The tax efficient supply chain: Nick Love

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The optimum supply chain prize is to be able to source the best raw material from the cheapest source, manufacture the product with the most cost efficient work force and to store the finished product within easy reach of the consumer.

However, this will undoubtedly require the supply chain to extend across multiple borders and tax regimes, and with UK manufacturers and retailers sourcing more and more of their raw materials and goods for sale from further and further afield, the cost of tax and excise management and compliance is rising and rising.

The taxes incurred during the manufacturing and supply of products may include, customs duty, anti-dumping duty, excise duty, import VAT and direct taxes, all complicated by a raft of regulation and guidance that must be both adopted and approved by customs.

Most companies will have a mix of manual and automated systems, which are likely to be time-consuming to manage and maintain, heavy on human resources and prone to errors at each point of data entry. Even those with fully-automated systems are finding that they may not be able to keep up with changing regulation, forms and processes.

The agency route is ideal for some companies, but many might be surprised to know that they already qualify for bonded warehouse status because of the volume of taxable goods they are importing. With a bonded warehouse, companies need no longer pay duty until it is actually due.

While the prospect of running a full bonded warehouse may seem daunting, with the right customs software in place, the advantages are compelling:

a 60 per cent reduction in administration alone, based on the experiences of a variety of companies, lower costs through duty paid correctly and never paid early,

cash flow advantages in delaying duty payment until the latest possible point,

no loss of interest on duty paid before it needs to be – sometimes months,

more rapid clearance by customs leading to a faster supply chain.

In addition, companies that want full control over their own international supply chain destinies are better advised to manage their own systems and processes.

There is now software to help them, packaged applications that automate all the processes involved in importing raw materials and products, and can demonstrate return on investment across multiple, live sites.

For instance, the software will contain all the forms required by the relevant customs authority as well as licences management and the compliance with the latest regulations, removing the need for each individual company to keep up with these changes.

Bonded warehousing software solutions enable goods to be imported and the duty suspended. Non “free circulation” goods can be circulated throughout Europe, without payment of duty or import VAT and with the minimum of support documentation Duty can be suspended until the goods are sold or exported outside the EU. Third party systems vendors will also manage many of the processes themselves. For instance, the most tax efficient supply chain can be realised by the third party software company holding goods in duty suspension while they are moved, processed, stored and distributed.

Software can also facilitate the importing of raw materials/components and their subsequent reworking into either a finished product or sub-assembly for use in the home market or for export outside the EU. The importer can minimise the duty payable by enabling duty to be levied on the finished product where this is less than the duty payable on the raw material components. If the product is to be exported outside the EU then duty relief is calculated on the imported raw material.

Once duty is payable, the software application will assist in ensuring the lowest duty payments based upon any quota or preferences available for the commodity or country of origin. Under “SEA” legislation, duty can be paid in the EU country of choice rather than the country in which the goods are sold or put into free circulation, thus enabling the centralisation of the duty management process and associated administration.

In the longer term, bonded warehouse owners may find that they can generate additional income by renting out spare warehouse capacity to other companies.

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