- HM Revenue & Customs
- Part of:
- Import and export procedures and International freight industry and businesses making customs declarations
- First published:
- 6 August 2012
- Last updated:
- 21 July 2016, see all updates
Obtaining duty relief when importing goods for processing and subsequent re-export.
You can use Inward Processing (IP) to get relief from customs duty and import VAT on goods that are imported from outside the EU to be processed, and then exported outside the EU or released for free circulation in the EU. Excise duty is also suspended when goods are entered into IP.
If your business is based in an EU country you can use IP, subject to authorisation by HM Revenue and Customs (HMRC). Non-EU bodies can only use IP for non-commercial imports.
You’ll have to pay duties once the goods have been processed if they’re released into free circulation. The duties you’ll pay can be based on the value of the goods at import, or the value of the final product – see Articles 85 and 86(3) of the Union Customs Code.
Conditions apply to using IP. You can’t issue any documents showing the status of the foods as T2 or free circulation, or any preference certificates unless specifically allowed under preference rules. You also need to send a Bill of Discharge to your supervising office within 30 days of the end of your agreed processing period.
In order to be eligible for duty relief under IP you need to be authorised.
Use full authorisation if you’re a regular user of IP. You should apply at least one month before importing using form SP3.
Authorisation by declaration
Authorisation by declaration is suited to traders importing goods occasionally to IP and carrying out all processing in the UK. You should only use this method if you intend to import no more than 3 times in a calendar year.
It lets you enter goods into IP without making a prior application for authorisation. You use the relevant customs procedure codes on your customs declaration (form C88) and place indicators in box 44. You’ll also need to complete a Bill of Discharge for each entry.
You can’t use an authorisation by declaration to import goods listed under chapter 93 and chapter 97 of the Trade Tariff, or over £500,000 in value.
Authorisation involving more than one member state
If your goods are to be processed in more than one EU member state, by one or more businesses, you need to apply for authorisation involving more than one member state. You should apply at least 2 months before importing and your application must be considered in each member state where processing will take place.
Please note: authorisation involving more than one member state should be applied for using form annex 12 ‘Import and export: Authorise a customs procedure’. This is available from your authorisation office:
- Inward Processing, Temporary Admission, End Use, Customs Warehousing e-mail: email@example.com
- Outward Processing e-mail: firstname.lastname@example.org
You can apply for retrospective authorisation up to a year after you import or receive the goods, but these requests must be exceptional and you’ll need to show why you couldn’t apply at the time.
You can only apply for retrospective authorisation once in a 3 year period.
You can’t retrospectively apply for authorisation by declaration.
Responsibility of authorisation holders
The authorisation holder is responsible for all duties on the goods, even if they don’t own them. You need to make your own financial arrangements with other suppliers, customers and processors involved.
Conditions and requirements
You’ll need to consider a number of things when you apply of IP authorisation.
The throughput period is the time you’ll need to process the goods – from the date you import or receive them to the date that you dispose of them. This period shouldn’t exceed a year, although there are some exceptions.
If you’re using authorisation by declaration the standard throughput period is 6 months. If you’ll need longer than this then you should write to the National Import Relief Unit (NIRU) when you make your import declaration.
Processed products are the products that result from your processing operations. You have to identify the processed products you’ll end up with when you make your application for IP authorisation.
You need to distinguish between your main products and your secondary products. Anything that is produced as a necessary by-product of making your main products must be counted as a secondary product.
Rate of yield
Rate of yield is a measure of how many IP imports you need to produce your processed products. You need to specify this in your application.
If your application covers more than one processing operation you’ll have to give the rate of yield for each one separately.
The economic test
The economic test applies to specific goods. In order to get IP authorisation on these goods you’ll need to provide evidence showing why you can’t use EU-produced goods instead. The full list of goods is in Annex 71-02 of the Commission Delegated Regulation 2015/2446.
You must keep records of all goods you enter into IP for at least 4 years after their export or disposal. Your records must show:
- the nature and quantity of the goods
- when and where the goods entered into IP
- where the goods have been held
- when and where the goods were exported or disposed of
- what processing was carried out on the goods and where it took place
- how the IP goods can be identified in the processed products
- production data showing your rate of yield
Additional rules for specific goods
Most of the administration of using IP is dealt with when you complete form C88.
There are additional factors for certain special cases, including:
- goods subject to preference import licensing – preference can’t be claimed when goods are entered into IP, only if they’re released to free circulation
- ozone-depleting goods – contact the Import and exports: general enquiries helpline as some of these goods can’t be entered into IP
- firearms, ammunition and nuclear material – there can only be entered into IP after an import licence has been obtained from the Department for Business, Innovation and Skills
The equivalence procedure lets you use identical free circulation goods instead of IP goods for processing and re-export. This means you can hold both IP and free circulation goods in common stock without having to distinguish which specific goods have been entered into IP.
Equivalence can’t be used when goods are subject to Anti-Dumping Duty.
When using the equivalence procedure:
- you must supply evidence to show that free circulation and IP goods are exactly the same
- you need prior authorisation – so it can’t be used with authorisation by declaration
- if any of your imported goods aren’t subsequently re-exported, it can’t be because your customers have differentiated between your UP and free circulation goods
- if you’ve applied for IP on the basis that the goods you need are unavailable in the EU, you can’t use equivalence on EU-produced goods
There are 2 variations on the equivalence procedures. These are:
- prior export equivalence – allows you to export processed products made from the processing of equivalent free circulation goods before you import your IP goods
- prior import equivalence – allows you to release import goods to free circulation without the need for duty to be paid, on the basis that equivalent goods will be exported subsequently
Moving IP goods
You can move goods entered into IP between IP authorisation holders, as long as the authorisation holder receiving the goods has approval to do so.
Your records must identify the location of the goods at all times. If you transfer your rights and obligations (TORO) this does not discharge your liability. You must get approval from your HMRC authorising office before you use TORO.
Exporting and disposing of IP goods
Your liability for suspended duty on IP goods ends when the goods or exported or otherwise disposed of. Eligible disposals include:
- exporting directly outside the EU – this can be done using a full declaration with form C88, or using simplified declaration procedures
- exporting outside the EU through another member state – copy 3 of the C88 must be endorsed by UK customs and sent with the goods to be presented when they are being cleared for exit from the EU
- placing the goods to free circulation
- moving goods to another customs procedure
- moving goods to another IP authorisation holder
- destruction - under IP suspension this may only be possible under customs’ supervision
Other forms of discharge include export by sea outside of territorial waters, sale to customers who take goods out of the country in their baggage, and supply to duty-free shops.
You need to complete forms in order to formerly discharge your liability for suspended duty. For authorisation by declaration use a Bill of Discharge form BOD3 and send it to NIRU. For all other authorisations, use form BOD1 and send it to your HMRC authorising office.
Placing goods to the EU market
If you receive goods you received from another member state, your supplier should provide you with a form INF 1 outlining how much duty has been suspended and needs to be paid.
Other IP procedures
In some circumstances you will have to follow different IP procedures.
IP for goods in customs warehouses
When carrying out IP operations in these premises, the goods remain physically in the customs warehouse but your records must show they’re under IP procedures.
IP for aircraft construction and repair
Special simplified IP procedures are available to businesses involved in aircraft construction and repair, or in manufacturing civil aircraft parts, satellites and ground-station equipment.
IP and tax-free shopping
Like all member states, the UK operates a system whereby goods sold by retailers for personal export outside the EU can be zero-rated for VAT. This is called the VAT Retail Export Scheme (RES).
Retailers who use RES can also apply for duty relief under IP for goods that were imported from a non-EU source before being sold for personal export back outside the EU. You can apply using form SP3.
How to get help
You can contact the Imports and exports: general enquiries helpline for general customs related queries.
For help with authorisation by declaration you should contact NIRU.
Queries about your own IP authorisation should be directed to your HMRC authorising office – shown in your authorisation.
You can find more information about IP in Special Procedures Notice 3001.
Published: 6 August 2012
Updated: 21 July 2016
- Authorisation involving more than one member state has been updated to show additional e-mail contact information.
- Added links to new forms BOD1 and BOD3 (Bill of Discharge forms).
- This guide has been amended to include numerous changes following the introduction of the Union Customs Code (UCC). The guide has also been substantially rewritten to improve style and readability.
- Fixing references to specialist guides
- First published.
From: HM Revenue & Customs