Sage Small Business Guide: Import and Export Flipbook

WHITE PAPER The small business guide to import and export

Contents Introduction 3 Where to start 3 Understanding the complexities of importing and exporting 4 Contracts and Incoterms 4 Costs 5 VAT 5 Currency costs 6 Transporting goods 6 Pricing strategy 7 What to consider when exporting goods 8 Evaluating your export readiness 8 Case Study: Brandauer 9 Choosing an export market 10 How to export 11 What to consider when importing goods 12 Checklist: How to import 12 Paying customs duty 13 Declarations and documentation 14 How to submit your own customs documentation 14 When to submit your own customs documentation 14 Customs Procedures and Duty Relief Schemes 15 Which countries are covered by GSP 16 Potential disruption: managing Brexit 18 Conclusion 19

Introduction You might not consider your business to be trading internationally, when in fact you are. In reality, you’re engaging in international trade if you: • Sell anything to a foreign customer • Provide a service in another country • Employ somebody who resides in another country Deciding whether to trade overseas is a big decision for any small business. There’s a lot to consider, from who to trade with to the practical steps you’ll need to take to trade successfully. In this guide, we hope to get you ‘match fit’ for this big step. Where to start Almost half (49%) of UK businesses expect the amount of trade they carry out will increase in the next 12 months, while only 9% expect it to decrease, according to research produced by Sage in conjunction with YouGov in April 2019 (We Power 1 the Nation survey). This figure is an impressive one considering the uncertainty surrounding Brexit and ongoing international tensions between the US and China, and China and South Korea. 1 Sage partnered with YouGov to conduct a global survey to gather insights into business activities and projections in the area of trade, as part of its “Powering the Nation” research. Highlights from the research presented here can serve as a benchmark for customers to see how they stack up against regional peers. Participants are from 12 international markets. The markets represented include the UK, USA, Canada, Australia, Republic of Ireland, Germany, Spain, France, Brazil, Malaysia, South Africa and Switzerland; with approximately 200-250 respondents in each. The small business guide to import and export 3

Understanding the complexities of importing and exporting Whilst trading internationally means that, as a small business, you have the opportunity to find suppliers and customers globally, the process can be costly and complex. You’ll need to take into consideration not only the price of goods, but transportation costs, fees charged by outsourced service providers, and charges levied by government agencies for export/import duty and VAT. Contracts and Incoterms Contracts are the foundation of all trade, whether international trade and business, the most recent they are verbal agreements or more formal written being the Incoterms 2020. The ICC Incoterms documents. The International Commercial Terms are the most widely used and accepted for (Incoterms) are a set of rules that define the international trade, shipping and insurance. responsibilities of sellers and buyers for the delivery The use of Incoterms significantly reduces of goods under sales contracts. Incoterms help misunderstandings among everyone involved in avoid confusion within any contract by clearly trade (vendor, shipper, customs broker, customer, defining who is responsible for each leg of a journey, etc.) and can minimise trade disputes and litigation. who owns the goods (i.e. responsible for insurance or absorbing damage costs), who is legally responsible Familiarise yourself with Incoterms so you can for completing customs formalities (including choose terms that will enable you to provide licenses, certificates and other paperwork) and who excellent customer service and clearly define pays any customs tariffs, excise costs, import VAT who is responsible for which charges during and other costs. the import or export process. The first Incoterms were created by the International Chamber of Commerce (ICC), who have regularly issued updated versions to reflect changes in The ICC Incoterms are the most widely used and accepted for international trade, shipping and insurance. The small business guide to import and export 4

Costs Some additional costs are inevitable when it comes to trading goods, and irrespective of who pays (the customer or supplier) additional costs eventually mean increased prices. There are some areas, however, in which you can reduce costs to protect your margins. For example, the timing of paying for the goods themselves, paying any customs duty (see later in this guide) or VAT, and if you need to receive or pay for goods in another currency then any conversion fees. VAT If you are importing or exporting into any country where VAT is charged, then someone will need to pay the VAT. Each country has its own rules about what VAT rates to charge depending on the type of good being sold (or imported), and often the logic is not obvious. It is worth working with a VAT expert for the country where the goods are delivered into to understand the correct VAT rate, as this will impact the price to the end customer. If you are responsible for the VAT (i.e. you are the legal seller in that country), you are also responsible for ensuring that a VAT return is completed. This may incur additional costs, so it’s worth looking for an expert VAT adviser to help with these. There are a number of situations in which you’ll be able to reclaim any VAT paid; an expert can help identify these and offer specific advice on your business plans. Remember that currently the UK is part of the EU VAT area but after Brexit, the UK may be a separate VAT area with different rules and reporting requirements. The small business guide to import and export 5

Currency costs Using a traditional bank transfer for foreign currency transactions can be expensive. The exchange rate your bank gives you might not be the best available due to currency fluctuation, and there are a number of extra fees and costs you’ll need to pay. Forward planning is essential when it comes to identifying your exposure to currency fluctuations and the related cost and profit impacts. Having a lawyer who understands international transactions on hand when drawing up contracts is a good way of minimising these impacts, as is identifying in advance the currency in which the contract is denominated. Asking for the transaction to be denominated in a stable currency or arranging to be able to convert currency in the future at today’s exchange rate can also help. If that isn’t possible, there are other providers that may offer cheaper solutions than your business bank account’s basic fund transfer process. Your bank may be able to offer a more cost-effective option for large or frequent fund transfers; alternatively, it may be worth investigating whether you can agree on a forward exchange rate with a specialist currency broker to lock in the exchange rate and remove this risk element. Managing cash flow for any small business is crucial, especially when you begin to import or export, as the extended lead time and longer, more complex payment processes could make or break a business. Make sure you have sufficient cash reserves in your business already. For a new business, this will be the capital invested. For an established business, you may have contingency funds built up or business loans you might be eligible for. Forward planning is essential when it comes to identifying your exposure to currency fluctuations and the related cost and profit impacts. Transporting goods When compared with buying or selling goods locally, a major change in the business process (and additional cost) is likely to be in transporting goods from the seller’s location to the buyer’s location. You have several options to choose from depending on if the goods need to be received cheaply, quickly or a balanced approach: • Air freight is typically used when transporting, small, high value items. • Sea freight is often used when moving consumer goods between Asia, Australasia or the US and the UK. This is popular as it’s a relatively cheap way to move large volumes of product around the world. • Rail transport is a cost-effective choice in nearer geographies as a lot of European rail services are frequent and fast. • Road transport by truck or container is highly flexible but is typically more expensive than rail or sea. You also need to consider tolls and potentially fuel price surcharges, which can be high. There are also some risks that longer journeys mean more chances that congestion or other disruption will cause an issue. The small business guide to import and export 6

Pricing strategy Creating a pricing strategy for exporting your goods and services is essential. The cost of the sale will set the lower limit for the export price. In turn, this will set the basis for the negotiation between the exporter and importer. A pricing strategy, like other aspects of the financial plan, will need to be flexible and fine-tuned according to the dynamics of the global market. Be prepared to do some research. Irrespective of whether you are importing or exporting, you need to be sure that your prices remain appealing after factoring in the costs associated with delivery to the country of destination, the packaging and the expense of any upfront travel. Together these costs are known as ‘on-costs’ and the total cost, including on-costs, is often referred to as the ‘fully loaded cost’ or ‘landed cost’. If you decide to export a product or service to a new market or to buy from a new supplier in a different country, you can’t take for granted that you will make a profit right away. A transaction may prove unprofitable if the cost of entering a market is too high, the competition is too challenging, or the price in the new market is not competitive. The small business guide to import and export 7

What to consider when exporting goods Evaluating your export readiness According to the Federation of Small Businesses (FSB) in its July 2016 report, Destination Export: The Small Business Export Landscape, small firms that export are more likely to survive, grow and innovate when compared to those that don’t, contributing to the UK’s productivity and position as a global trading power. Exports form a major part of the UK Government’s drive to boost the national economy. It has aspirations to get 100,000 more companies to export and double the value of exports to £1 trillion a year by 2020. So, when as a small business are you ready to make the ‘export leap’? Age of small firms most likely to consider exporting 21% 19% 9% 9% 7% 4% Less than Less than 5-9 years 10-19 years 20-49 years 50 or more 2 years 4 years years Start-ups The FSB study suggests 21% of startups make the decision within two years and 19% of startups make the decision to export within four years. The small business guide to import and export 8

Case study: Brandauer Brandauer is one of the largest contract presswork and stampings companies in Europe. It delivers to 22 countries worldwide and has won the Queen’s Award for Enterprise in International Trade. Stuart Gregory, Finance Director at Brandauer, says: “We outlined our five-year growth plan in 2017, which focused on building our market share in four specialist ‘own product’ areas: turn-key progression tooling, electrical laminations, solderless printed circuit board connectors and self- adhesive cable clips. “Just 18 months on, and we are well ahead of schedule with all four lines on stream and sales breaking £9 million, a 10% increase on the same period in 2018. While Brexit uncertainty is causing some of our global clients to hold back on forward repeat orders, we are still picking up new R&D and tooling orders in the EU, at home in the UK and across the rest of the world.” Gregory adds: “Everything we do is manufactured at our state-of-the-art facility in Birmingham, a city we have been based in for over 157 years. Eighty-five per cent of our current annual sales is exported to international markets, half of which is direct from our factory. This has gone up 4% year- on-year since 2015, recently conquering ‘hard to break’ territories of Israel, the USA, Saudi Arabia and Germany; the home to our most intense competition.” Stuart Gregory Finance Director at Brandauer The small business guide to import and export 9

Choosing an export market The next step when you have decided to export your goods or services is to decide who to trade with. Rollo Hope, Head of Exports, Technology and Smart Cities at the Department for International Trade (DIT) says: “As a small business or start-up you need to choose the right market to export to and carry out the due diligence. For example, you might think exporting to China would be good for your business or product, but without fully understanding the culture, language or implications of its current trade relationship with the US, it might be an uphill struggle and a costly mistake. “Trading a little closer to home might be a better way to start exporting or to companies in countries with the same culture and language, for example Australia or the US. Also, you will need to ask yourself, does your business want to break into an overseas market already over-saturated with a particular product or sector? For example, if you try to export your software platform to Silicon Valley, it might prove difficult to stand out from the crowd unless it is radically different to other existing US products.” The below table shows the top three export regions by country from Sage’s We Power the Nation survey. The survey revealed that the US is the top region to export to for 10 out of the 12 countries surveyed. Western Europe ranked in the top three for seven countries, and China for six countries. Top three export regions by country # UK USA Canada Australia Ireland Germany #1 Western Canada/ USA (76%) China (45%) W. Europe E. Europe Europe (62%) Mexico (39%) (44%) (53%) #2 USA (54%) China (31%) China (33%) USA (42%) E. Europe USA/ (32%) W. Europe (51% tie) #3 Australia (47%) India/Australia/ W. Europe E. Europe USA (29%) C. Europe S. America (25%) (28%) (46%) (28% tie) # Spain France Brazil Malaysia S. Africa Switzerland #1 W. Europe W. Europe USA (59%) SE Asia (excl. Africa & W. Europe (48%) (48%) China & S. Middle East (41%) Korea) (44%) (55%) #2 USA (44%) USA (38%) S. America China (43%) USA (37%) USA (40% tie) (36%) #3 C. Europe E. Europe China (35%) Australia (33%) China (31%) C. Europe (37%) (29%) (38%) The small business guide to import and export 10

How to export Before you decide to export, make sure you have: • Acquired local knowledge of the markets • Carried out research into whether your you want to export to. This knowledge will be competitors in the UK are exporting and invaluable when you come to launching your who your local competitors would be in products internationally. new markets. Adam Prince, Vice President of Product • Investigated whether the demand for your Management, Compliance and Brexit at Sage, says: product exists abroad. “You will need to seek appropriate advice, whether it’s talking to your accountant, a government or • Evaluated whether your company has the industry body, such as HM Revenue & Customs financial resources for additional market (HMRC), the Institute of Export and International development and enough manpower to satisfy Trade or the International Chamber of Commerce an increase in overseas product demand. (ICC).” • Considered the standard practices in the countries you are exporting to and the current marketplace. The small business guide to import and export 11

What to consider when importing goods Checklist: How to import When importing to the UK, there are a number of steps you’ll need to follow, including: • Register for a UK EORI number. This shouldn’t take more than three working days to arrive. If your Incoterms mean you are also responsible for exporting the goods from where the supplier is based, you may also need an EORI number from the supplier’s country (e.g. the EU). • Get the right commodity code for your goods, which may require you to apply for a Binding Tariff Information (BTI) ruling. This can take time, so plan ahead. • Check if you need an import license for your goods and apply if needed. • Arrange transport logistics, usually done using sea, air or road haulage specialists. • Declare your goods to customs or have a freight forwarder or customs broker do this for you. • Pay any required customs and excise duty and VAT before your goods are released by customs authorities (or have a deferral account set up so you can pay the following month via a single payment for all shipments). • Investigate whether you can reclaim some or all of the VAT paid (this depends on what you’re importing). The small business guide to import and export 12

Paying customs duty Whether you need to pay customs duty will depend on the commodity code and country of origin of the goods, the customs procedures adopted and any duty deferment scheme. Remember, the Incoterms will identify who is responsible for paying any duty and completing the paperwork. For goods being imported into the UK you can check the duty payable on the UK Government’s website duty calculator. The small business guide to import and export 13

Declarations and documentation If you are responsible for completing import documentation, you may also need to ensure the exporter has completed a prenotification if moving high risk goods such as plans, animals or chemicals. You will also need to ensure a customs declaration is submitted. Completing a customs declaration is complicated and you'll need software. Selecting the wrong commodity code or country of origin can be expensive (see Customs Procedures and Duty Relief Schemes). How to submit your own customs documentation Most declarations are submitted electronically through Customs Handling of Import and Export Freight (CHIEF) system. If you’re going to do this yourself, rather than appoint an agent, you’ll need to: • Apply for access to CHIEF. • Buy third party software that can submit declarations through CHIEF. There are different rules for: • Carrying merchandise in your baggage with a value lower than £873. • Importing goods by post. When to submit your own customs documentation You must normally submit a full declaration at the • Using transitional simplified procedures time the goods enter the EU, unless you’re putting in a no-deal Brexit. them into a customs procedure that permits • Using roll-on roll-off locations to bring goods a delay–for example temporary storage or the from the EU in a no-deal Brexit. traditional simplified procedures that the UK For all declarations it’s important to have the right: will introduce following Brexit. It’s a different process if you’re: • Commodity code. • Using the simplified declaration procedure. • Country of origin. • Making an entry in your own records • Customs procedure code. (sometimes referred to as entry in • Declared value of goods for customs purposes. declarant’s record). The small business guide to import and export 14

Customs Procedures and Duty Relief Schemes There are a number of perfectly legal The Generalised Scheme of Preferences (GSP) options to help reduce, or in some is the most widely used duty relief scheme. Other schemes do exist, so it’s worth checking or asking cases eliminate, any customs duty your customs broker for help. Most countries offer that importers must pay when bringing free-to-access tools that let businesses understand goods into the UK (or into their which tariffs and duties will apply to goods, and these tools normally account for duty relief country of destination for exports). schemes including GSP. Customs Procedures are legally defined procedures To find out if you can claim, the quickest thing for that importers can follow to delay the date and time you to do is check your product’s commodity code when customs duty must be paid (or ‘crystallised’) in the UK trade tariff. Under each product’s details, and include the use of customs (‘bonded’) you should be able to see whether it’s eligible for any warehouses to delay crystallisation date, or duty relief schemes and the terms of the scheme. temporary admission for goods that will eventually be re-exported as a way of completely avoiding any customs crystallisation date. Duty Relief Schemes are procedures that let importers benefit from Free Trade Agreements (FTAs) by reducing the customs duty (potentially to nil) for goods based on their classification within the commodity codes and country of origin. Most countries offer free-to-access tools that let businesses understand which tariffs and duties will apply to goods, and these tools normally account for duty relief schemes including GSP. The small business guide to import and export 15

If you are overwhelmed by the whole import/export Which countries process, you can simplify the process by getting help from a specialist who understands both the are covered logistics aspects (physically moving goods) and the commercial aspects (who pays what costs and when, including who is legally responsible by GSP? for completing customs declarations and other critical paperwork). Due to the large number of suppliers manufacturing Not understanding the customs rules in the country products, the main country that is worth noting is of origin may result in higher duty being paid or India. If you have, or are sourcing a supplier, here’s a penalties for mis-declaration, this is where having list of countries that are entitled to GSP preferences. an expert can save money So, you may want to get How does it work? someone to deal with customs for you. The exact rules vary depending on the country the Working with a goods are being imported into. Within the UK, for goods being imported under the GSP scheme for freight forwarder the reduced UK duty rate the importer, you must ask the exporter for a Form A (Certificate of Origin). Freight forwarders are specialists in international The certificate must be stamped and signed by a logistics and can arrange the transport of your particular government authority in the country of goods from their point of origin right to your door. export to prove its validity. With this, the goods can Many freight forwarders also offer customs be declared as eligible for the GSP scheme. brokerage services, so they will handle everything The qualifiers that determine if you’re eligible for from collecting the shipment from your supplier to these duty relief schemes and how much you can delivering it to your store or warehouse in the UK. save are types of goods and their country of origin, Freight forwarders will use a network of local set by the ‘rules of origin’. transport and logistics providers to move your To claim a trade preference, you need to: products, wherever in the world they start out. • Get the correct commodity code for This can be especially helpful if you don’t yet have your goods. local contacts where your supplier is based. It also means that you will only deal with one person to • Make sure your goods comply with the rules manage all the details of your shipment, removing of origin. much of the stress. • Be able to provide proof of where your goods came from. • Make sure you comply with transport rules. The small business guide to import and export 16

Working with a customs broker The role of a customs broker is to help set up the customs documents and licenses you may need for importing into the UK. They’ll make sure you have everything you need to clear customs smoothly, and can help you avoid delays and possible fines for failing to comply with complex customs requirements. If you’re considering using a customs broker, you might choose a standalone agency that only offers customs services, or use a freight forwarder that also covers customs processes. Remember, there will always be additional costs You may need to think about local taxes and regulatory requirements, which could add to costs, and you will often need export documentation. UK Department of International Trade (DIT) is a good source of information, and many local chambers of commerce can help with export documentation. The cost of import duty to the UK is calculated on the declared value of goods + the cost of transportation. VAT is then worked out using the declared value of goods + the cost of transportation + the duty paid. This means that paying more for transport also means you’re hit by higher duty and VAT costs later. Incoterms indirectly define who pays any import VAT as the normal rule so that only the owner of goods at the time of import can reclaim any VAT, hence planning in this area can help reduce the fully loaded cost. With proper planning, cash flow doesn’t need to be a problem; you can manage risks to take full advantage of the opportunities that exporting can offer your business. The small business guide to import and export 17

Potential disruption: managing Brexit For small businesses, it is difficult to ignore the shadow of Brexit. With the UK scheduled to leave the European Union, what can you do to minimise this disruption? The UK Government has issued guidance to help all types of businesses plan ahead for Brexit, which you can find on its website. In addition, Sage has created an online Brexit hub, which can also serve as a resource. This Brexit hub includes additional articles which may be beneficial to you, including: - How will Brexit affect businesses? 12 things you need to know https://www.sage.com/en-gb/blog/how-will-brexit-affect-businesses/ - EORI number: How to apply and trade with the EU after Brexit https://www.sage.com/en-gb/blog/eori-number-trade-brexit/ - 5 Brexit planning tips to help your business https://www.sage.com/en-gb/blog/brexit-planning-tips-cfos/ - A guide to doing business in a post-Brexit future https://www.sage.com/en-gb/blog/post-brexit-future-business/ - Brexit VAT implications https://www.sage.com/en-gb/blog/brexit-vat-implications/ - Brexit impact on business: Four challenges to tackle https://www.sage.com/en-gb/blog/brexit-impact-on-business/ The small business guide to import and export 18

Conclusion Once you’ve made the decision that trading internationally is right for your business, it’s important to get as much practical advice as possible from your accountant, relevant industry and trade bodies, and perhaps even your business bank. You could also seek out a freight forwarder, who will be able to provide advice and support with documentation as well as quotes for moving goods abroad. It’s also a good idea to speak to other small businesses or startups who might be in the same position as yourself – trade shows are a great place to do this. The UK DIT’s Tradeshow Access Programme (TAP) provides grant support for eligible small business firms and startups to attend trade shows overseas. The British Chamber of Commerce’s Chamber Network runs hundreds of international trade events throughout the year. The British Chambers of Commerce offers helpful guidance and training courses on paperwork for the movement of goods. There is plenty of government support out there. For example, the DIT has a number of programmes to help with exporting goods, including the Gateway to Global Growth, which helps exporters diversify into new markets. Overall, it’s important to be prepared, and factor in any ongoing geopolitical tensions when considering whether to trade internationally. Remember: first and foremost, it has to add value to your business in some way. The small business guide to import and export 19

Visit the Sage International Trade Hub for advice, training and technology to help your business get ahead with international trade. sage.com/uk/trade Sage legal disclaimer The information contained within this White Paper is for information purposes only and does not in any way constitute professional advice (so don’t rely upon it as advice and please seek your own independent professional advice if you want to understand how the subject matter applies to you and your business). We made every effort to ensure that the content was correct and up to date at the time we published it, but we don’t promise that it was complete or accurate and this White Paper is provided “as is” without any liability to you. We may change the content and views held within this White Paper at any time without notice. [We don’t mind if you make a copy of this White Paper for your internal, reference purposes only.] 12pt DB Intro Copy Address Line 1 Sage (UK) Limited Address Line 2 North Park Address Line 3 Newcastle upon Tyne XXXX XXXX NE13 9AA www.xxxxxxx.xxx ©2017 The Sage Group plc or its licensors. Sage, Sage logos, Sage product and service names mentioned herein are the ©2019 The Sage Group plc or its licensors. Sage, Sage logos, Sage product and service names mentioned trademarks of The Sage Group plc or its licensors. All other herein are the trademarks of The Sage Group plc or its licensors. All other trademarks are the property of their trademarks are the property of their respective owners. NA/ respective owners. NA/WF 183498. WF 183498.