When importing goods into Great Britain on a regular basis, having the ability to delay paying customs or tax charges due on those goods can be crucial to streamlining the customs process and improving cashflow.
The following guide looks at duty deferment accounts and how these can be used to defer the payment of customs duties, excise charges and import VAT.
What is a duty deferment account?
A duty deferment account is an account that will enable you to defer duty and VAT payments when you import goods regularly into the UK or when you release goods from an excise warehouse. An excise warehouse is any place of security approved by HMRC, where goods liable for excise duty can be stored without payment of that duty for a prescribed period.
You can apply for a deferment account if either you are an importer, or someone who represents importers, or are releasing goods from an excise warehouse. As an importer, you could use a customs agent for duty deferment. This is an individual or business hired to undertake customs formalities on your behalf. You can also put in place a standing authority for a customs agent to be able to access and use your own duty deferment account.
Why delay payments using a deferment account?
A duty deferment account can be used to delay paying most customs charges, including customs and excise duties, as well as import VAT when not using postponed VAT accounting. Having a deferment account will also allow you to make one consolidated monthly payment to HMRC, via direct debit, instead of having to pay for each individual consignment separately.
Once you have been approved for a duty deferment account, this will allow you to defer paying customs duties and import VAT to the 15th of the following calendar month, or the next working day if this date is not a working day, and to defer paying excise duties to the 29th of the following month (or 28th February in non-leap years), or the working day prior to that.
The advantage of having a duty deferment account is that you can put off payment by between 2-6 weeks and your goods will normally be cleared for release far more quickly. Given the potentially large sums of money that may be payable on imported goods, deferring payment, even for just a short period, can significantly improve cashflow for a business. As no interest is charged by HMRC, you will effectively obtain up to 6 weeks of free credit. This can also help to streamline the importing process, where your goods will not be delayed pending payment.
However, if you are only applying to delay the payment of import VAT, it may be more cost effective to use postponed VAT accounting. If you are UK VAT-registered and importing goods for business use into the UK, you can account for your import VAT on your regular VAT return instead of paying this tax by duty deferment. By setting up a duty or VAT deferment account, postponed VAT accounting will allow you to declare and immediately recover import VAT on the same return, rather than having to pay it upfront on import and recover it later.
How do duty deferment accounts work?
Provided your application for a duty deferment account has been approved by HMRC, and your direct debit has been successfully set up, you will get a deferment approval number (DAN) to be quoted on all import declarations and to remove goods from an excise warehouse. The DAN allows deferment of charges for each import declaration made throughout the month until the month end, which only become payable to HMRC by direct debit the following month. It also automatically accumulates the total deferred duties and import VAT to be debited.
Once your duty deferment account is active, you can defer paying duties and import VAT when you complete, or an agent completes, your customs declaration quoting your DAN. This means that you will be able to defer the payment of customs charges due on a consignment, unless:
- you have exceeded your deferment account or guarantee limit for the month
- the amount in your deferment account or guarantee left for the month does not fully cover the deferment requested
- HMRC have stopped the use of your account due to payment or other compliance problems.
When you submit an account application you will need to estimate the amount of duties and import VAT that you will be looking to defer, so that HMRC can determine the monthly deferral limit or guarantee level required, although you may be eligible to apply for a guarantee waiver.
Depending on whether you are declaring goods through the Customs Handling of Import and Export Freight (CHIEF) system or the Customs Declaration Service (CDS), you will either be sent or be able to access duty deferment statements. Your statement will set out your deferments, the total amount you have deferred so far in the month and when deferment of the duty starts. This will help you to check your deferred transactions against your account or guarantee limit, where if you exceed your deferral limit or guarantee level in any given month, you will not be able to defer any more customs charges for the rest of that month. HMRC also reserve the right to suspend and revoke your duty deferment facility if the limit or guarantee level is persistently exceeded, although you will be given prior notification of such action.
There must be sufficient funds to cover the pending debit payment for deferred customs charges. If your direct debit is rejected, HMRC will suspend your account until they receive payment and a valid direct debit instruction. They may also charge interest on late payment of deferred customs debts, suspend a duty deferment facility that has outstanding payments and revoke a duty deferment facility if payments are consistently outstanding.
You must pay using the BACS system of direct debit in pounds sterling and ensure that the direct debit for your deferment account is set up correctly. If not, HMRC may suspend your account until payment is received, and penalties and interest may apply. If the amount is over £20 million, you will need to contact the Duty Deferment Office on how to pay via CHAPS.
How do you authorise an agent to use your deferment account?
If you would like a customs agent or other customs intermediary to handle declarations and duty deferment on your behalf, you will need to authorise them to use your deferment approval number (DAN), including authority to ask for a deferment of duty payment.
If you are using CHIEF to make customs declarations, you can make an application to authorise a third party to use your DAN by either completing form C1207N, for regular access, or form C1207S, for access on a one-off basis. These are the official online forms to set up a standing authority for an agent or freight forwarder to defer payment of duty against an importer’s DAN. The form must be signed by either the owner of the business, by a director or the secretary for limited companies, or by a partner in the case of partnerships. In giving your authority for a third party to access your duty deferment account, and use your DAN, you accept any associated risks with the use of that account by nominated agents.
If you are using the Customs Declaration Service, you can manage your standing authorities directly via the CDS Financial Dashboard and your Customs Financial Accounts.
How do you apply for a duty deferment account?
To set up a duty deferment account, certain conditions must be met and an application should be approved by HMRC. You will need the following information to submit your application:
- your Economic Operator Registration and Identification (EORI) number
- the business name and UK address associated with your EORI number
- your correspondence address
- any VAT number, if applicable
- any registered company number from Companies House, if applicable
- details of any company directors and officials, including dates of birth
- details of the person responsible for customs authorisations and their practical experience
- your estimated duty and VAT debt which you are applying to defer, in the form of a monthly value based on the highest value of imports in a year.
You will also need to provide a valid direct debit instruction. Even if you do not need to use your duty deferment account immediately, you will still need to provide this instruction when you submit your application, as your account cannot be activated without this. This may also cause a delay in activating your account when you do need to use it. The way in which you set up a direct debit will depend on whether you are using the CHIEF system or the CDS for duty deferment, although from 1 October 2022, all import accounts will be migrating to the CDS.
Once HMRC has all the information to process your application for a duty deferment account, the estimated turnaround for application processing is currently 30 working days. However, if you need to apply for a financial guarantee, this turnaround may take longer. A guarantee waiver may be permitted, but only if you are established in the UK. If you are not eligible for a guarantee waiver approval, you will instead need to provide a guarantee from a financial institution established in the UK and regulated by the Prudential Regulation Authority (PRA).
You should not submit a guarantee to HMRC unless they ask you to provide one after you have submitted your application for a deferment account. Where you are asked by HMRC to provide a guarantee as part of their assessment, your guarantor will need to complete form C1201. This must also be approved by the PRA under the Financial Services and Markets Act 2000.
In the case of a rejected application, HMRC will send you a notice to request a review or to appeal the decision to refuse a duty deferment account.
How do you apply for a guarantee waiver?
There are new rules for duty deferment that now apply in Great Britain, ie; England, Scotland and Wales. This means that most traders will not need a financial guarantee with their duty deferment account, where you will have the option to apply for a guarantee waiver instead.
There are two types of guarantee waiver approvals that can be issued by HMRC, including:
- approval for a guarantee waiver to defer customs duty, excise duty and import VAT of up to £10,000 per month, or
- approval for a guarantee waiver to defer customs duty, excise duty and import VAT of up to a specified amount over £10,000 per month.
If you want to apply for a new deferment account without using a guarantee, you can apply for a guarantee waiver as part of the same application using form PFS1. However, you must be established in the UK to be eligible and will need to provide documentary evidence of this, such as proof of residence or a certificate of incorporation issued by Companies House. If you do not file accounts at Companies House, or you file consolidated accounts, you may also need to provide HMRC with detailed information about your financial standing.
To qualify for a guarantee waiver of over £10,000, you will need to have positive net assets greater than the value of the requested waiver at the date of application and at your most recent balance sheet date. To be approved by HMRC for any waiver, you must also have no record of serious or repeated infringements of any customs or tax rules, or serious criminal offences related to your business activities, in the last 3 years.
If there is a gap between your requested duty deferral limit and the amount of guarantee waiver that you qualify for, you will be asked by HMRC whether you would like to either provide a full or partial guarantee or accept a reduced deferral limit. You will have 30 days to notify HMRC of which option you would like to select, or risk having your application rejected.
You will not be eligible for a guarantee waiver if you are established outside of the UK, although you can still apply for a deferment account without a waiver. In these circumstances, HMRC may then go on to request a guarantee from an established UK financial institution.
Author
Gill Laing is a qualified Legal Researcher & Analyst with niche specialisms in Law, Tax, Human Resources, Immigration & Employment Law.
Gill is a Multiple Business Owner and the Managing Director of Prof Services - a Marketing & Content Agency for the Professional Services Sector.
