Purchasing goods from Great Britain – Considerations for your commercial contracts
21 January 2021
New rules for trading between Great Britain (England, Scotland and Wales) and Northern Ireland took effect on 1 January 2021 by virtue of the Northern Ireland Protocol.
Whilst businesses will, for the most part, continue to be able to move goods from NI to GB on the same basis as they always did without declarations, tariffs, new regulatory checks, customs checks or additional approvals for goods from NI to be placed on the UK market applying, there are now new arrangements for movement of goods into NI from GB which are causing significant supply chain disruption and uncertainty amongst traders due to the lack of clarity around what’s involved and who is responsible for ensuring compliance with the new rules. This has led to empty supermarket shelves, retailers refusing to supply their goods to NI and significant economic consequences for businesses here.
So what’s changed?
When moving goods between GB and NI you will now need to:
- have an Economic Operators Registration and Identification (EORI) Number;
- make an entry summary (safety and security) declaration before the goods arrive in NI;
- declare the goods when they arrive in NI;
- pay import VAT on the goods;
- pay EU duty on the goods if they are “at risk” of onward movement to the EU, including the Republic of Ireland; and
- apply for an authorisation for the UK Trader Scheme if you want to declare your goods not “at risk” so that EU duty will not be payable.
You will find a further note on the new requirements on the Brexit section of our website and a link here.
Who is responsible?
In terms of who is responsible for these new obligations as between supplier and buyer, a good starting point is to check the terms of your commercial contracts with your GB suppliers or their terms and conditions of business. What do these say in terms of the location of delivery? Are you responsible for collecting from your suppliers in GB or are they responsible for delivering to you in NI and what, if anything, do they say about customs clearances?
Now may be the time to consider using Incoterms (International Commercial Terms), which are a set of internationally recognised pre-defined commercial terms published by the International Chamber of Commerce that are widely used in international commercial transactions or procurement processes, in your commercial contracts or, where you already do, to consider re-negotiating these terms.
Incoterms cover things such as:
- who is responsible for loading/unloading the goods;
- when and where delivery takes place;
- when risk in the goods passes; and
- who is responsible for export/import clearance and duties.
From an NI buyer’s perspective, DDP (Delivered Duty Paid) terms will now be the most advantageous as they place the maximum obligation on the GB supplier and mean that the supplier is responsible for arranging carriage and delivering the goods at the named place, cleared for import and all applicable taxes and duties paid. Risk transfers from the supplier to the buyer when the goods are made available to the buyer, ready for unloading from the arriving means of transport.
Indeed, DDP is the only Incoterm rule which requires a supplier to take responsibility for import clearance and payment of taxes and/or import duty.
Contrast this with Ex Works terms, which are likely to be favoured by GB suppliers as they place the minimum obligation on a supplier and require it merely to make the goods available, suitably packaged, at the specified place, usually the supplier’s factory or depot. The buyer is responsible for loading the goods onto a vehicle, for all export procedures, for onward transport and for all costs arising after collection of the goods.
There are many other Incoterms in between DDP and Ex Works which place different obligations on a supplier and a buyer. Please contact us if you require further specific advice in relation to these or your delivery terms in general.
Trader Support Service
Where you are presented with Ex Works terms or other Incoterms or delivery terms which mean that you are responsible for collecting the goods in GB and/or dealing with import procedures and customs clearances, the Trader Support Service, which is a UK government free service available to help all traders, regardless of size, move their goods between GB and NI, can provide you with advice and support and make customs declarations on your behalf so you should register for this if you have not already done so.
Effect of Incoterms on other contractual provisions
It is important to bear in mind that Incoterms do not deal with provisions on pricing, product liability, liability for breach of contract, governing law and jurisdiction and in some cases transfer of title and payment terms. These terms should be included in your commercial contracts separately to Incoterms, checked for consistency with the chosen Incoterms and any changes to existing Incoterms should be made carefully with consideration given to any knock on effect on the remainder of the terms of your contract.
Timeframes for delivery
Provisions in your contracts dealing with timeframes for delivery should also be considered. Is time of the essence applicable to your contract meaning that meeting specific delivery dates is a condition of the contract, breach of which could give rise to a claim for damages? Does late delivery trigger rejection of goods, discounts or other consequences? If so be mindful that suppliers will not want to accept liability in circumstances where the delay in due to NI companies not having the correct documentation in place which could cause goods to be held up in ports and lead to consequential losses arising such as storage costs for goods pending their release.
Effect on Prices
Whilst it may be advantageous to an NI buyer to put the new obligations onto suppliers, the upshot of this is that prices are likely to increase as suppliers seek to re-coup the costs of this extra administrative burden. Careful consideration should be given to the pricing terms of your contracts. Where you have fixed term contracts are there mechanisms for suppliers to review and renegotiate prices and if they do, do buyers have any grounds on which to reject those price changes or get out of contracts which are now not economically viable for them? Many businesses for example prepared themselves for Brexit by adding “Brexit” clauses or “material adverse change” clauses to their contracts and the wording of these clauses should be carefully considered to check if they allow for re-negotiation or termination of contracts.
The position on GB-NI trade will evolve as we move into the future and more clarity emerges on the new rules and processes and businesses get to grips with them. For now it’s important to understand the terms of your commercial contracts, particularly around delivery, talk to your suppliers about the new rules, seek the advice of the Trade Support Scheme and continue to future proof your contracts.
For more information or to receive tailored advice on the position under your commercial contracts please contact the Commercial Team at Carson McDowell.
*This information is for guidance purposes only and does not constitute, nor should be regarded, as a substitute for taking legal advice that is tailored to your circumstances.