Why AEO is essential for manufacturers with non UK supply chains

According to the latest EEF Manufacturing Fact Card, the EU currently accounts for 48% of UK manufactured exports – it is and will continue to be a substantial trading market for the UK. As the UK prepares for Brexit, Juliet Wallwork, Customs Duties Director at BDO looks at why it is imperative for manufacturers to consider the potentially adverse impact that new customs border reporting requirements could have on manufacturers EU supply chains.

Under both a hard or soft Brexit, there is a strong possibility that businesses will need to submit customs declarations for the movement of goods between the UK and EU and understandably this has led to widespread concern that this could result in shipping delays.

With close ties between UK and EU manufacturing, these new requirements should be high on the boardroom agenda for UK manufacturers, particularly those with ‘just in time’ supply chains.

One opportunity available to manufacturers to help mitigate against this risk is to apply for a supply chain accreditation ‘Authorised Economic Operator’ (AEO) which allows companies to fast-track goods through customs border controls, reducing the risk of delays.

 

What is Authorised Economic Operator ‘AEO’?

AEO is a voluntary, globally recognised supply chain accreditation introduced in the EU in 2008 and is available to any EU-established business involved in imports and/or exports.

Take-up of AEO amongst UK businesses has historically been lower than in other EU Member States, because the benefits of AEO then (faster clearance at port, international supply chain quality mark) did not give UK businesses a clear financial or supply chain advantage.

However, with the introduction of new customs legislation in 2016 and Brexit, this has changed. AEO will now offer UK businesses both financial and supply chain benefits which cannot be ignored.

Implications of the Union Customs Code

The Union Customs Code (UCC) came into force on 1 May 2016 and created a number of benefits which are only available to businesses with AEO. These include:

• Reductions in financial guarantee levels, 70% for actual customs debt and 100% for potential customs debt, resulting in cost savings
• Faster application process for some customs reliefs and simplifications
• Mutual recognition arrangements with third countries (such as US), resulting in potential reduced broker costs
• Consignment fast tracking through customs borders.

Brexit impact

AEO status will become more important for UK businesses under Brexit. The UK government has estimated that UK customs border entries may increase fivefold. Ports such as Dover will bear the brunt of this leading to potential delays (at port and in clearance times), something UK business has not experienced before. It is widely anticipated that where there are clearance hold ups at port, those businesses with AEO will be given priority.

Brexit will impact the movement of goods between the UK and EU. For businesses with time sensitive or just-in-time supply chains or moving perishable goods AEO will become a business necessity. The current application process for AEO already takes around six months and this time frame is now increasing as more businesses begin to apply before March 2019.

How can businesses become AEO authorised?

Businesses wishing to become AEO authorised must apply to HM Revenue & Customs, ‘HMRC’.  The applications process requires businesses to complete a self-assessment questionnaire and provide supporting documentation covering their customs and supply chain security compliance processes, procedures and controls.  As part of the application process, HMRC will audit businesses to ensure that the documented processes, procedures and controls are being applied and followed.

At BDO we have a number of customs duty specialists who are highly experienced in helping businesses to become AEO authorised.  They are able to guide businesses through the AEO application processes, offering, for example, practical advice around the scope and level of detail which businesses need to demonstrate in their customs and supply chain security compliance processes, procedures and controls.