Inward Processing (IP) is a customs special procedure from HMRC that allows for the suspension of customs duty and import VAT. It is designed specifically for goods that are brought into the UK temporarily to undergo processing, a term that covers everything from simple product changes to complex manufacturing and high tech repairs.

When managed correctly, the duty and VAT liability is suspended at the point of entry. If the finished or repaired goods are then re-exported from the UK, the liability is completely removed, meaning the tax is never paid. If the goods are eventually sold into the UK market (free circulation), the duty only becomes due at that later date, providing a massive cash flow advantage.

If you are a manufacturer, or importing products for repair and processing, Inward Processing could be the perfect cash flow and tax saving for you. Read more below, and when you are ready, book a free consultation with us to find out more.

Inward Processing (IP) Relief

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  • Immediate Cash Flow Preservation: Stop the "pay and reclaim" cycle. Keep your capital within your business where it can be used for innovation and payroll rather than sitting in an HMRC account.

  • Enhanced Global Competitiveness: By removing the duty burden from your manufacturing costs, you can price your exported products more competitively on the world stage.

  • Operational Flexibility: IP allows you to import goods even when the final destination, domestic or international, is not yet confirmed.

  • Sustainability & Repair Support: It is the ideal mechanism for businesses engaged in the circular economy, allowing for the cost effective import of goods for refurbishment.

Real-World Savings: IP Re-Export

A UK based manufacturer imports £1,000,000 worth of raw materials into their Inward Processing authorisation, with £50,000 of import duty suspended.

After manufacturing, 75% of the finished goods are exported back outside of the UK, with the remaining 25% staying in the UK for sale.

In this instance, duty would only be paid on the 25% staying in the UK, leading to a total tax saving of £37,500.

Real-World Savings: Duty Inversion

A UK based processor imports materials for processing. The duty rate for these materials is 4%. After manufacturing, the finished product has a new commodity code, which has a duty rate of 0%. Using the duty inversion method under Inward Processing, the company would make a duty saving of 4% on their imported goods.

The Benefits

IP Customs Import

The Risks of Poor IP Management: Why DIY Often Fails

While the benefits of IPR are significant, the compliance burden is equally high. HMRC views duty suspension as a trust based privilege. Failing to manage the procedure with technical precision can lead to:

  • Retrospective Duty Demands: If you cannot prove the goods were re-exported or properly accounted for, HMRC will demand the full duty and VAT immediately, often years after the event.

  • Financial Penalties: Errors in your Bill of Discharges (BoD) or late submissions can trigger HMRC penalties and increased audit scrutiny.

  • Revocation of Status: Repeated compliance failures can lead to your IP authorisation being withdrawn, permanently damaging your import capability.

The Inward Processing Application

Inward Processing requires a full approval from HMRC before it can be used by your business. This comes through a full application submission, after which supplementary evidence must be supplied to HMRC and potential further documentation requirements. Approval timeframes can range between 4 and 6 months, however with the help of Readyset, this timeframe can be dramatically reduced.

Inward Processing vs. Other Procedures: Making the Right Choice

Is Inward Processing better for your business than a Customs Warehouse or Temporary Admission?

  • IP vs. Customs Warehousing: Warehousing is for storage, IP is for processing. If you are changing the nature of the goods (repairing, manufacturing, or building), IP is almost always the superior choice.

  • IP vs. Temporary Admission: Temporary Admission is for goods used "as is" (like an exhibition piece). If you are adding parts or fixing a defect, IP is the correct authorisation.

Ongoing IP Requirements

An IP approval requires ongoing management, administration and maintenance by your company:

  • Quarterly BoDs (Bills of Discharge) must be submitted to HMRC, showing the goods brought in and out of your IP procedure.

  • Maintaining system audit trails for your manufacturing process, and being able to evidence and document this audit trail through documentation (customs and commercial) and system reporting.

  • Monitoring and maintaining that goods in your IP regime are throughput your IP before the timeframe given by HMRC on your approval.

While these requirements might seem like a burden, we are here to help. From comprehensive hands on management of your IP approval, to light touch check-ins to make sure you are doing everything right, we are here to make sure you maximise your savings, and do it compliantly. Book a free appointment below so we can make these savings a reality for your business.

READY, SET, GO!

  • Yes, but only if your authorisation specifically allows for multi-site movements. Readyset ensures your paperwork covers your entire logistics network.

  • You can discharge to free circulation by paying the duty and VAT. In some cases, you can even choose to pay duty on the raw material rate rather than the finished product rate, which is a strategy known as duty inversion. Readyset will calculate these for you to ensure you are choosing the most tax efficient option.

  • Since 2021, many businesses can qualify for a guarantee waiver. We assess your financial standing to help you avoid the cost of bank-backed guarantees.

  • You can reach us anytime via our contact page or email. We aim to respond quickly, usually within one business day.

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