Weekly tax brief

Brexit: will you need a bank guarantee to defer customs charges in 2021?

03 November 2020

HMRC has launched its online application portal for duty deferment accounts, which will be required by most businesses importing goods from the EU when a hard customs border is put in place between the UK and the EU on 1 January 2021.

A duty deferment account allows regular importers to pay customs duty and import VAT on account, instead of paying for individual consignments as they arrive in the UK. Payment is made by direct debit on the fifteenth day of the month following the calendar month in which the goods were imported. This provides an important cash flow saving for businesses engaged in international trade.

By approving a duty deferment account, HMRC effectively gives importers up to six weeks credit to pay their customs charges, so a guarantee from an approved bank, building society or insurance company is currently required as security. This can be expensive and brings additional administration and compliance costs for businesses.

Most traders who regularly import goods from outside the EU will already have a deferment account in place which they should be able to use this for imports from the EU after the Brexit transition period ends. They may need to ask HMRC to raise the guarantee limit on the existing account if their level of imports will increase significantly when EU imports are added to the total after 1 January 2021.

Those who have so far only imported goods from within the EU, and so will be dealing with customs charges for the first time, are now invited to apply for a new duty deferment account via HMRC’s portal via this page on gov.uk: Apply for an account to defer duty payments.

HMRC has announced more relaxed guarantee rules to help importers cope with the changes brought by Brexit. Traders whose deferred customs duty is below £10,000 per month will not normally need a guarantee, although those who do not file accounts at Companies House, or file consolidated accounts, will need to provide HMRC with additional information about their financial standing when applying for a duty deferment account.

Those whose customs charges will exceed £10,000 a month must either apply for a guarantee waiver or obtain a guarantee from an approved guarantor. To qualify for a waiver, importers must demonstrate to HMRC that they have positive net assets (excluding goodwill) greater than the value of the waiver they are applying for at the date of their application and at their most recent balance sheet date. If these assets are less than the value of the waiver applied for, but the importer meets the other approval conditions, they can either provide a partial guarantee to cover the shortfall or accept a reduced deferral limit.

Importers that are already approved under the Authorised Economic Operator accreditation scheme do not require a guarantee so do not need to apply to HMRC.

HMRC’s decision to place the dividing line at £10,000 means that its simplified duty deferment regime will only apply to small and/or less frequent importers, so most regular importers will need to provide detailed financial information to HMRC or obtain a guarantee to support their imports after 1 January 2021.

With less than two months to go before the end of the Brexit transition period, now is the time to make your application. Businesses should begin the process by:

  • reviewing the expected level of customs charges on imports after 1 January 2021 to confirm what credit limit you will need on their deferment account;
  • gathering the information HMRC will require to raise your deferment limit or process your application for a new deferment account; and
  • considering whether a new or raised guarantee will be required and, if so, approach an approved guarantor to enquire about the costs.
Sarah Halsted
Sarah Halsted
Technical Associate Director
Sarah Halsted
Sarah Halsted
Technical Associate Director