vehicle Movement Service	This is a new HMRC IT platform for border management. It will link declaration references together, link the movement of goods to declaration, and notify users whether their inbound goods have been successfully cleared in HMRC systems by the time they arrive in the UK.
Safety and security declarations	Also known as an Entry Summary Declaration when importing into the UK and an Exit Summary Declaration when exporting to the EU and the rest of the world, safety and security declarations provide advance data on consignments to customs authorities for risk analysis.
Staged Customs Controls	From 1 January 2021, changes to customs declarations and checks will be introduced in 3 phases.
VI1	A certificate of analysis and compliance with EU regulations in regard to wine production.

Question 2

1.  Executive summary

Accepted Answer

This report presents findings from qualitative research with businesses based in Great Britain that import or export goods to or from the EU. The research took place in August and September 2020. The purpose of the research was to understand businesses’ awareness of and response to upcoming changes to customs processes, specifically linked to Staged Customs Controls from January 2021.

1.1 Policy background

The UK has left the EU, and the UK’s transition period with the EU ended on 31 December 2020. Until the end of the transition period, there were no customs requirements for traders moving goods between the UK and EU member states. New customs requirements for trade with the EU began on 1 January 2021.

To allow traders importing goods a period of adjustment to the new requirements, Staged Customs Controls were introduced from January until July 2021, meaning full customs controls were applicable for different types of goods in different stages. From July 2021 full customs controls will commence, meaning customs requirements and processes for goods moving into the UK from the EU will be subject to the same import processes as those being imported from the rest of the world.

In the lead up to January 2021, businesses moving goods into the UK from the EU needed to become accustomed to the new Staged Customs Control requirements. By July 2021 they will need to be able to make customs declarations, either directly themselves or via an intermediary such as a customs agent. For businesses exporting goods to the EU, the new customs requirements began in full on 1 January 2021 with no staged introduction period.

1.2 Businesses’ awareness of the changes and preparation

At the time of undertaking the research, many businesses had limited awareness of these changes and had not substantially engaged with information on the subject. Some businesses had started preparing, especially those that had a greater involvement with or awareness of the logistics of moving their goods, but others had not.

Factors preventing businesses from preparing included lack of resources and expertise to prepare; the lack of a sense of urgency, or confidence that changes will be straightforward; uncertainty about whether it would continue to be viable for them to trade with EU countries at all; and a widespread perception that it was best to wait for the outcome of EU negotiations before starting to prepare.

Many businesses were unaware that HMRC had published detailed information on customs processes from 1 January 2021, and that these processes and declarations would be required regardless of the outcome of EU negotiations.

This may be partly because this was only clarified once businesses started to engage with the documents, but even some businesses that were engaged expected the requirements to differ depending on whether there was a deal or not or reported that this is what they had been told by intermediaries.

Larger businesses, importers, and those who used intermediaries other than fast parcel operators were more likely to have taken steps to prepare, such as registering for an Economic Operators Registration and Identification number, signing up to emails from HMRC or speaking to their intermediary.

However, there was often a sense from these participants that they did not feel fully prepared and were awaiting more detailed guidance from HMRC, particularly in relation to tariffs, VAT, the specific information needed for declarations, how to prepare for potential delays, and whether there would be alignment on product regulations.

1.3 Support needed by businesses to help them prepare

There were low levels of familiarity with the Border Operating Model, a UK Government publication providing detail on how the border between Great Britain and the EU would work post-transition and the actions that traders needed to take. While businesses reported a lack of knowledge and certainty and wanted to know what they needed to do to prepare, they found the length of the Border Operating Model document overwhelming and instead wanted to receive only the information relevant to their business.

Some businesses, particularly medium-sized businesses and businesses trading with the rest of the world, had received emails from HMRC about changes to customs processes and found these useful. Others did not recall seeing anything on this topic in recent months, believing that Government communications had been dominated by COVID-19.

Businesses said that they had looked for information online and been directed to the GOV.UK website. While many participants thought that the information provided was clear and easy to find, some EU only traders found the amount of information overwhelming. Businesses stressed that they wanted information that was directive and told them what actions they needed to take, and which explained the process by means of recognisable examples.

1.4 How businesses anticipated they would manage customs processes from 1 January 2021

For some businesses, particularly smaller businesses and those who did not import goods, participating in this research was the first time they had considered the topic of changes to customs processes. These businesses were therefore not able to discuss some topics in detail and commented that they wanted more time to think it over. In particular, they were unsure of the extent to which new requirements would apply to them (if trading a low volume or value of goods), how an intermediary might be able to help their business, and what the costs of this would be.

Users of fast parcel operators were typically expecting their fast parcel operator to manage any changed requirements and HMRC may therefore want to encourage fast parcel operators to communicate with their customers about this.

Most businesses’ initial response was that they would use an intermediary to support them in making declarations, at least for the first few times they needed to move goods. Although some businesses were initially inclined to make declarations themselves, the need to get specialist software, the realisation that the process could potentially be time-consuming, and the need for a specialist or expert to explain the process to them led them to lean more towards using an intermediary.

Many businesses, both EU only and rest of the world traders, already used an intermediary (such as a haulier or fast parcel operators), but some were unsure of how to find one or what they might charge.

Question 3

2.  Research and objectives

Accepted Answer

2.1 Background and objectives

The UK has left the EU, and the UK’s transition period with the EU ended on 31 December 2020. Prior to the end of the transition period, there were no customs requirements for traders moving goods between the UK and EU member states. New customs requirements for trade with the EU began on 1 January 2021. HMRC published a Border Operating Model outlining these arrangements, in July 2020.

To allow traders importing goods a period of adjustment to the new requirements, Staged Customs Controls were introduced from January 2021 until July 2021 for non-controlled goods. Controlled goods were subject to full customs controls from January 2021. From July 2021 full customs controls will commence, meaning customs requirements and processes for all goods moving into the UK from the EU will be subject to the same import processes as those imported from the rest of the world.

In the lead up to January 2021, businesses bringing goods into the UK from the EU needed to become accustomed to the new Staged Customs Controls requirements and those bringing in controlled goods needed to prepare to make customs declarations, whilst by July 2021 all importers of goods from the EU will need to be able to make customs declarations, either directly themselves or via an intermediary such as a customs agent.

For businesses exporting goods to the EU, the new customs requirements began in full on 1 January 2021 with no staged introduction period.

This research examined businesses’ knowledge and experience of undertaking customs processes, including authorisations, declarations and tariffs. This was in order to understand how businesses proposed to navigate this new landscape, particularly in light of the impact of COVID-19 on preparations. The objectives of this research were therefore to:

explore businesses’ current approach to moving goods and customs processing
explore businesses’ understanding of upcoming changes
understand how businesses proposed to navigate changes to customs processes, particularly in light of the impact of COVID-19 on preparations
understand knowledge and experience of, and capability to undertake, customs processes among small and medium enterprises trading in the UK and with the EU but not with the rest of the world
inform customer support provided by HMRC, to minimise burden for businesses and maximise compliance

2.2 Method

This was a qualitative piece of research comprising interviews with 35 UK businesses that move goods into the EU from the UK, into the UK from the EU, or both. Twelve of these businesses also traded with countries outside the EU (the rest of the world). The other 23 businesses are referred to throughout as EU only traders, because of the focus of this research on international trade, although they also traded within the UK.

Businesses were recruited from a previous survey on EU Exit carried out by Ipsos for HMRC, or free-found. They were recruited to ensure a range of sizes, locations and trading patterns, including import and export, frequency and volume of trading. Most of the businesses interviewed were either manufacturing or retail and wholesale businesses, with a small number of businesses in other sectors.

One business had been trading for less than 2 years; the others had been trading for 2 years or more. One business had a parent company in the EU; the others did not. Between 3 and 5 businesses (2 businesses were unsure whether the goods they traded were controlled goods) traded controlled goods (none of whom traded with the rest of the world).

Recruitment also aimed to achieve a range of experiences in terms of how severely COVID-19 had affected the business, and businesses’ plans for managing customs processes in future (for example, whether they intended to use an intermediary).

Interviews were 60 minutes in length and conducted by telephone between 20 August and 21 September 2020. Ipsos sent participants a 25-page summary of the Border Operating Model in advance of the interview, and asked participants to look through the parts of this that would be relevant to them in order to prepare for the discussion.

2.3 Analysis and interpretation of data

Qualitative research is illustrative, detailed and exploratory. It seeks to understand not only what people think and do but why this is the case. The volume and richness of the data generated allows for a detailed picture to be developed of the range and diversity of views, feelings and behaviours, and this can be used to develop new concepts and theories.

The findings in this report are intended to provide insight into businesses’ views and experiences with regard to current and future customs processing, but the purposive nature with which the sample was drawn, and small number of interviews conducted, means that they cannot be considered representative of these audiences as a whole.

The interview data was analysed using a thematic approach aimed at interrogating the data for patterns and relationships.

Question 4

3.  Current trading patterns

Accepted Answer

This section provides an overview of:

participants’ trading patterns in August 2020
their experience of the process of moving goods to and from the EU and, if applicable, the rest of the world
their views on this process
the impact of COVID-19 on their business and trading patterns

Businesses had often previously given little thought to their experiences of trading with the EU. This is because they viewed the existing process as straightforward and very similar to trading with UK suppliers or customers. This was particularly the case for businesses using fast parcel operators or other intermediaries that handled all processes relating to the movement of goods on the business’ behalf.

This meant that customs processing was an unfamiliar subject to some businesses, particularly EU only traders and fast parcel operator users, and it was important to introduce concepts clearly when discussing it.

3.1 EU traders

We interviewed a number of smaller traders that were typically export only traders. These businesses often sold goods through online sales platforms and relied on fast parcel operators or Royal Mail to send their goods because they were of low value and needed to arrive quickly.

Some of these businesses relied on the fast parcel operator or online sales platform’s website to keep records of their sales, while others used spreadsheets or paper records such as copies of invoices. There was some uncertainty as to whether these record-keeping processes would be adequate after the transition period.

Larger EU traders also often used fast parcel operators but were more likely than smaller traders to use other types of intermediary such as hauliers. These traders were also more likely to use Customer Relationship Management or accounting software to keep records of their sales.

3.2 Rest of the world traders

Many rest of the world traders used intermediaries to move their goods and complete customs processing, and experienced the process as straightforward. As a result, they sometimes had little detailed awareness of declaration requirements. Businesses reported few difficulties in making declarations beyond one-off occasions when they or an intermediary had made a mistake.

Fast parcel operator users described completing forms on fast parcel operator sites which they would print and fill in or using the CN22 form to send goods via Royal Mail. The CN22 is a customs declaration form which details of the contents of a package that is being sent with Royal Mail. These businesses perceived the process to be broadly similar to trading with the EU.

Businesses that used other intermediaries typically supplied the required information to an intermediary who would complete the declaration for them.

Businesses trading with the rest of the world kept records in the same way as they did for sales to the EU.

3.3 Impact of COVID-19

The impact of COVID-19 had varied considerably. Some businesses had seen increases in demand, especially if they were able to move more business online. Others had had large orders cancelled and some were considering whether they were still viable.

Some businesses had found their supply chains disrupted or that the cost of parts or supplies increased, either because their suppliers were closed or, on the other hand, overwhelmed with demand. Businesses reported having to rearrange the timings of orders with suppliers and customers in Europe to respond to lockdowns being enforced at different times in different countries.

Many businesses commented that the management time needed to respond to COVID-19 had reduced their capacity to plan for the end of the transition period.

Question 5

4.  Awareness, preparation and support needs

Accepted Answer

This section covers:

businesses’ awareness of the upcoming changes to customs processes at the end of the transition period
the extent of their preparations as of August 2020
the factors driving or hindering preparations
the information and support businesses wanted to support their preparation for the changes

4.1 Engagement with existing information

Many businesses had only had a slight awareness of the upcoming changes. They were aware that there were going to be some changes at the end of the transition period but were not sure whether or how these would affect them. Several commented that participating in the research was the first time that this topic had been brought to their attention.

“Obviously I knew it was going to change because of Brexit and there were going to be border controls on imports and exports. But because I have been busy on other things I haven’t had time to delve into it.” (EU only trader)

There were low levels of familiarity with the Border Operating Model, a Government publication providing detail on how the operation of the post-transition border between Great Britain and the EU works and the actions that traders need to take. The majority of businesses were not aware of this document. While businesses reported a lack of knowledge and certainty and wanted to know what they needed to do to prepare, they were reluctant to engage with the Border Operating Model document when it was brought to their attention at the time of recruitment for the research.

Participants commented that it was not realistic to be referred to a document of that length (197 pages) and expected to determine which parts of it applied to them. A 25-page summary of the Border Operating Model, which the research team provided to help businesses prepare for the interview, was also seen as too long by many (not all) participants, although they welcomed the overview on the front page setting out which pages were relevant to which business types.

Instead, businesses wanted more concise instructions, tailored in different versions so as to include only the information relevant to their business.

Some businesses, particularly medium-sized businesses and rest of the world traders, had received emails from HMRC about changes to customs processes and found these useful since they provided a summary of changes, with links to more detailed information that participants could choose to access if relevant. Others commented that they usually found emails from HMRC very helpful, but some did not recall seeing any on this topic in recent months, believing that Government communications had been dominated by COVID-19.

Some smaller businesses relied on the advice of agents such as accountants, or organisations such as their local Chamber of Commerce, to tell them what they were required to do. Some businesses (typically those with a small number of employees rather than sole traders or medium-sized businesses) commented that they would also like to receive a letter to raise awareness of the upcoming changes; it was thought that a letter would have more impact in making businesses aware that an important change was coming.

Businesses said that they had looked for information online and been directed to the GOV.UK website. While many participants thought that the information provided was clear and easy to find, some EU only traders found the amount of information overwhelming and had an experience of being directed around in circles by clicking links.

Whether businesses had begun preparations or not, there was a widespread misperception that requirements will be different depending on outcome of EU Exit negotiations; many businesses were unaware that customs processes or declarations would be required regardless of the outcome.

4.2 Preparations made to date

Businesses broadly fell into 2 groups: those that had started preparing but believed that they were not fully prepared, and those that had not begun preparing.

4.2.1 Businesses that had not started preparing

Some businesses, typically those that were smaller, export only, or used fast parcel operators, had not yet begun preparing. This was for one or more of these reasons:

overall personality and working style
lack of a sense of urgency
lack of capacity or expertise to prepare
a belief that the changes will not apply to them

In terms of overall personality and working style, there may have been a tendency to leave things to the last minute or ‘play it by ear’. Some traders who moved goods relatively infrequently commented that they would wait until the first time they needed to move goods after the transition period and see what they needed to do then.

In terms of a lack of a sense of urgency, as well as being driven by the factors above, this resulted from some businesses’ confidence that changes would be minor and easy to accommodate, or that intermediaries would be able to deal with them (although many businesses in this group had not taken steps to check this).

In terms of a lack of capacity or expertise to prepare, this may have arisen particularly if the business was very small, had been badly affected by COVID-19, or was preoccupied with other concerns related to the end of the transition period.

“If I’m a big corporate I can say to someone spend time on that and make sure we’ve got it right, but I’m not.” (EU and rest of the world trader)

In terms of having a belief that the changes will not apply to them, some businesses had assumed that they would be able to avoid making declarations, or avoid needing to comply, due to the low value or volume of the goods they traded. Other businesses were uncertain as to whether it would still be viable for them to trade with the EU at all, due to other factors relating to the end of the transition period.

In terms of having a belief that changes had not yet been clarified, for some businesses, they felt that it was therefore not yet worth seeking out information about them. Several businesses explained that they were awaiting the outcome of the ongoing EU negotiations before they begun finding out about or preparing for changes to customs processes. These businesses believed that a deal would result in fewer changes to existing processes than a no-deal scenario.

This misunderstanding may exist among those who have not yet started preparing because the message that customs processing requirements are not dependent on the outcome of negotiations is only clarified once people start to engage with the documents.

“I’m not even sure if that’s all been agreed or if there is going to be a way that we can ship stuff over without filling in forms or whatever, I’m not sure, and I don’t even think the politicians know themselves.” (EU only trader)

“If we get a deal and we can trade a little bit more freely, a lot of the documentation that is going to be required is going to be not so stringent. If it goes the other way, we are going to have to have lots of bits of paper.” (EU and rest of the world trader)

4.2.2 Businesses that had started preparing

Businesses that had started preparing were typically larger and imported goods. They had taken actions such as:

registering for emails from HMRC and following the advice they contained (some businesses had also signed up to email updates from HMRC, trade bodies or accountants)
registering for an Economic Operators Registration and Identification number
applying for a Duty Deferment Account
speaking to intermediaries, especially if they were already working with them

The quality of advice businesses had received from intermediaries varied. Businesses’ reported experience with intermediaries varied: some intermediaries said they would handle all customs requirements, while others did not feel able to advise and said they themselves were unsure of what the changed requirements would be.

“We spoke to a customs agent… he doesn’t know which system the ports will adopt or costs they will generate or whether the GVMS [Goods Vehicle Movement Service] will be ready in time, they are waiting on further guidance from HMRC.” (EU only trader)

Although they had kept abreast of developments and tried to do all they could to prepare, many of these businesses still did not feel entirely ready for the end of the transition period. There was a sense that now the ball was in HMRC’s court and they were waiting to hear what, if anything, they needed to do next.

“Most of it I’m aware of. I’ve got my EORI [Economic Operators Registration and Identification number] number, I’ve got my freight forwarder for customs clearance sorted out. What I don’t know is the facts and figures.” (EU only trader)

As well as specific information businesses wanted, there was a general, overall sense of uncertainty due to the outcome of EU negotiations still being unknown. Businesses commented that the outcome of the EU negotiations was likely to affect their trading patterns more broadly, for example through changes to tariffs, exchange rates, or the ability to physically move goods if a no-deal outcome resulted in delays at borders. This may have contributed to an overall sense of not being fully prepared.

Many businesses considered these issues to be more significant than changes to customs processes, or considered customs processes in relation to these factors rather than in isolation. Because of this, although these businesses were more engaged with messages and information from HMRC, the perception that customs process requirements will differ whether there is a deal or not was still relatively widespread.

For example, several businesses believed that safety and security declarations might not be required in the event of a deal with the EU. Some of this misunderstanding may have been fostered by advice businesses had found online (from non-Government sources such as accountants and legal advice sites) referring to how to prepare for a “no-deal Brexit”.

4.2.3 Who needs most help preparing?

Some businesses believed that adapting to the changes would be relatively straightforward. Rest of the world traders were confident that they could adapt their existing processes, and those who used fast parcel operators did not anticipate big changes in what they would need to do.

Traders of controlled goods (such as excise goods like alcohol and tobacco, and some goods that need a licence to import, such as explosives or drug precursor chemicals) already had to abide by stricter requirements and were more likely to have kept abreast of the changes. This suggested that EU only traders of standard goods, not using fast parcel operators, were the group most in need of support.

4.3 Information needs

EU only traders of standard goods wanted more detail on tariffs and VAT, support to find an intermediary, and guidance on how to ensure an intermediary is doing their job correctly (some were afraid of scams or receiving inferior service). Overall, they wanted clear and directive instructions, with a recommended option based on the business’ circumstances.

Businesses that had started preparing commented that the information provided was often too broad and not specific enough for the needs of their business. Businesses also wanted to know more information about the following topics:

what tariffs would be so they could evaluate their approach to pricing and work out what is affordable
what information they would need to provide intermediaries with and include on invoices
likely intermediary charges
how to prepare for potential delays to processing at ports
whether there would be regulatory alignment of product standards so they could sell in the EU

Other types of businesses also wanted to know what constituted adequate record-keeping, so that they could ensure they were compliant with this. They also wanted to know whether requirements were different for business-to-business and business-to-consumer transactions and recommendations for specialist software, if choosing not to use an intermediary.

4.4 Support requested by businesses

There was a strong desire for advice and guidance from HMRC, who businesses saw as a trusted source.

4.4.1 Nature of support from HMRC

There were 4 common themes in businesses’ requests for support. Businesses wanted support and guidance that was:

directive
tailored
concrete
plain English

In terms of receiving directive support and guidance, businesses said that they would prefer to be told exactly what to do to comply with new customs requirements, or at least be provided with a recommendation. They perceived that it would be too much effort to weigh up all the options, and some were concerned about the potential consequences of getting it wrong.

In terms of receiving tailored support and guidance, for similar reasons, businesses did not want to have to do the work of reading a large volume of information and determining which parts of the information were relevant. Businesses wanted to be channelled to the relevant information to minimise the need to read about processes that would not apply to them. For example, so that they could quickly determine that their goods could be sent using CN22 or CN23 forms.

Rest of the world traders said that they would welcome reassurance that processes for Great Britain and the EU would be similar to those they were already using with rest of the world trading. Businesses wanted HMRC to maximise the use of data already held about them and their trading patterns to tailor the information provided.

They also wanted to receive concrete support and guidance. Businesses found the existing guidance somewhat abstract. This made it harder to grasp in terms of its implications, and also meant it was harder for businesses to maintain engagement with the large volume of information. There was an appetite for step-by-step examples using common scenarios. Businesses also wanted to see worked examples of any forms that would need to be completed.

Businesses wanted guidance written in plain English. Smaller or EU only traders were unfamiliar with the requirements for importing and exporting and could find the number of specialist terms overwhelming. There was also potential for confusion between similar concepts (for example, Transitional Simplified Procedures and Customs Freight Simplified Procedures). It is therefore important to use plain English wherever possible, use consistent terms, and reduce the use of abbreviations and acronyms.

4.4.2 Suggested formats for support

Businesses suggested the following formats for support and guidance:

videos
tailored letters or emails
checklists
examples of declarations and other forms
interactive support
seminars or webinars

In terms of support and guidance in the form of videos, many businesses are used to receiving information in video format, for example online advice channels or from suppliers. They thought this would be an accessible way to walk through example scenarios and illustrate the new processes.

“There’s some great, quick, cartoony type stuff on YouTube that companies use to sell their business… It engages you in 2 minutes, 3 minutes.” (EU only trader)

In terms of tailored letters or emails which set out the steps businesses need to take to prepare, these could preferably be based on information HMRC already has. For example, that a business may trade in controlled goods and therefore need to make full declarations from January 2021.

Checklists could be used for the overall process of preparing for the end of the transition period, and as a guide which businesses could refer to when sending each shipment. Checklists could help businesses see at a glance what they need to do.

In terms of examples of declarations and other forms, these could enable businesses to know what information they will need to obtain and provide, and how much work completing the documentation is likely to require.

In terms of interactive support, this could take the form of web chat or a telephone helpline, with an opportunity to put specific questions to an adviser.

Finally, seminars or webinars would be another opportunity to talk through example scenarios, ask questions to an expert, and discuss options with other businesses.

Some businesses reported having received emails or attended webinars run by HMRC, but otherwise businesses we interviewed were not aware that some of these types of support (such as videos) were already available to some extent. For many businesses, this was because they had not yet pro-actively looked for information; some had plans to do this while others were expecting HMRC to contact them and make them aware of sources of support and guidance.

Question 6

5.  Future customs processes: response to new requirements

Accepted Answer

This section reports businesses’ views on how they would respond to changes in customs processes, including:

whether or not they would use an intermediary
whether they would make use of the staged introduction of changes (if possible)
what easements and facilitations businesses thought they might use
the concerns and challenges they foresaw relating to these changed processes

Many businesses had not considered their options for customs processes from 1 January 2021 in detail, and only began to do this over the course of the interview. As described in section 4.2, these businesses had not previously begun considering their options because of lack of capacity, lack of a sense of urgency, and a belief that requirements had not yet been finalised.

These businesses found it difficult to give detailed or specific answers in relation to some topics and commented that they would need more time to do further research and consider their options.

Once businesses began to engage with the topic, the points they wanted to find out more about were: what their obligations would be given their circumstances and trading patterns; how much of the process an intermediary could do for them; and what the cost of this would be compared to the resources needed to make declarations themselves.

“Do I have to do all this extra paperwork … for sending one simple item to one customer in France?” (EU and rest of the world trader)

Businesses that already traded with the rest of the world were confident that they could simply use their existing processes or instruct their intermediary to do so, although some businesses raised concerns that they might face increased charges for this service. However, some businesses only had experience of trading in one direction with rest of the world countries, but traded in the opposite direction (or both) with EU countries, so still needed to learn what this would involve and set up new processes.

5.1 Intention to use intermediaries

Many businesses already used an intermediary of some sort to move goods (including fast parcel operators, freight forwarders and hauliers ) and thought that they would either definitely ask their intermediary to make customs declarations on their behalf or enquire about this possibility. For many businesses, this was the first step they had taken or planned to take to prepare for changes to customs processes.

Some traders were inclined to make declarations themselves. This was due to a desire to minimise costs, a reluctance to rely on third parties, and a general ‘do-it-yourself’ mentality which they believed was characteristic of small businesses.

These businesses believed that the process would be simple once they had completed it a few times, and that the relevant software would be free, inexpensive or that they would be able to use accounting software that they already had which interacted with HMRC systems (advised by their software provider if necessary).

Over the course of the interview, as the requirements of making declarations became clearer (the need to be authorised by HMRC and obtain specialist software), some businesses became more inclined to use an intermediary to make declarations. The main drivers of changes of mind were the need to get specialist software, the realisation that the process could potentially be time-consuming, and the need for a specialist or expert to explain the process to them.

Some businesses objected on principle to being pushed into using an intermediary by the complexity of the process and believed the process should be made simple enough for businesses to undertake themselves. Businesses that did not already use specialist software for making declarations were reluctant to spend money on this and thought that a free version should be made available by HMRC to support businesses to comply.

One business had predicted that this would happen and therefore felt more confident about making declarations themselves, although they shifted their view over the course of the interview. Some businesses wanted to make declarations themselves longer-term but wanted to use an intermediary initially, as a way to ensure peace of mind and avoid costly mistakes by delegating to an organisation with more expertise.

“From a company point of view, we are more likely to pay a bit extra… and get it done correctly rather than risk any fines further down the line… if somebody can take off the pressure of the paperwork and making sure everything is as it should be then I think it is worth paying for.” (EU only trader)

Many businesses were unsure of what intermediaries would charge for this service and felt unable to judge this without further research. There was also a theme of uncertainty about the extent to which intermediaries could entirely take on the process of making declarations and what businesses would require them to do. Few businesses raised concerns about intermediaries’ capacity, assuming that intermediaries would be happy to have increased business.

5.1.1 Fast parcel operator users

Many fast parcel operator users expected the fast parcel operator they used to deal with declarations for them or to provide a solution, although they had not necessarily checked that this would be the case.

Others had planned to research this by going to the Post Office, speaking to their fast parcel operator, or looking for information on the fast parcel operator’s website, with the latter option being most common. However, typically the fast parcel operator users we interviewed were more likely than users of other intermediaries to have not taken any action yet to prepare.

“At the end of the day [fast parcel operator] will want to try to keep our business. The chances are they will already be looking at something, to take the burden off us.” (EU only trader)

Fast parcel operator users found it difficult to predict costs because they were not sure of the cost breakdown in the fee they were charged by the fast parcel operator (for example, how much related to transportation and storage versus administration) and therefore how this might change in future. Some commented that they had no option other than to pass this increase in fees on to their customers and then wait to see whether customers would be willing to pay.

Several of the smaller businesses we spoke to traded goods that were always or nearly always below £900 in value. These businesses were planning to make use of the CN22 form and therefore perceived that much of the information they were given to read before their interview for this research about changes to declarations did not apply to them.

The exception for lower value shipments was very important information to these smaller traders, and they expressed relief upon learning about it. A small number of businesses commented that they would split orders in future to ensure that the value of consignments was always below £900.

“Shout about [the £900 threshold] to small businesses, because a lot of people will get panicked and if it doesn’t relate to us, we don’t need to panic about it. That is key information.” (EU and rest of the world trader)

5.2 Response to staged processes for imports

Most businesses moving goods from the EU to the UK had not been aware that the post-transition processes would be implemented in stages. Initial reactions to this were generally positive, although there were different attitudes to making use of the staged process.

Some businesses were planning to make use of the staged process, commenting that this would help them with their cash flow and give them more time to learn about the new systems and processes, observe the experience of other businesses, and set up their systems. This was not necessarily because they had not yet begun preparations – indeed, some of the better informed participants were keen to have more time to get used to the upcoming changes having learned about what they would involve.

Other businesses did not think they would make use of the staged process, preferring to get everything in place for January and “get it out of the way”. These businesses had a general concern about the risk of getting into difficulty by deferring payments and wanted to avoid this. However, like the first group, they also appreciated having a ‘grace period’ during which declarations would not be mandatory, in case they made mistakes.

There did not seem to be a pattern in terms of which option businesses were likely to prefer; with both rest of the world and EU traders indicating they wanted to adopt this approach.

5.3 Safety and security declarations

There was a very common misconception that safety and security declarations, which provide advance data on consignments to customs authorities for risk analysis, would only be needed for controlled or ‘hazardous’ goods; this may be a result of participants’ limited engagement with the information provided.

Although most businesses were confident that the goods they traded would not fall into the controlled goods category, some were unsure (for example, businesses that used feathers in their products or that traded in chemicals).

When clarified, participants often assumed the safety and security declaration would be the responsibility of the courier or haulier, or of the supplier, sometimes because the required information was something those parties would be better placed to provide (for example, the route the goods had taken). However, participants had not taken steps to check this.

“I’m sure my freight company will do that and sign the S&S [safety and security declarations], even though they won’t be able to look at the goods because they are all sealed up… I won’t know what my supplier has done to the goods since I saw them in the factory.” (EU only trader)

Businesses found it difficult to envisage what the declaration would look like and wanted to know whether it would be a separate, additional form or a simple tick-box on the import declaration.

5.4 Duty Deferment Accounts

Duty Deferment Accounts allow authorised traders to pay customs charges once a month through direct debit rather than on individual consignments. In general, businesses had limited awareness of Duty Deferment Accounts and how they worked before taking part in the research. Upon learning about them, businesses were generally positive about the option of applying for a Duty Deferment Account and thought that they would take advantage of this option to simplify their payments.

Most businesses wanted to set up their own Duty Deferment account to keep costs down and expected this process to take around 2 to 3 weeks. Some businesses thought it could be more appropriate to use their intermediary’s Duty Deferment Account, in order to rely on their expertise, and had planned to discuss this further with their intermediary .

Some businesses were in the process of applying for a Duty Deferment Account, having been made aware of this possibility by HMRC emails or conversations with business contacts. These businesses tended to make frequent, small shipments. One business commented that they had set up a Duty Deferment Account the previous year but had not been given an explanation of how to use it and wanted to receive more information about this.

5.5 Export declarations

The exporters we interviewed often had experience of sending goods to rest of the world countries and anticipated that the process for making export declarations to EU countries would be similar. Exporters who used fast parcel operators typically predicted that the fast parcel operator would manage changes to processes and that there would be little change in what was required of them as the exporter.

EU only exporters who did not use fast parcel operators had more concerns; these businesses commented that they would look into using an intermediary, with some raising the possibility that the requirement to make declarations would lead them to avoid exporting to the EU in future (see 5.7 below).

Although some exporters were surprised by the steps they would need to take to make declarations (such as the need for specialist software), the fact that the changes come into full effect from January was not a surprise; this reflected low levels of awareness that the post-transition processes would be implemented in stages for importing.

5.6 Concerns and challenges

For many businesses, other impacts related to the UK’s transition out of the EU had dominated their thinking, and concerns related to customs processes were a lower priority.

The most pressing of these wider concerns were the possibility of goods being subject to long delays at the border, and changes to tariffs making their prices uncompetitive (although the increased cost of customs processes exacerbated this issue). Some businesses were also worried about the value of the pound or the alignment of product regulations.

“Our customers won’t commit because they don’t know what’s happening.” (EU and rest of the world trader)

Larger traders and rest of the world traders seemed more likely to have concerns about customs processes than smaller or EU only traders, typically because they had more awareness of the potential complexity involved. Traders that didn’t have concerns were confident that it would be “simple once you get used to it”, that changes would be fairly minor, or that someone else (their accountant or intermediary) would take care of it all for them.

Some participants were able to recall trading with Europe before the UK joined the EU and believed that processes would revert back to something comparable to those in place previously, which they remembered as being relatively manageable.

Businesses’ concerns which specifically related to changes to customs processing included:

being unable to estimate the costs of new customs processes at the time, whether this was the cost of intermediaries making declarations on their behalf, or the costs of making declarations themselves in terms of staff time, software and training (both to use the software and in customs processes more generally)
having to pass these costs onto customers, or reducing their profit margins
the process of making customs declarations and checks leading to longer delivery times
concern that advice from HMRC may change due to the changing nature of the situation, which was linked to the misconception surrounding the impact of EU negotiations

5.7 Businesses considering taking steps to avoid new customs requirements

Some businesses commented that if changes to customs processes created too many delays or costs, they would cease trading with the EU altogether. This was naturally more likely to be an option for businesses where international trade made up only a relatively small proportion of their business, or for businesses that had been considering closing down (or winding up that part of the business) due to other factors, whether related to the end of the transition period, COVID-19, or other factors such as retirement.

Other options being considered by businesses in response to the changing requirements included requiring the buyers of their goods to arrange customs processing themselves, and moving activity to the EU. However, the feasibility of these options depended on the relationship they had with buyers and whether they already had a presence in Europe, respectively.

Question 7

6.  Case studies

Accepted Answer

This section presents case studies of 4 of the businesses interviewed for this research. Businesses have been chosen to represent a range of circumstances.

6.1 The antique dealer

EU only, export only, sole trader, not VAT registered

This participant exported antiques to several EU countries, which made up at least 50% of their sales. Their customers were a mixture of retailers and individuals buying on eBay. Sales increased during the COVID-19 pandemic due to people spending more time online.

They use fast parcel operators for smaller items and couriers for furniture, and had had no problems with customs in the past as the fast parcel operators and couriers dealt with anything needed.

“There’s a big difference in taking stuff out in a Sprinter van, you’ll just drive straight through. If you put it on a freight lorry, it is a different scenario, there’s more involvement with customs. But basically, it’s open borders”

The participant remembered exporting to Europe pre-EU as “horrendous” and had avoided looking into customs changes because they feared they would revert to something similar. Upon first reading the Border Operating Model summary they were concerned that this would be the case:

“It is what I feared, huge costs, delays. I will not be exporting. I will change my entire business model. It’s going to be so involved that I think it is going to be economically better for us to continue selling but take no part in the shipping”

However, the participant became more positive during the interview, realising that they could continue to use fast parcel operators for lower-value goods and other intermediaries for higher-value goods. They planned to make use of the eBay global shipping programme more in future, although commented that this would be expensive.

“If I am going to continue to do the amount of business I do in Europe, I am going to have to get an intermediary. I have no choice. I’m not capable enough to do it myself and HMRC are not very forgiving of mistakes”

The participant was surprised to learn that changes would come into effect as early as January 2021 and realised that they needed to act sooner than planned to get ready.

“I thought there would be a longer transition period. That’s looming, I was quite shocked when I saw that date. I will start within the next 2 weeks”

The participant received email updates from HMRC but could not recall seeing any information about exporting. In terms of support needs, they wanted information tailored to the size of their business, such as an indication of what they might expect the cost of an intermediary to be. The participant would welcome a helpline or email service where they could discuss their particular circumstances and receive tailored advice.

6.2 The industrial machinery manufacturer

EU only, import only, micro business, VAT registered

This business manufactured industrial machinery. They had 2 major customers, one in the UK and one in the EU, with several smaller customers in the UK, and also imported from 3 to 4 EU suppliers on a monthly basis. The EU suppliers arranged for the transport of goods, both into the UK and directly to the business’ EU customer (so that goods were not coming into the UK and then back out). This meant that the participant has had little involvement with customs processes at the time of the research.

The business had been virtually closed down for the 4 months prior to the research. This was due to the inability to get supplies from EU suppliers because of COVID-19 measures. They commented that they will be lucky to break even in 2020, having made a substantial profit the previous year.

The participant was aware of “most of” the information provided in the Border Operating Model summary. They had registered for an Economic Operators Registration and Identification number at the beginning of 2020 and arranged for a freight forwarder (that had been recommended to them) to deal with customs clearance.

This freight forwarder had recently provided the business with a document summarising changes to customs processes in the event of ‘no deal’, but the participant had not yet been able to read this and interpret what it would mean for the business. However, they commented that the freight forwarder themselves seemed uncertain of the details of changes.

“They are totally in the dark as regards all the detail. Everybody is at the moment. It is very vague. They will do the paperwork for us, but they need a bit more meat on the bones before they can fully go ahead”

The participant had not been aware of Customs Freight Simplified Procedures but was interested in using it if eligible and planned to check this with the freight forwarder. They had not been aware of Duty Deferment Accounts and were unsure of whether it would be worth having one, commenting that they had a general preference to make payments they owed sooner rather than later.

Initially, the participant thought that safety and security declarations would not apply to their type of goods. When provided with an explanation, they commented that they would ask the supplier to complete a checklist and then pass this on to the freight forwarder. The participant was also unclear about the relevance of tariffs; they initially believed they would only apply to controlled goods and were concerned to learn that this would not be the case.

“Surely the tariff would be the VAT wouldn’t it? … If they started charging tariffs [as well] I think I would give up and go home”

This participant’s main questions were around how they would account and pay for VAT in future, and they had asked their accountant to look into this. They also wanted to know more about how changes to VAT might affect their pricing. They emphasised the need for information to be provided concisely and in a bullet point format for clarity.

6.3 The electronic equipment manufacturer

EU and rest of the world, import and export, small business, VAT registered

This business designed and manufactured consumer electronics. The majority of their sales were overseas, with a quarter from the EU. They relied on factories in the EU to supply the parts required since suppliers in the UK were unable to undertake the required processes.

The business closed for a month due to COVID-19 but was, at the time of interviewing, back to full capacity with orders maintained. They had experienced some difficulties due to carriers raising their prices and customs hold-ups in the USA, which they attributed to COVID-19.

This participant felt well-prepared for changes to customs processes. For importing and exporting the business used either a freight forwarder or fast parcel operators depending on the size of the shipment. They had well-established relationships with these intermediaries and the intermediaries always dealt with customs processes.

“Freight forwarders will be doing the paperwork, as they do now from Japan and the US and China. It’s a bit of a pain, but if there’s an increase in cost in terms of duty and so on, of course that will affect our competitiveness certainly in the longer term, but initially I think it’s not going to have a massive influence”

They found the processes for exporting to the EU and the rest of the world very similar already, apart from the VAT codes being different. They had applied for Authorised Economic Operator certification and were awaiting the outcome of this.

The business had not planned to make use of the staged process and hoped to continue importing everything under the same conditions they were already using, with declarations made on the goods as they come in. They used their intermediary’s Duty Deferment Account but were in the process of setting up their own, as they received a high volume of small shipments, and were beginning to see intermediaries increasing the cost of deferments.

This business was more concerned about other issues relating to the end of the transition period, such as regulatory alignment and disruption to supply chains. They had stocked up on a year’s supply of parts to avoid disruption caused by delays at ports.

“Really what it comes down to for us is whether there is a deal that includes regulatory alignment on electrical safety and material safety, and if there is then we are fine. If we have to pay a 5% duty going into the EU it’s going to make no material difference to us in terms of sales. If we are not part of the regulatory alignment then that’s a whole different ballgame.”

The business also wanted reassurance that IT infrastructure would be able to cope with the increased volume of declarations being made.

6.4 The wine merchant

EU and rest of the world, import only, small business, VAT registered

This business was a wine merchant, supplying primarily pubs, hotels and restaurants. During the pandemic their business clients closed, and although online sales to individuals increased, their profits were down and trading was at about 60% of normal levels, having been as low as 20% at one point.

They imported 60% of wines from the EU, either directly from suppliers on a weekly basis, or via other importers. When importing wines from the rest of the world they used a specialist freight forwarder who acted as their customs agent and found that process fairly straightforward.

“We send an email to our supplier with an order, they prepare the order and the freight forwarder collects it … The freight forwarder acts as our customs agent, they do everything, complete all the declarations. I am aware there is a lot of paperwork but don’t know much detail as I’m not involved day to day. The goods come into a bonded warehouse or directly to us and duties are put onto a duty deferment account, we then get a monthly statement.”

The participant believed that they were broadly aware of everything in the Border Operating Model summary provided and that they had prepared as much as possible. They had a close relationship with a trade body who had kept them informed.

The business already had an Economic Operators Registration and Identification number, which they applied for when preparing for a previous EU Exit date and were already using their intermediary’s Duty Deferment Account. However, they commented that they were awaiting the outcome of EU negotiations before finalising their plans.

“No-one knows what the final outcome is and if you put too much work into something that changes it’s a waste of time.”

For example, when importing wines from outside the EU the business is required to complete a VI1 form (also known as a ‘chemical passport’) which requires the wine to be tested in a laboratory. The participant was unsure whether this would be required for wines of EU origin in future and was concerned that could become expensive, as they trade in small volumes of fine wine and would need to open a bottle of each kind for testing.

The participant was not aware that they would be unable to make use of Staged Customs Controls, but thought they would probably not need to do this, as they were already “half-way there” due to their experience of trading in controlled goods and could adapt their existing processes for trading with the rest of the world. They were only vaguely aware of safety and security declarations and assumed these were linked with the VI1 form, and that requirements would be aligned with rest of the world processes.

Overall, this participant felt well-prepared due to being in a controlled goods sector with more stringent requirements and receiving trusted advice from their freight forwarder and trade body. However, they were worried about delays at borders and disruption to supply chains.