Exporting goods outside the EU - an SME guide

POSTED: 11th April 2014
IN: Guides

Any business with ambitions of international growth will at some point need to expand its outlook beyond British shores and consider exporting to foreign markets.

Any business with ambitions of international growth will at some point need to expand its outlook beyond British shores and consider exporting to foreign markets.

Most UK companies will start their overseas expansion by selling to fellow EU nations, which is a relatively straightforward process owing to the alignment of legislation between EU member states. This makes the EU one of the world's largest trading markets.undefined

Exporting to nations outside the EU, known as 'third countries', is slightly more complicated, but can prove highly lucrative and is essential for businesses eyeing genuine global growth.

The importance of exporting

According to the Confederation of British Industry, businesses are 11 per cent more likely to survive if they export, but only a fifth of the UK's small and medium-sized enterprises (SMEs) have expanded into this area.

The lobbying group said it is "vital" that SMEs overcome barriers to fulfil their international potential. It also acknowledged that the government has made improvements in this regard, with companies recently reporting a more business-friendly approach.

A report released by the Federation of Small Businesses (FSB) this month showed that more small firms than ever are planning to export, with a quarter (24 per cent) of FSB members anticipating an increase in exports over the next three months.

Manufacturing (42 per cent) and wholesale trade (41 per cent) are the sectors most likely to export, according to the findings, followed by research and development (36 per cent), engineering (34 per cent) and digital/telecoms (25 per cent).

FSB national chairman John Allan said small businesses will have a "major part to play" if the government is to meet its targets of gaining 100,000 new exporters and a twofold increase in the value of exports by 2020.

He added: "The UK's export strategy must focus on matching a company's export potential to the right overseas market.

"The majority of our members still export to the eurozone but are increasingly looking to other dynamic markets such as China for opportunities."

Those firms with an eye on markets outside the EU will need to consider various issues, from taxes and duties to licensing regulations relating to particular products.

Taxes and zero-rating

VAT is charged on goods used within the EU, so does not apply if products are being exported to a third country. However, the country receiving your goods may charge its own duties and an equivalent of VAT or purchase tax.

It is usually possible to 'zero-rate' items being exported outside the EU, which simply means that VAT is set at zero per cent.

To benefit from this allowance, you must comply with obligations including ensuring your exports leave the EU within a certain time limit (typically three months), and having satisfactory evidence to show that the goods have departed and that a transaction has taken place.

There are scenarios in which you could be entitled to a refund or required to pay a levy, for instance of you are exporting agricultural products or processed foods covered by the Common Agricultural Policy.

HM Revenue & Customs' (HMRC) official guide to taxes and duties on importing and exporting is known as the Integrated Tariff of the UK, or simply the Tariff. It contains information including the codes and customs requirements for import and export paperwork.

Codes, declarations and licences

A commodity code is one of the basic requirements for any business planning to export outside the EU. The code classifies your goods for duty, tax rates and regulations.

You will also need to submit an electronic export declaration, which you can do via the National Export System, part of the Customs Handling of Import and Export Freight (Chief) platform. You will also be required to register for an Economic Operator Registration Identification number.

It is possible to use freight forwarder agents to take care of these administrative tasks.

Businesses exporting certain items will have to comply with licensing controls and other tailored regulations.

Products and technologies with a potential military use, for instance, may require an export licence from the Department for Business, Innovation and Skills.

Various other categories of goods are subject to export controls and licensing requirements, such as medicines and the chemicals used in their manufacture; agricultural products and processed foods; valuable antiques and works of art; and live animals, meat and plants.

Indirect exports and duty reliefs

The term 'indirect export' refers to goods that are dispatched to third countries via an EU member state. This practice is subject to special procedures and paperwork, and is regulated by the Export Control System.

Indirect exporters must complete an export declaration, even though the products are initially being sent to another EU nation. It is still possible to zero-rate the items for VAT, but proof of final departure from the EU is required.

Other controls and licensing requirements will depend on the export's final destination.

Businesses selling products outside the EU could also benefit from duty reliefs, which let traders reclaim or delay payment of various customs duties and taxes.

Among the allowances worth looking into is inward processing relief, which is designed to boost sales from the EU by offering suspensions on payment of import duties, or the option to reclaim duties paid on exports to third countries.

Some countries have trade agreements with the EU that mean exporters can benefit from lower or zero-duty rates. This usually requires proof of origin for the goods being transported.

If you are looking for help with any aspect of exporting products outside the EU, it is worth contacting UK Trade & Investment, UK Export Finance, or HMRC if your query relates to tax.

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