The focus on CDS builds week on week. If traders were not already aware of the changes that the Customs Declaration Service will bring to their compliance requirements, the questions that Strong & Herd are receiving seem to indicate that importers are in focused preparation for the changeover.   

Seven Months is a long time in International Trade and once a trader has cleared all the CDS Import hurdles (which will take time for all involved), The CHIEF off switch will activate for exports. The line in the sand is 31st March 2023.             

CDS is not a direct replacement for CHIEF. International Traders will have to prepare for the differences, without forgetting their constant responsibilities.   

Proof of Export is imperative to allow the trader’s Commercial Invoice to be VAT Zero Rated. It is not enough for the seller to declare that the goods are for a destination outside the UK. Evidence is required.   

The EXW Incoterm brings its own compliance issues, but the seller must be aware that if their invoice is not VAT-able, HMRC could request for sufficient export evidence to be supplied.         

The CDS Procedure Code information highlights the requirement. What does the Procedure Code mean? To compare with CHIEF a Customs Procedure Code 10 00 001, applicable for Free Circulation Goods for export outside the UK, stated in Box 37 may be a familiar piece of information when checking the C88. 

10 00 001, seen by some as a basic export; the standard or the ‘norm’, but the proof to compliantly VAT Zero Rate the Commercial Invoice has always existed. 

The Customs Declaration Service will mean a replacement for a CPC and Box 37. Instead, a 4-digit Procedure Code and a 3-digit Additional Procedure Code are mandatory to enable the declarant to complete the Data Elements 1/10 and 1/11 respectively.

Instead of 10 00 as the first part of the most popular CHIEF Customs Procedure Code, the replacement will be 10 40 for CDS. 

There is no ‘001’, which was the last three digits of the permanent export customs procedure code. The ‘001’ signified an evidence of export control, confirming the exporter was Vat Zero Rating their commercials invoice. The CDS replacement for CHIEF 10 00 001 is 10 40 000. A National Code ‘VAT Z’ applies for CDS to confirm that a VAT Zero Rated Invoice applies.     

The Customs Procedure Code and the new Procedure Code informs HMRC why the export or import is taking place. The trade tariff details the requirements for Customs Procedure Codes and Procedure Codes. Please ensure that you are in the correct section, as both CDS and CHIEF related pages exist. The activities a business undertakes will decide which codes are relevant.       

Under the guidance details for ‘Requested Procedure 10: Permanent Export or Despatch’ it states: 

Goods may only be VAT Zero-rated for exports, where the terms and conditions stipulated in VAT Notice 703 are met.  

Documentary evidence of export is needed to support a claim for VAT zero-rating. The UK supplier must ensure that they obtain and keep official or commercial evidence for all consignments.  

If evidence of export is not obtained within the specified period, then the supply must not be zero-rated. For full details on VAT time limits for exports and zero-rating, see VAT Notice 703.             

These stipulations clearly require that the exporter must obtain sufficient evidence to support their VAT Zero Rated Invoice.   

This underlines the importance of retrospective checks to ensure the exporter obtains their customs declaration and proof of export. If the seller is loading a forty-foot container at their premises for a sea freight movement to Australia, in theory, there could be a wait of a week (or two) before the vessel arrives at the port, to enable loading and the start of the international journey. The exporter may not be able to provide the instruction for the customs declaration until the day after loading. The Bills of Lading will not be available until the Shipping Line can confirm the container is ‘Clean, Shipped on Board’. 

The buyer will require the Bills of Lading to enable the release of the container to their control, but the seller should retain a copy because this will provide Commercial Evidence of Export. 

The seller can consider the method of transport and the relevant document which confirms this as a key piece of evidence to obtain and retain. This emphasises the importance of the seller knowing what they have exported within any week, month, or financial period, to reconcile the requirement to obtain proof of export. 

VAT Notice 703, Section 6.3 details acceptable commercial transport evidence, which describes the physical movement of goods.       

The seller must be able to easily reference what orders they have exported. A log, or database could provide visibility. Sometimes, a business may combine multiple orders, which they invoice separately to create one shipment to their customer. In these instances, the seller must be able to   demonstrate that individual invoices make one consignment to validate their proof of export. 

Official Evidence of Export for CHIEF is a Goods Departure Message, Status of Entry (SOE) 8, Input Control Status (ICS) 60. Any other code does not provide official evidence of export. However, the seller can consider supplementary evidence in addition to the commercial transport document to satisfy HMRC requirements that the trader must hold a basket of export evidence. The SOE and ICS information will be familiar to subscribers of the HMRC Management. Official Evidence is available from all inventory linked ports and airports, as well as some Goods Vehicle Movement Service ‘Roll-On / Roll-Off’ ports.       

When Export Declaration transfers to the Customs Declaration Service, a DMS Notification Message will replace the Goods Departure Message. DMSEOG confirms the goods have departed, as opposed to a DMSCLE message, which would not provide official evidence of export.   

HMRC confirm via the VAT Notice that the seller ‘must produce official evidence and/or commercial evidence. The exporter should obtain and retain further documentation in the form of    supplementary evidence to show that a transaction has taken place, and that the transaction relates to the goods physically exported.’ 

Supplementary Evidence begins with the seller’s invoice. If this commercial document quotes the buyer’s Purchase Order or Contract number, the seller can reconcile these two documents. If the seller can provide proof of payment against their commercial documentation, this is also acceptable as supplementary evidence. A Proof of Delivery and a Packing List or Consignment Note are also acceptable. In addition, if the exporter was able to confirm that a forwarders’ invoice of charges related to a particular shipment, this is also supplementary evidence. 

The Time Limits for exporting goods and obtaining the necessary evidence are 3 months from the time of supply. For regular exporters, this will be an ongoing process to ensure they have sufficient evidence on file. 

Our export customers would be surprised, at the least, to receive a VAT-able invoice, but for CHIEF now, and CDS in the future, the seller must always be export customs compliant. 

Whilst you are here you might be interested in the following training courses

Preparing for a Customs Audit

Focus On: Preparing for an Export Control Audit

Strong & Herd CDS Resources and Training

CDS Community™ Membership

Practical and clear advice and assistance for importers , exporters , agents and those that are completing their own declarations.

CDS Clinics & Spotlight Sessions
Our clinics have been developed to give you an opportunity to ask questions and bring working examples of issues you facing surrounding the changes.

CDS Training
CDS is a major change to the way in which customs declarations are made, and this course provides detailed information on the changes.