International Supply ChainMelissa Cupis, Managing Director, AGR Inventory UK, explains why companies doing business outside the EU can’t afford to ignore vital new legislation that affects their AEO status. This is a follow up post to our previous blog “All You Need to Know about the Authorised Economic Operator (AEO).”

By now, you’ve probably heard of the Authorised Economic Operator (AEO) programme, the EU’s response to the need to secure the international supply chain following the catastrophic events of 9/11. AEO applies to anyone that conducts customs related activities outside the European Union – exporters, importers, carriers, logistics companies, freight forwarders, manufacturers – to name but a few.

Achieving AEO status sets organisations apart from competitors in terms of supply chain excellence. It’s a badge of honour that shows a company meets important criteria such as holding a record of customs compliance, having management systems that allow customs controls, proven solvency and details of high-quality security and safety standards.

But did you know that the AEO programme is administered in the UK by the HMRC and that new tax changes are about to be introduced with the advent of a new European framework regulation for customs called Union Customs Code (UCC) in May 2016 i.e. next week?

Time to take a closer look
This presents a major challenge for supply chain professionals as they gear themselves up to the UCC or risk losing the well-deserved AEO accreditation they worked so hard to win. Let’s take a closer look at the key changes that could impact UK importers and exporters in May:

  • Reassessment of current AEO certificate holders – who must be compliant with all taxes related to their business activities over the past 3 years. They should also hold a professional qualification directly linked to their customs activities or at least demonstrate practical competence over the same three-year period. Failure to do so could jeopardise your AEO accreditation or mean stiff financial penalties.
  • Potential debt finance guarantee – A very important move is that AEO accreditation will entitle organisations to a 70% reduction in duty deferment guarantee for customs duties (actual debt), a benefit not available to non-AEO accredited companies. AEO certified companies are also entitled to request a waiver of their potential debt guarantees. This could cover customs duty and import VAT if they hold Customs Authorisation or Approvals for business activities such as customs warehousing, inward processing or temporary storage.

Whether or not UCC legislation impacts your business sufficiently to warrant obtaining AEO accreditation, the commercial advantages are clear. Accreditation can generate cost benefits – depending on the level of certification achieved – anything from 5 to 15% of total import value.

  • Financial guarantee for ongoing use of simplified and special procedures – financial guarantees are required for all special procedures unless an organisation qualifies for a waiver or reduction. The amount must cover actual debts such as charges at import for goods being entered to their end use plus any potential debt. Potential debit includes customs duty and import VAT in specific circumstances such as where the economic operator is not established in the EU and where the authorisation involves more than one Member State. The level of potential debt is then released upon the submission of a bill of discharge.

In simple terms, failure to comply with new UCC procedural rulings will most likely reduce the reliable movement of goods across the whole supply chain.

  • Application of highest duty rate within a container or shipment to full contents – this means increased duty and/or freight costs arising from consolidation complexity. Potential delays in supply from logistics service providers could also follow as freight forwarders attempt to group goods by duty rate to save money.

A ticking time bomb
The UCC and its impact on the AEO scheme will affect the way imports and exports are viewed by the HMRC. The end result for not complying with future UCC changes are higher costs and the catastrophic potential for supply disruption.

Remember, companies don’t compete, supply chains do and this affects the bottom line. From May 2016, non-AEO accredited companies will have to dig deep into their pockets. Whilst the exact amount has not been finalised, rumours of percentages between 8-12% of inventory duty due are probably not far from the truth.

For those companies not yet convinced by AEO accreditation, now is the time to reconsider. There really is no time to lose, the clock is ticking and the impact on your business (and your job) could be devastating.

We are here to help you in any way that we can – send us an email at sales@agrdynamics.com if you’d like more information or guidance on what to do. Don’t let your supply chain be delayed due to these new regulations!