UT/2023/000029 - [2024] UKUT 00079 (TCC)

In the absence of any special procedure or exemption, customs duty and VAT are payable on goods imported into the UK from outside the EU. Where businesses regularly import goods into the UK from outside the EU, “process” them, and then re-export them outside the EU, these liabilities could generate significant competitive disadvantages relative to businesses operating outside the EU. The overall purpose of IPR is to mitigate these disadvantages by enabling an authorised business to import goods, process them, and then re-export them without incurring liability to customs duty and import VAT.

At the relevant time, the requirements for the operation of IPR were set out in Council Regulation (EEC) 2913/92 establishing the Community Customs Code (the CCC), as implemented by Regulation (EEC) 2454/93 (the Implementing Regulation). That legislation provided for two different IPR systems, namely the “suspension system” and the “drawback system”. Under the suspension system, which was the relevant IPR procedure in this case, the customs liabilities which would normally arise on importation are suspended so that no immediate obligation to pay them arises. If the goods or products created from the imported products (known as “compensating products”) are then exported outside the EU, those liabilities are discharged altogether. If the goods are dealt with in some other way, such as being released for free circulation within the EU, then the liabilities may become payable.

The suspension system carries the risk of loss of duty and VAT, if goods which are physically present in the EU are then improperly diverted to free circulation without payment of the suspended import charges. Consequently, the use of the IPR procedure (and, in particular, the suspension system) is subject to strict controls, and users must be authorised.

The authorisation specifies a processing period (or “throughput period”) which is, broadly, the period during which the relevant customs duty and import VAT are suspended. If at the end of the processing period the goods or compensating products have not been exported, and do not qualify for relief on some other basis, the suspended customs duty and import VAT become payable. Further conditions may also be included in the authorisation. The overall object of the controls and conditions is to ensure that the authorities are able to track the goods which are subject to IPR until they have been exported from the EU, or are released to free circulation within the EU after payment of any relevant suspended duties and VAT.

Goods imported into the UK are recorded on HMRC’s Customs Handling of Import and Export Freight (CHIEF) system. The CHIEF data are retained in HMRC’s MSS database. As part of its IPR controls, HMRC checks the information provided by authorised users on their BoDs against the corresponding MSS data. This enables HMRC to ascertain whether the suspended liabilities have been discharged, or whether they have become payable.