AEO – A mark of quality

Featuring Liam Dushynsky | 10th January, 2018

An AEO (Authorised Economic Operator) application can bring a range of benefits to any business involved in the international supply chain, irrespective of size or trade sector. Whether you are a manufacturer, importer, exporter, freight forwarder, carrier or warehouse operator, gaining knowledge of AEO can be well worth your time.

AEO status is recognised worldwide in all major trading nations as a mark of quality by providing the best evidence to customers and foreign authorities that your customs controls and procedures are efficient, compliant and can be trusted.

AEO status was established as part of the EU’s response to the World Customs Organisation’s (WCO) SAFE initiative to tackle terrorism, counterfeiting and fraud. It also appears as one of the methods by which the government intends to mitigate the impact of Brexit. A bill (Taxation – Cross-border Trade) has already been introduced to Parliament that provides for the recognition of AEO in the UK post-Brexit. Businesses that already hold AEO could find that they have a marked advantage over their competitors when this occurs.

According to Kevin Richardson, Chief Executive of the Chartered Institute of Logistics and Transport, an AEO is the “crucial ticket to negotiating Brexit…Post-Brexit, an army of AEO-accredited operators will be crucial to achieving the smooth transition of borders to our markets”.

What is an AEO?

An AEO is a business that, following a detailed audit, is regarded as reliable and compliant by HM Revenue & Customs (HMRC). AEO status will be granted to businesses meeting the criteria for one of three possible certifications:

  • Customs simplifications (AEOC)
  • Security and safety (AEOS)
  • Both

Is it Compulsory and what are the Benefits?

AEO status is a voluntary scheme. Beyond an obvious reputational benefit, AEO provides the holder with a range of advantages depending on the status applied for.

AEOC Status Provides:

  • Expedited applications for customs simplifications such as inward/outward processing relief, customs warehousing and temporary storage.
  • Significant reductions or waivers of comprehensive guarantees (subject to UCC rules)

AEOC status is a qualification requirement for:

  • The movement of goods in temporary storage between different member states
  • Ability to apply for a notification waiver when making an entry in a declarant’s records (EIDR)
  • A 70% reduction in a business’s deferment account guarantee
  • The undertaking centralised clearance (when available)
  • The completion of self-assessment (when implemented)

AEOS status provides:

  • Access to the benefits provided through mutual recognition agreements with third countries
  • Reduced customs management checks
  • Fast tracking and prioritisation of goods through customs controls

The AEO application process also entails indirect and collateral benefits. Applicants are required to undertake an end-to-end review of the business, which can identify areas for improvement and therefore lead to:

  • Improved security awareness within the business
  • Streamlined workflows and increased efficiency
  • Enhanced data management
  • Improved due diligence procedures
  • Early identification of theft and fraud
  • Improved customer relationships by reducing delivery delays

Will non-AEO businesses be disadvantaged?

Clearance times for goods held by non-AEO business are unlikely to improve post-Brexit. The Financial Times reports that the number of Customs documents processed by HMRC each year will rise from 55 million to 255 million. The prioritisation provided by AEO status may prove invaluable.

AEO status remains relatively exclusive. As of November 2017, only 606 companies have been registered by HMRC. Early adopters will therefore avoid the difficulties caused by an expected surge in demand as the Brexit deadline nears and will maintain a distinct competitive advantage while Britain remains in the EU.

Following the implementation of pre/arrival/departure summary declarations, non-AEO businesses are likely to be required to submit more data to HMRC.

What does the application process involve?

Applications to HMRC require a detailed examination of a business:

  • Background – including details of the owners and shareholders of the business, sites and subsidiaries, the source of raw materials and destination of sales
  • Customs compliance record – including details of any existing customs authorisations held by the business, the methodology for determining the customs value of imports and exports, and the procedures for disclosing irregularities to the relevant government agencies
  • Accounting and logistical system – including the audit trail for fiscal and customs purposes, the internal control procedures of the business, and measures taken to protect computer systems against unauthorised access
  • Financial solvency
  • Safety and security procedures

What should businesses be doing now?

HMRC undertake a site visit and detailed pre-authorisation audit within 65 days of an application meaning preparation is vital. Prior to submitting an application for AEO status, applicants need to analyse their business to ensure that the required criteria and standards can be met and fully evidenced. This involves reviewing:

  • Business processes, systems and controls
  • Existing accreditations or authorisations which may satisfy part of the criteria for AEO status
  • Areas of risk, to understand their potential impact on the business, customs matters and the AEO application

The timescales involved in AEO application are extensive once an application has been submitted:

  • Acknowledgement of receipt: 30 days from application
  • Acceptance: 120 – 180 days from acknowledgement

As demand increases, turnaround times of 1 year are not unforeseeable. Any business interested in applying for AEO should therefore make an application as soon as possible.

The Chartered Institute of Logistics and Transport is a key proponent. In the words of CILT executive Kevin Richardson,

“This is a complex, formal accreditation to achieve with a very low pass rate so far…This will truly be the club to be in to guarantee success through Brexit and beyond. CILT is encouraging companies to press forward and attain AEO status before Brexit… Holding this status is going to be key to experiencing the frictionless border or green channel that industry wants and needs, in whatever shape that is available post-Brexit”.

If you would like to discuss AEO and/or Brexit and how both might impact on your business, please contact us.

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