What is Inward Processing? 

Import VAT and customs duty on products imported into the UK from outside can be deferred due to a special procedure called “inward processing.” This procedure allows import VAT and customs duty to be suspended on goods imported from outside of the UK while processing or repair is taking place. The import VAT and customs duty won't be paid if the products are reexported from the UK. However, the customs duty and import VAT must be paid if they are processed and then allowed to return to free circulation within the UK. If the duty rate on the processed items is lower than that of the imported goods, the importing business may be able to keep their goods in the UK and pay less in customs duty and import VAT.

Inward processing can also apply to products that need to go through routine handling procedures to maintain, enhance, or become ready for distribution.

Benefits of Inward Processing 

Goods imported under inward processing are not subject to the following:

Import Duty

Businesses can import items into the UK for processing without having to pay import duties and VAT up front, thanks to inward processing. Significant cost reductions may arise from this, particularly for companies that deal with expensive commodities.

Cash Flow

Businesses can enhance their cash flow and optimise resource allocation by postponing the payment of import duties and VAT until the processed items are released into free circulation or reexported.

Global Value Chains

Inward processing makes it easier to develop global value chains. Businesses can purchase semi-finished goods or raw materials globally, process them inside the UK, and then sell the completed goods both domestically and overseas.

Reduced Duty Rate

When the import customs declaration is accepted, the business in question may request to pay duty at the rate and customs value that apply to the imported products under inward processing at that time. If not, the customs value of the processed goods at the time of their release for free circulation could be much higher and will therefore result in a higher rate of duty and import VAT.

Inward Processing Steps

Make a full application to HM Revenue and Customs for inward processing and obtain authority for the process or processes which will be carried out. The expected ‘rate of yield must also be stated and agreed with HM Revenue and Customs. An application can be made by submission of the customs declaration, but not more than 3 times in a calendar year. Businesses can also apply for retrospective authorisation up to a year after the import or receipt of the goods, but these requests must be exceptional.

An appropriate guarantee must be in place before an inward processing authorisation may be granted. This is required to secure the suspension of duties on imported items covered by the authorisation.

An authorisation for inward processing cannot be issued until an appropriate guarantee is in place, the purpose of which is to secure duties suspended on goods imported under an inward processing authorisation.

HM Revenue and Customs will send a letter to the applicant authorising them to use inward processing. The letter will also confirm the conditions applicable to the applicant, such as record keeping details.

Once approved, imported products should be lodged to inward processing on the import declaration during customs clearance.

Following the processing of the goods, they can be either declare to another customs special procedure, reexported or released to free circulation.

A bill of discharge must be submitted, which will account for all the goods imported to the procedure during an agreed period.

Regulations Covering Inward Processing

The Customs (Special Procedures and Outward Processing) (EU Exit) Regulations 2018, Chapter 2 defines the provisions for the Inward Processing Procedure.

Top level requirements:

• The authorisation only authorises an inward processing procedure for those goods specified in the declaration.
• The approved person shall ensure that the authorisation number is quoted on the customs declaration.
• The approved quantity of other goods resulting from the processing will be 1:1 or will be established from the processing records as indicated on the declaration.
• The inward processing procedure must be discharged within six months of the date on which goods are released to that procedure, or any longer period approved by HMRC.
• A completed Bill of Discharge (BOD) must be submitted to HMRC within 30 days of the expiry of the period for discharge.

Duty Management and Inward Processing Procedures

The implementation of customs regulations that assist your business financial situation regarding duty expenditure is known as duty management. To do this, first decide which functions will benefit your business financially, and then incorporate those functions into your supply chain.

By concentrating on crucial areas like customs special procedures, inward process procedures, tariff classification, and valuation, ICS Global Services can identify possible ways to reduce duties and keep your import landed costs to a minimum. Recovering overpaid duty related to past import declarations made to HM Revenue & Customs may also be possible in some situations. ICS Global Services can prepare and submit claims to Customs for duty reclaims on your behalf.

Learn more about Duty Management >>

Contact us for inward processing advice.

ICS Global Services can provide business solutions that make it easier to manage all aspects of tax and VAT. As well as improving trade compliance, reducing customs penalties, and improving the bottom line.

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