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How to Use Free Zones

By: Dave Howell - Updated: 3 Jun 2012 | comments*Discuss
Trading Export Abroad Countries

Trading in international markets will mean your business will import from countries abroad. When the goods you are trading in come into the UK, they can be stored at facilities called Free Zones that are based near airports and a ports of entry. The practical reasons for storing goods in these special locations is that any goods your business imports into the UK will have their VAT and/or customs duty (for goods imported from outside of the EU) suspended. You can also store goods in a Free Zone if they would normally come under the Common Agricultural Policy.

Your business can ask for authorisation from HMRC (HM Revenue & Customs) to use Free Zones, or you can hire a company to handle your Free Zone goods for you. If your business imports goods from countries abroad that it will need to manufacture items it will then export abroad, you can apply to the HMRC to move your imports to a Free Zone where a limited number of processes can be carried out on the goods.

Operating a Free Zone

The practical application of using a Free Zone in your trading business is to enable your enterprise to better manage its cash flow. Your business should be aware of how VAT is handled on goods that you bring into the UK from countries abroad that are outside of the EU. Any VAT that would normally be due is suspended, but will then become payable as soon as you move the goods out of the Free Zone.

There are six Free Zones your business can use in the UK:

  • Tilbury
  • Isle of Man
  • Liverpool
  • Sheerness
  • Southampton
  • Prestwick
The Free Zones that operate in the UK are similar to how customs warehouses operate. You will often see Free Zones referred to as Type II. Note that other EU countries also have Free Zones in their territories. These are usually referred to as Type I Free Zones.

Goods and Free Zones

When trading internationally, the use of Free Zones makes it much more convenient for your business to bring consignments into the UK from countries abroad. You must, however, ensure that the goods you are trading in and consequently importing from abroad can be stored in a Free Zone. There are two types of goods that can be stored in a Free Zone. They are:

Community Goods
These are goods your business is trading in and has bought into the UK from an EU country abroad. Note that you can also store goods sourced in the UK in a UK based Free Zone.

Third Country Goods
Any country that is outside of the EU is called a Third Country. As the goods you are trading in are moving into the EU, that is they are coming into the UK, these are referred to as imports. These goods are usually referred to as none Community Goods. More detailed information about the types of imports can be bought into the UK and stored in a Free Zone are in the HMRC Notice 334, section 4. Note that any restricted goods such as firearms or controlled drugs will require a licence to be present when the goods arrive at the Free Zone.

How to Become a Free Zone Operator

If you want to operate a Free Zone as part of your international trading business, you need to write to the controller of the Free Zone you want to use. You can get all the information you need on the HMRC website. Once you have made your application, and this has been accepted, you will be contacted and sent a letter of authorisation. The letter will set out any conditions your business must meet to become a Free Zone manager.

How to use Your Free Zone

The type of goods and any customs relief that may be attached to them will govern how you operate your Free Zone, or use the services of a Free Zone within your international trading business. Your business must comply with what are called transfer procedures that will be specific to the goods your business is trading in with countries abroad. You can read more detailed information about transfer procedures in volume 3 of the Tariff.

To bring goods into a Free Zone from a country abroad, the goods must be accompanied with the appropriate customs declarations. These usually take the form of a fully completed SAD (Single Administrative Document) that is otherwise known as form C88. If your business has been trading for some time and it has set-up the Customs Freight Simplified Procedures (CFSP), this can also be used for imports into the Free Zone you want to use.

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