UK to EU shipping: your questions answered
Whether it’s border checks, VAT or customs compliance, the new guidance has caused chaos and confusion for many SME retailers operating an eCommerce business.
In fact, according to new research commissioned by accountancy firm, UHY Hacker Young, 20% of SMEs have stopped exporting to the EU altogether due to trade costs and paperwork. And there are concerns this could rise further as frustrations mount over the new rules.
In our latest blog post, we’ve partnered with eCommerce software provider – Red Technology – to answer your questions and demystify some of the regulations around Brexit and UK to EU shipping.
An EORI (Economic Operators Registration and Identification) number is used to identify businesses that want to import or export physical goods to another country. In order to obtain one, your business needs to be VAT registered with HMRC. If you don’t have one, you can register for one here.
Those businesses who already trade outside of the EU may already be familiar with the concept and already have one. However, since 1 January 2021, an EORI number is now required to trade between Great Britain and the EU. It’s a 12-digit number that begins with the two-letter code used to identify the country that issued the number, i.e. GB123456789000. It is often your VAT number with 000 on the end.
To complicate matters, if you send goods to and from Northern Ireland, a second EORI number beginning with XI might be required, although if your business is based in Northern Ireland and only sells goods domestically and in the Republic of Ireland, you will not need an EORI number at all.
The easiest approach – and one which many businesses are adopting, at least in the short term – is to employ a customs agent, logistics company or freight forwarder to handle everything for you, including the paperwork, legislation and costs. However, these services inevitably come at a price and will be in high demand at the minute. The government provides more information on those services, as well as a short video.
If you’re lucky, your courier may well offer free information or support to ensure you comply. Don’t forget that it’s in their best interests that you continue to ship items abroad, so they’re likely to want to do their bit to help you.
For those not able to seek professional help, the government website is full of advice, support and videos for those businesses looking to sell into the EU post-Brexit, so read, watch, and research. HMRC can also help with certain elements or advice.
If your business has previously sent items outside of the EU (to the US or Asia for example), these new processes are not really much different to that in terms of paperwork and procedures.
Ultimately, this comes down to you to determine. The customs authorities in the destination country and the customs thresholds in place determine if charges are due on imported goods, and the thresholds of charges vary from country to country. You will need to decide how and who pays these charges as the goods won’t be released until payment has been received.
Now, clearly, this is possibly quite a contentious issue and you have to decide whether to calculate those costs and incorporate them into your prices (Delivered Duty Paid), or ask your customers to pay them when receiving their goods (Delivered at Place). But communicating that to your customers is vitally important, especially if adopting the DAP approach.
The first option indicates that you are responsible for any associated costs, although doesn’t necessarily mean you pay them. The simplest option is to integrate your eCommerce basket with a duty calculator so the customer knows the complete landed cost of their goods when buying them. This calculates the import duty, excise duty (if applicable), import VAT and clearance fees based on the value of the goods and where they are shipping them to, which when added to the cost of the goods themselves and any delivery charges you decide to apply, gives them their complete total cost to pay on checkout.
You could try to make an educated guess, or employ an expert to calculate them all, but a third-party tool is probably an easier option, albeit one that comes with a small associated cost. This option might also be the best way of avoiding customer dissatisfaction if they receive a further bill when taking delivery of goods, especially if they are not expecting one.
The second option indicates that you are only liable for shipping the product and NOT responsible for any import costs associated, as is currently likely for customers receiving goods shipped from outside the EU. This might be the more common approach as it involves less work and cost, however, the long-term damage it might cause to customer retention may well outweigh those savings. It could be especially awkward if your competitors aren't asking their customers to pay such costs, although their prices would likely be higher as a result, so the two may well balance out.
This option might also likely see more delays and returns with many customers refusing to pay the charges, causing further costs, administration issues and customer complaints. However, as with deliveries from outside the EU, customers will inevitably get more used to charges being applied when they purchase goods from the UK now too, so some of the initial annoyance may die down.
CN22 and CN23 are customs declaration forms that outline the contents of any package being sent internationally using Royal Mail. It’s important to stress that if you are using a different courier to Royal Mail, you DO NOT need to complete either of these forms, they are specific to Royal Mail only.
If the goods you are sending have a value of over £270, then you will need to complete a CN23. If the value is less than £270, then you will need to complete a CN22.
As with any customs form, the sender is responsible for ensuring that the information is completely accurate and honest, as any incorrect or missing information can cause delays, returns or seizures by customs.
You can obtain the forms from a Post Office or online at https://www.postoffice.co.uk/mail/customs-forms.
As with other customs declarations, in order to complete either of the forms, you will need information about both your business and the items you are sending.
Commodity Codes or Harmonised System (HS) Codes are an internationally standardised system of names and numbers to classify traded products, which need to be applied when importing or exporting those items, and are used to help determine duty on the products you are selling.
It’s important to know the HS codes for each product that you’re selling and ensure they are correct in order to ensure smooth transit. The government provides a searchable system online to help, whilst the World Customs Organisation also provides more information on the system. If in doubt, HMRC is also available to assist your classification questions.
The obvious answer is no, you don’t need to. Whilst it might seem a bit unsettling at the minute, it is still possible to trade with the EU via your existing UK business. You will need to complete additional paperwork and be aware of the new requirements in order to make things go as smooth as possible, especially in the short term, but that won’t stop it being possible. If you have traded outside of the EU before then the changes shouldn’t be that radical or different to what you have to do when shipping goods to the rest of the world. Also, if you employ a freight forwarder or logistics company to manage the process for you, you won’t have much else to worry about.
However, the growth of eCommerce has meant that setting up and running international online channels is no longer a huge barrier to entry, providing your eCommerce platform can support multiple channels, warehouses, taxation models, languages and currencies. So, the prospect of setting up subsidiaries in the EU is definitely tempting.
We have seen several customers adopting this strategy since the announcement to withdraw from the EU and it certainly has its merits. For example, one customer of ours has recently opened a warehouse in Spain, created a Spanish channel on their website, migrated all their EU customers across to it and now ship all EU orders from there, thus avoiding the need to complete any customs declarations or worry about the payment of duties.
Nevertheless, the commercial case for opening a subsidiary or several subsidiaries comes down to each individual business case. How much of your business is shipped to the EU? How much of that is under threat unless you ship from the EU? What strategy are your competitors adopting? Will you need to regularly ship goods en masse to the EU warehouse and what are the costs associated with that, or can you acquire them inside the EU? Does the cost of renting a warehouse in Europe, staffing it and creating additional online channels outweigh the cost of completing additional paperwork and the potential increased delivery/duty costs and loss of customers to businesses who do adopt this approach?
This might be the biggest issue of all. Whichever route you adopt, it will need to be displayed clearly on your website terms & conditions and shipping policy, outlining who is responsible for the payment of any tariffs and ensuring the customer is aware, especially if it is their responsibility. Once you have decided how you will move forward, an email to your existing EU customers explaining the changes and how they will affect them, might also be a nice touch. It might also be prescient to deploy clear messaging around your exact process during the checkout, particularly where costs are displayed.
How you decide to apply the charges (see question 3 above) and who pays for them, will also determine how you keep customers informed. If you integrate with a duty calculator then informing customers that the costs displayed include all associated duties, taxes and fees is important. Whilst if you adopt the opposite approach, it’s even more important to tell them those associated costs are not included and they will be liable on receipt of their goods. Whichever you decide, communication is vital.