Tariffs Explained

 

Brexit negotiations have put trading relationships and tariffs under the spotlight. But what exactly are tariffs and how do they work?

What is a tariff?

Tariffs, also known as import duties, or customs duties, are taxes paid on foreign goods being brought into a country.

Who charges the tariff?

Local customs authorities charge the duty at the destination country.

Who pays the tariff?

The ‘importer of record’ is responsible for ensuring relevant duties are paid (unless the invoice specifies another party). Generally, this will be the shipping provider or broker, who will pay the duty on behalf of the importer. They then hold the goods until they are reimbursed.

When is the tariff paid?

Duties are generally due as soon as the goods are declared to customs on arrival.

What are tariff levels based on?

Import duty is charged in one of two ways:

  • ad valorem, based on value of goods, OR
  • specific, based on other measures such as weight.

 

Generally, the rate of the duty is based on the Harmonised System (HS), a system using six-digit codes that was developed by the World Customs Organisation (WCO) for classifying goods in international trade.

You can look up classifications and duty rates by visiting https://www.gov.uk/trade-tariff

What do WTO rules mean when it comes to tariffs?

In a no-deal scenario, the UK would revert to World Trade Organisation (WTO) rules, and trade with the EU on an MFN (‘Most Favoured Nation’) tariff basis. This is the tariff that WTO members agree to apply to all fellow members, in the absence of any other agreements.

Preferential tariffs between specific nations aren’t usually allowed under WTO rules except:

  • when members choose to relax tariffs to support the export activities of developing countries, or
  • in the case of Free Trade Agreements (FTAs). The EU already has several FTAs in place – though these can be complex and time-consuming to negotiate.

HOW LLOYDS BANK CAN HELP

Finding new markets, new counterparties, and understanding and mitigating risk can be a daunting task, even for seasoned exporters. As part of our mission to help Britain prosper globally, Lloyds Bank offers a range of tools, backed by our expert relationship teams, to support clients of all sizes and needs:

  • Our International Trade Portal, in partnership with the Department for International Trade, lets clients access in-depth research on potential target markets and identify new buyer and supplier relationships
  • Our Trade Tool helps clients understand the solutions available to manage risk and unlock vital working capital.

For support with exporting and all aspects of business growth, talk to your Relationship Manager.

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