Importing goods into the UK

There are special procedures for importing goods into the UK. Following the end of the Brexit transition period, the process for importing goods from the EU effectively mirrors the process for all other international destinations.

Businesses, especially those that only trade with EU, should be aware of the rules and be working accordingly. Businesses can make customs declarations themselves or hire a third party such as a courier, freight forwarder or customs agent to do the paperwork.

HMRC lists the following eleven-steps that should be considered when importing goods:

  1. Check if you need to follow this process. The steps listed below apply if you are moving goods permanently to England, Wales or Scotland (Great Britain) from a country outside the UK or to Northern Ireland from a country outside the UK and the EU. There are different rules for goods that move between Great Britain and Northern Ireland or between Northern Ireland and the EU. 
  2. Get your business ready to import. This includes ensuring you have an Economic Operator Registration and Identification (EORI) number. You also need to check that the business sending you the goods can export to the UK.
  3. Decide who will make custom declarations and transport the goods.
  4. Find out the commodity code for your goods.
  5. Find out if you can delay or reduce your duty payment.
  6. Check if you need a licence or certificate for your goods.
  7. Check the labelling, marking and marketing rules.
  8. Get your goods through customs.
  9. Claim a VAT refund.
  10. What to do if you paid the wrong amount of duty or rejected the goods
  11. Keep invoices and records.

Keeping self-employed tax records

If you are self-employed as a sole trader or as a partner in a business partnership, then you must keep suitable business records as well as separate personal records of your income. 

For tax purposes, the business records must be held for at least 5 years from the 31 January submission deadline for the relevant tax year. For example, for the 2019-20 tax year where online filing was due by 31 January 2021, you must keep your records until at least the end of January 2026. In certain situations, such as when a return is submitted late, the records must be held for longer. 

If you are self-employed you should also keep a record of:

  • all sales and income
  • all business expenses
  • VAT records if you’re registered for VAT
  • PAYE records if you employ people
  • records about your personal income
  • grant details if you claimed through the Self-Employment Income Support Scheme because of coronavirus

You don't need to keep the vast majority of your records in their original form. If you prefer, you can keep a copy of most of them in an alternative format, as long as they can be recovered in a readable and uncorrupted format. For example, a scanned PDF document. 

If your records are no longer available for any reason, you must try and recreate them letting HMRC know if the figures are estimated or provisional. There are penalties for failing to keep proper records or for keeping inaccurate records. 

Small trading tax exemption for charities

The tax treatment of charities can be complex. Many charities trade either as part of their charitable interests or to raise funds. As a first step, any charity hoping to benefit from any beneficial tax treatment needs to be recognised as a charity for UK tax purposes by HMRC as well as meeting other criteria.

A charity will not pay tax on profits it makes from trade if:

  • they are making money to help their charity’s aims and objectives, known as ‘primary purpose trading’
  • their level of trade that is not primary purpose falls below the charity’s small trading tax exemption limit
  • they trade through a subsidiary trading company

The charity must pay tax on any other profits.

The small trading tax exemption limits are as follows:

Charity’s gross annual income Maximum permitted small trading turnover
Under £32,000 £8,000
£32,001 to £320,000 25% of your charity’s total annual turnover
Over £320,000 £80,000

If the charity’s small trading turnover is higher than the exemption limits, then they are required to pay tax on all of their profits from that trade.

HMRC’s new penalty regime

HMRC’s new points-based penalty regime for late submission and payment will start from 1 April 2022. The changes will apply in the first instance to the submission of VAT returns for VAT return periods beginning on or after 1 April 2022. 

The penalty regime will then be extended to Making Tax Digital (MTD) Income Tax Self-Assessment (ITSA) accounting periods beginning on or after 6 April 2023. This will be in tandem with the extension of MTD (from the same date) for taxpayers with business or property income over £10,000 annually. The penalty scheme will be extended to all other ITSA taxpayers for accounting periods beginning on or after for 6 April 2024.

Under the new regime, taxpayers will incur a penalty point for each missed submission deadline. At a certain threshold of points, a financial penalty of £200 will be charged and the taxpayer will be notified. The threshold varies depending on the required submission frequency (monthly, quarterly, annual). The penalty points will apply separately to VAT and ITSA. The penalty points will be reset to zero following a period of compliance by the taxpayer. There are also time limits after which a point cannot be levied. 

In addition, the new system will see the introduction of two new late payment penalties. A first penalty of 2% of the unpaid tax that remains outstanding 15 days after the due date. The penalty increases to 4% of any tax still outstanding after 30 days. An additional or second penalty at a penalty rate of 4% per annum will accrue on a daily basis after 30 days. This additional penalty will stop accruing when the taxpayer pays the tax that is due.

There will be an appeals mechanism for both the late submission and late payment penalties available through an internal HMRC review process and an appeal to the First Tier Tax Tribunal.

Website development costs

One of the main areas to consider in deciding how to treat a deductible expense is whether the cost is revenue or capital in nature. There is no single, simple test that can be applied to decide which items are capital expenditure and which are revenue. This can only be determined by reference to the relevant facts that applied at the time the expenditure was incurred. Capital expenditure cannot be deducted in computing profits, however there are separate reliefs for some capital expenditure.

How would this capital/revenue split apply to the costs of setting up a website?

HMRC's internal guidance says that the costs of bringing an asset into existence or that has an enduring benefit to the trade are capital. Therefore, the regular update costs of the site are likely to be revenue expenses and the original cost of creation, capital.

HMRC’s manuals go on to state an interesting view that, 'the cost of a web site is analogous to that of a shop window. The cost of constructing the window is capital; the cost of changing the display from time to time is revenue'.

Archiving international trade documents

There are important rules that all businesses must follow to keep business and accounting records accessible if requested by HMRC. The exact documentation that must be held and the time limits for doing so can vary significantly. For example, most company records must be held for at least 6 years from the end of the last company financial year they relate to and even longer in some circumstances. Significant penalties can be imposed for failing to keep records or if records are inadequate.

These record keeping requirement include international trade documents.

HMRC publishes specific guidance concerning archiving international trade documents. This includes ensuring that your records are up to date and accurate, are legible, readily accessible and available for inspection at all reasonable times.

HRMC’s guidance states that the archiving period for your records will vary according to the individual procedure. However, in the event of a criminal investigation, traders’ records dating back ten years may be used as evidence. Accordingly, you may decide to retain documents for that length of time. After the date of entry, you can keep your records on a computer.

If these record keeping requirements cause storage issues or undue expense, then HMRC may allow you to reduce the length of time for storing documents.

Simplified export declarations

Following the end of the Brexit transition period, businesses need to make customs declarations when exporting goods to the EU as well as to the rest of the world. Businesses can make customs declarations themselves or hire a third party such as a courier, freight forwarder or customs agent.

Businesses can use simplified export declarations to help export most goods. The use of simplified export declarations allows businesses to export goods out of the UK by providing basic details to HMRC. This is usually done electronically. Once the goods for export are cleared, they can then be exported without needing to present any supporting documents.

To use simplified declarations for exports, authorisation is required from HMRC. If you are thinking of applying you need to:

  • have a good customs compliance record, including VAT returns and duty deferments
  • have a regular pattern of customs declarations against their Economic Operator Registration Identification (EORI) number
  • show how they will record all declarations for no less than four years after their submission date
  • have access to the Customs Handling of Import and Export Freight (CHIEF) system. The Customs Declaration Service will eventually replace CHIEF.

Businesses are still required to complete a more detailed customs declaration known as a supplementary declaration, but this can be done at a later point in time.

Tax and duties for goods sent from abroad

Following the end of the Brexit transition period new rules regarding tax and duty apply to goods sent to the UK from the EU. These changes are to ensure that goods from EU and non-EU countries are treated in the same way and that UK businesses are not disadvantaged by competition from VAT free imports. 

For goods sold directly to customers in the UK from overseas with a value of £135 or less (which aligns with the threshold for customs duty liability) the point at which VAT is collected has moved from the point of importation to the point of sale. 

Online marketplaces that are involved in facilitating the sale are responsible for collecting and accounting for the VAT. Business to business sales not exceeding £135 in value will also be subject to the new rules, but VAT can be accounted for by way of the reverse charge process.

In addition, from 1 January 2021, low value consignment relief (LVCR), which was an import VAT exemption for goods valued at £15 or less, has been removed. 

Normal VAT and customs rules on consignments valued at more than £135 will apply on the import of goods into Great Britain from outside the UK or into Northern Ireland from outside the UK and EU.

There are different rules if you sell goods to Northern Ireland from the EU or move goods between Northern Ireland and the EU.

Could the Trader Support Service help your business?

The new Trader Support Service has been designed to help businesses moving goods under the Northern Ireland Protocol from 1 January 2021, after the Brexit transition period comes to an end. There will be changes in moving goods between Great Britain and Northern Ireland whether or not a Free Trade Deal is reached.

If your business is moving goods between Great Britain and Northern Ireland or bringing goods into Northern Ireland from outside the UK then you need to be prepared. It is vitally important that you consider how you will move goods in and out of Northern Ireland after 1 January 2021. Under the Northern Ireland Protocol, all Northern Ireland businesses will continue to have unfettered access to the whole UK market. 

Since the Trader Support Service, backed by up to £200 million of UK government funding, was launched more than 7,000 businesses have signed up. A new contact centre has also been opened to support businesses with the registration process. 

The Trader Support Service:

  • will complete digital processes on behalf of all businesses moving goods into Northern Ireland under the Northern Ireland Protocol;
  • remove the need to purchase specialist software;
  • saves traders significant time in completing declarations;
  • reduces traders’ declaration costs as the service is free-to-use.

Businesses who sign up for the service will receive full guidance and support on the next steps to take as the 1 January 2021 approaches. This includes online training sessions and webinars to help give businesses the skills and expertise they need to ensure their Great Britain / Northern Ireland trade continues to operate smoothly.

Registration of partnerships with HMRC

A Partnership is a relatively simple way for two or more persons (or legal entities) to set up and run a business together with a view to profit. Partnerships can take many forms. Legal persons other than individuals can also be partners in a partnership.

There are two main types of partnership, a conventional one with two or more partners in the business. There is also a limited liability partnership or LLP, this more complex structure provides partners with the protection of limited liability, as afforded by a limited company.

In order to register a partnership with HMRC, the following forms need to be completed (where applicable):

  • Form SA400 – Registering a partnership for Self-Assessment
  • Form SA401 – Registering a partner for Self-Assessment and Class 2 NICs
  • Form SA402 – Registering a limited company, trust or another partnership as a partner

The registration forms should be filed with HMRC within six months of the end of the tax year the partnership commenced.

LLP’s are automatically registered with HMRC upon registering with Companies House, which is mandatory for these types of partnership. This means that there is no need to need to submit Form SA400. However, it is important that details of the partners are filed with HMRC using Forms SA401 and/or SA402.

HMRC should also be notified when new partners join an existing partnership, using forms SA401 or SA402.