What do businesses need to consider when looking to export, whether to the EU or further afield?
While there are many opportunities to be had in the export market, looking to overseas markets for growth can be challenging. The proportion of UK firms doing business overseas has risen continually over the last few years, even when the economic climate has at times been sluggish.
According to the Office for National Statistics paper UK Trade, August 2015, import and export activity is a main contributor to the overall economic growth of the UK. Exports of goods increased by £0.8bn to £23.6bn in August 2015. This is attributed to an increase in exports of cars, which increased by £0.6bn to a record high of £2.4bn, and chemicals, which increased by £0.5bn.
A survey carried out by UK Trade & Investment (UKTI) found that firms that have exported for more than two years are significantly more likely to be profitable. It also found that:
- more than three quarters of export-oriented businesses are profitable;
- 85% of businesses said that exporting helped them to grow to a level not otherwise possible;
- 79% said conducting business abroad had helped them achieve fuller use of their existing capacity; and
- 66% said that trading overseas led them to fresh business ideas and innovation, upgrading their products and services.
Those businesses wishing to take advantage of the export agenda must consider destination, challenges and how they can be mitigated.
“There are the usual commercial risks, with a different cultural background,” says Hugh Bailey, director of the British Exporters Association (BExA).
Getting access to major buyers, governments and supply chains in overseas markets, developing a plan of action, understanding documentation and regulatory issues, and tackling cultural and language issues when communicating with overseas customers and partners can be daunting, and these are but a part of the process you need to go through to become a successful exporter.
There are many online resources that are available for companies who want to get started in international trade, and which will help you assess your export capability and develop it further; get help and support to select and visit potential markets; and, ultimately, save you time and money.
If you plan to start exporting, you’ll need to follow rules that vary according to whether your goods or services are going to the EU, outside the EU, or via the EU to a non-EU country. The biggest export destinations for UK businesses are Europe and the US, and there are significant differences between exporting to EU and non-EU countries.
Exporting to the EU
If you’re sending goods and services to EU countries, regulations and product standards are the same in most EU member states. If you sell products in the UK, it’s likely that you already comply with standards in other EU countries, such as security for electrical goods.
You don’t have to pay duty and there are no customs checks when sending goods within the EU; the goods are in ‘free circulation’. This also applies to goods from outside the EU but only if duty has been paid on them. Exports within the EU are called ‘dispatches’. You must record all the goods sold to EU countries on your VAT return, fill in an EC Sales List and, if your total dispatches are worth more than £250,000, fill in an Intrastat declaration.
Rules vary for certain types of product and services, such as hiring out transport, land and property services, web hosting, events, and restaurant and catering services.
Meanwhile, exports to countries outside the EU are called exports to ‘third countries’. You will need to submit an export declaration for these and may need an export licence. You may also have to pay custom duties and taxes in the destination country. Regulations vary depending on which country you’re exporting to.
You need a commodity code for all exports outside the EU, which classifies your goods for duty, tax rates and regulations. Sometimes you’ll need a licence for exporting goods to a third country from the relevant government organisation.
As far at VAT is concerned, you can zero-rate most of the goods you export but you must get evidence that the goods have left the EU and keep a record of the export in your VAT account.
You must also submit an electronic export declaration. Details can be found on the government’s website.
Notwithstanding the regulatory onus you face, funding your overseas growth is one of the first things to think about. Consider payment methods and risks, the types of finance available, trade finance (pre and post-export), credit insurance and foreign exchange risks.
“Check out your customers’ credit standing; have a clear sales contract; make sure you have clear payment terms,” advises Bailey. “Be aware of the benefit of credit insurance.”
UK Export Finance is the UK’s official export credit agency and provides small and medium-sized businesses with trade finance and insurance for exporting. Its export finance advisers are regional representatives who act as local points of contact to introduce potential exporters to finance providers, credit insurers, insurance brokers, trade support bodies and sources of government support.
An export finance adviser may also be able to address all-important insurance issues, helping you find availability and suitability of private market products. If a private market solution is unavailable but the exporter thinks that a UK Export Finance product would be suitable, the export finance adviser can help them make an application to UK Export Finance either directly or through its insurance broker.
Alternatively, you may like to visit the Exporting is Great website, which offers a free guide to exporting and useful sections on the opportunities and support available for companies looking to export.
Monthly exchange rates on gov.uk (.csv 10KB)
UKTI export advisers
Government help for exporters
The British Exporters Association
Exporting is Great
There are the usual commercial risks, with a different cultural background.