The UK government has issued updated guidance on the Rules of Origin (RoO) criteria that apply to exports from the UK to the EU. RoO are a set of trade rules. Under specified circumstances, the rules allow for zero tariffs on trade between the UK and EU.
The updated guidance lists a number of cases in which RoO does not apply to certain agricultural goods. The examples are instructive, as they really are exceptions that proves the rule (of origin).
When are customs duties due on imports?
Following Brexit, the EU–UK Trade and Cooperation Agreement (TCA) regulates trade between the UK and the EU. In terms of the deal, UK-EU trade is now subject to import VAT and, potentially, to customs duties. Fortunately for importers, the TCA allows for tariff-free trade – i.e. zero customs duties – on goods that originate in either the UK or EU. That is, if goods meet RoO criteria then they are not subject to duties.
However, the rules are anything but straightforward, and are subject to change. Different classes of goods are subject to different types of requirements. For example, in terms of the TCA, from 2027, 55% of the final value of a manufactured vehicle must be made from originating components to meet the RoO specifications. That’s potentially bad news for electric car manufacturers, as expensive imported batteries may comprise most of the value of a vehicle.
To successfully manage customs procedures, importers therefore need to furnish accurate commodity codes and they need to understand which rules apply to their goods.
Who sliced my cheese? Rules of Origin and processed goods.
The new HMRC guidelines detail cases in which goods may be said to be processed, but not sufficiently to meet the specific RoO criteria.
For example, a process may count as ‘insufficient production’ if it does not require special skills and equipment. If there is insufficient production, RoO may not apply.
The guidance offers the case of a facility that uses a machine to cut cheese and wrap it in paper. The process could, in principle, be undertaken by hand. Thus neither goes beyond the definition of a ‘simple’ process nor does it go beyond the insufficient production requirement.
If the business imports the cheese from outside the UK or the EU, in terms of ‘insufficient production’ means , the product does not meet RoO criteria.
By contrast, here’s a second example from the guidance. “A machine is used to automatically cut cheese to a specific weight, size, and shape. It then uses flow wrapping to provide a seal to the final product to maintain quality.”
In such a case, the process could not be undertaken by hand. It is thus not a simple process.
If these seem like purely academic exercises, consider the practical effect. In one case, a UK trader may be able to export their goods to the EU without paying tariffs. Whereas, in the other case, tariffs may be unavoidable.
Optimise import VAT and customs
As the trusted VAT partner of importers, Vatglobal provides traders with the support, insight and assistance they need to optimise import VAT and manage customs and VAT registrations, everywhere they have an obligation. If you’re shipping goods to Europe, our customised European import solution ensures full compliance and more efficient supply chains. It’s the simple solution to the complex problem of global VAT compliance.