How to Defer Excise Duty
International trading will mean that your business may come into contact with excise duty. This is a tax that the customs and excise authorities (HM Revenue & Customs) collect from businesses that are trading in specific goods. The excise duty that your business may have to pay, can however, be deferred to enable your business to better manage its finances and cashflow.It is vitally important that your business keeps accurate records and a full set of customs documents to support any deferment of excise duty you are applying for.
Using excise deferment means you can set-up a separate account to your normal business banking account and pay any customs and excise duty that your business is liable for on a monthly basis. Your business must, however, have in place a financial guarantee that shows that your business has the money to meet its monthly excise duty payments.
Reducing and Guarantee PaymentsThere is also an additional system your business can apply to use that enables your business to use customs and excise duty deferment with either a reduced level of payment guarantee, or not have to have any payment guarantee in place at all. This system is called the Excise Payment Security System (EPSS).
The Deferment SystemBefore your business can use the customs and excise deferment system, your enterprise needs to gain approval from the HMRC. You obtain this status in the first instance by submitting form C 1200 to the HMRC for processing. Note that before you can apply for deferment your business needs a valid VAT number. Its a good idea to obtain this first before starting the excise duty deferment process. Once the system is set up, you can pay any customs and excise charges via direct debit.
How EPSS OperatesAny goods that your business brings into the UK as part of your normal international trading could be liable for excise duty. The current list of goods that attract excise duty include: products that contain hydrocarbon fuel such as petrol, beer, wine, spirits, other alcoholic drinks, cigarettes and tobacco.
The excise duty you have to pay on imports of these goods can be set-up as a monthly direct debit once you have gained approval from the HMRC to use the EPSS system. The HMRC will look closely at the documents your business keeps to ensure you can handle the deferment system efficiently. In the first instance you should download the EPSS (A) application form from the HMRC website. You will be asked to provide two sets of your annual accounts.
Can All Businesses use the EPSS System?In most cases your business should be able to successfully applying for EPSS validation. The application process to set up the deferment of customs and excise duty will mean your business has to successfully meet certain criteria that include:
- A good track record paying your VAT
- Being VAT registered for three years
- Your business should not owe the HMRC any money for unpaid debts
- If your business already has a deferment account for VAT, this should be in good condition with no debts or current HMRC offences being investigated
- Your business must be solvent and not be in administration
It is also possible to operate the EPSS system if your business isn’t currently registered for VAT. Very small businesses that have not passed the threshold where VAT registration is mandatory can still apply to set up an EPSS system. If your business is not VAT registered, bear these points in mind:
- Your business should already have some experience of an excise system
- The payments of customs and excise duty that your business has made were on time
- Your business has a good record with the HMRC and is not currently under investigation for an offence
The excise duty deferment system is a tool that your international trading business can use to better manage its overall financial health. Once you have approval, deferment of customs and excise duty can become a great asset that enables you to forward plan your cashflow requirements. Deferring a payment such as excise duty can be a beneficial financial tool to have available.