Shipping knives post-Brexit
I’ve put a lot of time into getting everything set up properly for sending my knives between the EU and UK post-Brexit, so I figured why not write it all down and share it with other makers too. There’s a lot of information here, I hope it’s helpful in some way. However, please be aware this is not official advise, just my findings from my own research, and as such I don’t assume liability for how using this information may affect your business. Thanks!
So what’s this all about then?
Now that the UK has officially left the EU, we have new tax and customs rules to work with when shipping knives between the UK and Europe. This affects either the money we make for our knives, or the amount the customer pays, as well as extra work we need to do when shipping.
There’s a few things that now need to be considered when sending knives between the UK and EU - Import VAT, customs codes (HS codes), identification (EORI Number) and customs invoices. Get yourself a cup of tea and dive in…
First things first…Import VAT
Prior to Brexit, we could send knives from the UK to the EU, or vice versa, without any import tax (VAT) and duties. Although a free trade deal has been reached, it’s not exactly free for small manufacturing business like ours. Yes, there’s no duty to pay, but there is local VAT, plus small customs processing fees. As of 1st January 2021, any imports/exports must have their full value declared, and if over £135/€150 will have local VAT applied at the point of import which will be charged to the customer - they will have to pay this VAT before the knife is released to them.
Different countries have different Standard VAT rates, the EU average is 21% (the UK is 20%), but for a full list of rates head here https://taxfoundation.org/value-added-tax-2021-vat-rates-in-europe/. It’s worth noting that the VAT is charged at the rate of the country the shipment enters the EU in, not its destination country.
What does this all mean in real terms?
(For ease, for the rest of the article lets assume VAT is 20% and your shipments are sent ‘DDU’ - Delivery Duty Unpaid - meaning the receiver pays the VAT. This is the standard default way shipments are sent. It is possible to send shipment ‘DDP’ - Delivery Duty Paid - meaning the you the sender pay the import VAT upfront and the parcel goes straight to the receiver, but it can get expensive and not many shippers provide this service to non-commercial customers).
So, let’s say you are a maker in the UK and your customer is in the EU, and you have sold them a knife for £1000. With these new rules the customer would pay you £1000, but when they receive it, they will have to pay an additional £200 (20%) or Euro equivalent to customs, plus the customs processing fee, typically around £5-£10. All this means your £1000 knife now costs the customer £1200. It’s all pretty seamless and similar to importing goods from any other non-EU country - the customer gets a notification from the shipper saying “we have your shipment, pay us £xxx to release it to you”, the customer pays the fee, and the shipment gets forwarded on to them.
What’s the problem for small makers?
The lawmakers have assumed that every business trading between the EU and UK is already VAT registered, and has built VAT into their pricing. In the case above, it’s expected that your £1000 knife already had VAT built into its price. With these new VAT rules, you are supposed to charge your foreign customer the ex-VAT price - they would pay you £830 (£1000 - 20%), and they pay the VAT on import (£170), meaning they still paid £1000 for the knife (830+170), and you made the money you always expected to after paying your VAT. Simple, right? Hmm, maybe not..
The problem, is that most of us small-scale makers aren’t VAT registered, and we haven’t built VAT into the price we charge for our knives. There’s not much of an incentive to be VAT registered as small makers - most of the cost of our knives is in our labour, not materials (which is where we’d reclaim our VAT) .
So, how do we deal with where this VAT goes? Depending on your situation and where your customers are, you’ll have different choices to make. Also to consider, a lot of us run order books where prices (and sometimes payment) are agreed months before the knife is made - perhaps before the Brexit trade deal went through at the end of 2020. In this case, the price you agreed for a knife to a foreign EU/UK customer last year could now be 20% more expensive to them, or 20% less profitable to you, depending on how you choose to handle things.
Choices Choices Choices…
Ultimately we have new choices to make when selling between the EU and UK. Well, five choices:
1 - Declare a fake (aka very low) value on your invoices so no VAT gets charged
I’m just gonna go straight in with this one and say it’s a really bad idea. Legalities aside, if you declare a low value, then you can’t insure the knife you are shipping properly, and it’ll be sods law it’s the one that goes missing or is damaged in transit. For me, personally I send every knife out fully insured, it’s the right thing to do for both me and my customer. These things we make are expensive and unique - it’s not like we can just send out another the next day if something goes wrong with the shipping. It’s up to you, of course, but for the sake of the rest of this article I’m gonna say don’t do it. Don’t risk getting caught and fined, and don’t risk sending out knives not properly insured.
2 - Suck up the VAT ourselves - honour our historical pricing to existing customers and make less money ourselves
This is one to consider if you’ve sold knives in 2020 that you are delivering now in 2021. You’d essentially give the customer a discount that brought the knife down to its “would be” ex-VAT price (even though you don’t actually charge VAT).
If they’ve not paid anything yet, just charge them this discounted price.
If they’ve already paid in full, you’d refund them the difference between the original price and the discounted price.
If they have a balance to pay, you’d take the difference off the balance.
That VAT discount would then be re-applied by customs as genuine import VAT, charged to the customer, and the customer would end up paying the same price they originally agreed to. If you want to do this, you need to work out this imaginary ‘ex-VAT’ price. Doing this is simple, just divide the price of the knife by 1.2. Example - £1000 / 1.2 = £833. This is the “would be” ex-VAT price of your knife.
3 - Consider EU/UK customers the same we would global customers - make the same money, but customers end up paying more
This will probably be the way most of us will end up moving forward with new sales made in 2021 - essentially treating UK/EU sales like we would sales to anywhere else in the world. Most of us aren’t VAT registered, so we’ll just charge the same price we always would our knives, and anyone purchasing outside of the UK (or in the UK if you’re an EU maker) will have to pay 20% more to buy the knife from you. Same as if they were a customer from any other non-EU country. This obviously makes our knives more expensive for a lot of potential customers, who may have been following you for a while and had in mind what they’d pay for a knife from you. Hopefully though, if they like your work enough, they’ll find the extra cash.
4 - Split the difference, apply the discount, and hope for the best
Another option, especially if you have customers in the UK and EU equally - is to “split the difference’ when it comes to VAT. Rather than effectively increasing your prices by 20% to foreign customers (as in option 2), increase them by 10% to everyone, and things would work out as follows. Let’s assume you’re a UK maker - if a customer in the UK buys your knife, you are up 10% on what you originally expected to sell your knife for, result! If they are from the EU, you give them the 20% VAT discount (as in option 1) - they end up paying the same price you advertised the knife at (after paying import VAT), but you make 10% less than you originally expected. If you sell equally to EU and UK customers, then over the course of the year of selling you come out even on your profits (you lost 10% on half your sales, but gained 10% on the other half), and your customers in the UK and EU all paid the same.
5 - Become VAT registered
Pretty self explanatory this one, it’s the ‘official’ way of doing things. Become VAT registered and build VAT into the price of your knives and the running cost of your business. If you’re a UK seller and you sell a knife to an EU customer, you charge them the ex-VAT price, they’ll pick up the VAT at their end. You’ll still make what you expected to as you’d be paying the VAT (you didn’t charge) to the VAT-man anyway. You’ll get to claim back VAT on your materials, which is a bonus. However, most of the cost of making knives is in our labour, plus there’s additional accounting costs being VAT registered - which means the prices of your knives are likely to go up anyway simply due to the additional cost to business of be charging VAT. You’ll definitely be needing an accountant if you go this route, budget £1500 per year for a good one - which seems like a lot, but in my experience a good accountant is well worth the money whether you’re VAT registered or not.
Right now, only a couple of months into this new way of doing things, there’s no real right-or-wrong. There’s only your business, your customers, and how you feel comfortable handling things in the foreseeable future.
Ok, now that’s VAT over and done with (phew!), there’s a few extra bits of admin to do when shipping your knives between the UK and EU. If you are used to shipping knives internationally, then it’s pretty much the same, with the new requirement of an EORI number. If you’re not used to shipping internationally, then here’s a quick guide:
HS Codes
HS stands for Harmonized System. It was developed by the WCO (World Customs Organization) as a multipurpose international product nomenclature that describes the type of good that is shipped. Customs officers must use HS codes to clear every commodity that enters or crosses any international borders, and it’s up to us as the manufacturers and shippers to supply this number on our shipping labels and customs invoices so it accurately describes the contents inside our boxes.
If you don’t supply an HS code, then a few things can happen such as customs officers rejecting the parcel and returning it, or duty being applied when it needn’t be, simply because the customs officer wasn’t able to identify it as not requiring duty to be paid. So, it’s a good idea to include an HS code with your shipment (on your customs invoice, more on that later).
I always use the code 82119200, which describes “Knives with fixed blades of base metal (excl. straw knives, machetes, knives and cutting blades for machines or mechanical appliances, table knives, fish knives, butter knives, razors and razor blades”. There’s a few variations on the ‘8211’ category, which may be more applicable to your work (for instance if you’re selling a set), these are listed here https://www.tariffnumber.com/2021/8211. I also always use the description “Carbon steel kitchen knife”. There’s no restrictions on importing this HS code, so there’s no need to hide what’s in the box!
EORI Number
EORI stands for “Economic Operators Registration and Identification number”. It’s used as an identification number for you, that Customs can use to confirm who the sender is.
So, businesses and people (it doesn’t matter if you’re a registered business or just a private seller) trading within the EU must use their EORI number as the identifier for who they are. Before Brexit, it wasn’t really an issue when sending stuff between mainland Europe and the UK, but now the UK is out of the EU, officially speaking we all need one.
Yes it all sounds pretty heavy, but it turns out it’s not. Anyone registered on the tax system can get an EORI number. In the UK you go to the uk.gov website, answer a few questions to identify yourself and there you have it, an EORI number in less than 5 minutes. It’s pretty similar in most other EU countries as well. You’ll then put this EORI number on your commercial customs invoice, and it’ll help get your parcels cleared through customs quickly. Here’s helpful article that goes into a bit more detail https://parcelbroker.co.uk/help/what-is-an-eori-number/.
To apply for an EORI in the UK, go here https://www.gov.uk/eori
And if you’re in the EU, go here for a list of Member State Customs websites where you register in your relevant country https://ec.europa.eu/taxation_customs/national-customs-websites_en
Customs Invoices
It’s really important to include a customs invoice (three copies!) with your knives. A proper customs invoice includes all the required information to get the shipment cleared through customs quickly and without trouble. On it you include all your contact details, the recipients details, HS codes, descriptions and price for your knives, your EORI number, country of origin, county of manufacture and a couple of declarations that basically say “yes, everything I’ve put on here is true”. It’s a little but more involved than a normal invoice, but not too big a deal. It’s worth getting some ‘Documents Enclosed’ wallets to put your copies of your invoice in and stick to the outside of your box. They’re super cheap off Amazon, here’s a link to save you the time searching.
A lot of shipping providers will generate commercial invoices for you, but I’ve found (through trial and error) that not all of them actually put all the info on them that you officially need. So, I generate my own commercial invoices now, just to be sure. You can find commercial invoice templates all over the place. But to make life easier I’ve made the template I use available to download here. It’s got everything you need in it and should be pretty self explanatory.
Choosing your shipping provider
The first few weeks of 2021 were a bit of a mess for shipping providers, but it seems to have calmed down a lot now. As for who to use, DHL are excellent - they are setup really well for international shipments. They can be a little pricy though! DPD are also well set up around Europe and extremely reliable. Most non-couriers, via your post office, are doing well now too (ParcelForce in the UK, Collisimo in France etc). If you have a Limited Company (even if it’s not for your knives but for your ‘other life’ of work) it’s worth chatting to commercial carriers like DHL and DPD as you may be able use it to set up a commercial account get both cheaper rates and easier shipping.
The most important thing, however you book in your shipment, is that you attach 3 copies of your commercial invoice to your box, and make sure you declare your description and HS codes correctly when booking in the shipment. If you are able to, then declare it as ‘Personal, not for resale’ or the equivalent (some shippers might ask if the sender is commercial or a person, and the same for the receiver - put personal). This is all true - it’s likely you aren’t supplying knives to retail shops!
If you follow all these steps, your knife stands the best chance of arriving with its new owner quickly without any hiccups. Fingers crossed!
Wrapping Up
Ok, that’s it. If this is the first time you’ve really looked into all of this, then it’s probably all a bit overwhelming. But, it’s not too complicated once you get your head around it. A bit time consuming yes, but not insurmountable. I’m sure in a few months everything will become easier, perhaps even at some point there will be additional legislation that makes things easier for small business like ours. But until then, if you follow all these steps then hopefully your sales between the UK and EU will go smoothly.
Happy knife making!
Links in this article:
Tax rates https://taxfoundation.org/value-added-tax-2021-vat-rates-in-europe/
HS Tarrif Codes - https://www.tariffnumber.com/2021/8211
Info on EORI numbers - https://parcelbroker.co.uk/help/what-is-an-eori-number/
Apply for EORI number in UK - https://www.gov.uk/eori
Apply for EORI number in EU - https://ec.europa.eu/taxation_customs/national-customs-websites_en
Documents enclosed wallets on Amazon - Amazon Link
Commercial Invoice template - Download